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Shell Takes Step Toward Becoming World’s Largest Power Utility

Shell has staked a claim in the Australian power sector by making a US$419-million (A$617 million) takeover offer for the country’s second-largest energy retailer to businesses, ERM Power.

“This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability,” the head of Shell Australia, Zoe Yujnovich said in a statement, as quoted by Reuters.

If the deal goes through, it would give Shell ownership of four gas-fired power plants and a market share of almost 25 percent on the Australian commercial and industrial electricity retail market. As the company is already among the top gas producers in Australia, the deal would certainly complement its current operations.

Shell also has ambitions in electricity. The supermajor earlier this year announced plans to become the world’s largest power utility in the world by 2030.

For ERM Power the takeover offer was evidently too good to refuse, so the utility agreed to the deal, whose value represented a 43-premium to its latest closing price. However, the largest shareholder in the company, its founder Trevor St Baker, said ERM will only go through with it if no rival appears and offers a higher price.

Bloomberg noted in its report of the news that Australia’s electricity retail industry has become highly competitive in recent years and the situation has been additionally aggravated by regulations. It quoted the CEO of the largest electricity retailer in the country, Origin Energy, as saying during the company’s earnings call that the situation is already having an effect on margins, and this effect has not been positive.

“If the transaction proceeds, and Shell seeks to expand market share, we would see this as a competitive negative, at the margin, for incumbents AGL and Origin,” a Morgan Stanley analyst said in a note to clients.

By Irina Slav for Oilprice.com

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