The new company is also expected to announce an initial public offering towards the end of next year to sell at least 10% of its shares.
RWE said that it plans to remain the new company’s majority shareholder over the long term and consolidate it fully.
However, the parent company will focus on conventional power generation and energy trading despite the changing energy landscape in Germany and the country’s shift from nuclear power to renewable energy.
According to REW, the new company will consist of a renewable division having an electricity generation capacity of more than 3.5GW with special focus on wind power.
It will also have grids, with a modern 550,000km-long distribution network, and the retail business, which is expected to serve 23 million customers in twelve European markets.
According to REW’s pro-forma figures for 2015, the new company is expected to generate external revenue of more than €40bn.
RWE CEO Peter Terium said: "The Group’s restructuring is our response to the transformation of the European energy landscape.
"We are creating two viable companies under one roof.
"The new subsidiary will have its own access to the capital market and improve our growth prospects.
"At the same time, we are convinced that conventional power generation will remain an irreplaceable partner for renewable energy for decades to come. Our conventional power stations are the backup for renewables."
RWE is not the first German company that has decided to spin off its business, as previously E.ON also planned to spin off its German nuclear power plants but later it cancelled its plans.
However, the company continued with the spinoff of other parts of its conventional power generation business in an attempt to focus on its renewable business.
