RWE will remain the majority shareholder in the new company, while the parent company will focus on conventional power generation and energy trading, it said in a statement.
The subsidiary will be listed on the stock market "probably in late 2016", and RWE plans to offer around 10% of the share capital to the public. The proceeds will be used "to finance further growth in markets with good future prospects", the company said.
The new company will probably be headquartered in Essen, Germany, where RWE is based, and will employ approximately 40,000 of the RWE's nearly 60,000 staff members. Its portfolio will comprise 3.5GW of renewables capacity, with a strong focus on wind power. It will have a 550,000km-long distribution network and a retail business serving over 23 million customers in twelve European markets.
Peter Terium, chief executive of RWE 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."
Last year German utility company E.ON announced a plan to spin off its conventional power business and focus on renewables and distribution.
Energy expert Christian Lütkehaus of Pinsent Masons, the law firm behind Out-Law.com said: "While RWE’s proposal to separate conventional power from business with better growth perspectives appears to be largely in line with E.ON’s earlier move, it is interesting to note that RWE is proposing to shift the growth business to the new entity, rather than, as done by E.ON, keeping it in the parent."
Additional parts of the business may be spun off in future, RWE said. The move is still subject to approval by RWE's board, it said.