Powering down: RWE laments its renewables miss

Germany's biggest power utility has posted its first net loss in six decades, and admits it'll never replace the decline of conventional power plants.


Germany's biggest power producer RWE AG said forays into new business areas would not be enough to fill a hole left by the demise of conventional power plants, offering little hope that the group can regain its former earnings potential.

The company overnight posted a net loss of $US3.8 billion, its first in more than six decades, after a surge in solar and wind capacity undercut the profitability of its power plants and triggered nearly $US7 billion in writedowns.

Many of Europe's big power producers have been slow to respond to a fast-growing renewable sector and have also been hit by weak energy demand and record-low wholesale power prices.

The rise of solar and wind energy, which are given priority access to German power grids, has hurt RWE's coal- and gas-fired plants, some of them state-of-the-art, and has eroded much of their former earnings power.

"I grant we have made mistakes. We were late entering into the renewables market - possibly too late," RWE chief executive Peter Terium told journalists overnight.

Terium pledged the group would increase efforts in new energy efficiency and renewable power to drag it out of a sector crisis that has destroyed more than 70 per cent of its share value since 2008.

But he warned that these new initiatives, which include helping clients save energy through apps and software as well as expanding in retail power supply, would not offset a decline in plunging power plant earnings.

Terium said he expected earnings contribution of about €500 million from services and decentralised energy by the end of the decade.

In 2013 alone, profits from traditional power generation fell by €1.9 billion but still accounted for 24 per cent of the group's total. Renewables, in contrast, accounted for just 3 per cent.

Lights out

Last week, a €15 billion writedown dragged French peer GDF Suez deep into the red and the company warned that the crisis in the European utilities sector would last for a long time.

RWE's Terium said he expected earnings at its power plants to fall even further in the coming years, adding that 20-30 per cent of the company's power stations could not currently cover their operating costs.

He added that the group may decide to close or mothball further plants in 2014, after having announced such plans for more than 5000 MW, or nearly 10 per cent of its total capacity.

Burdened by €30.1 billion of debt, RWE is looking for several ways to raise cash, including asking shareholders for provisional approval for a share issue of up to 20 per cent of its existing share capital, or as much as 3.5 billion at RWE's current share price.

The group is also selling its oil and gas exploration unit DEA, which it still expects to complete this year.

"This is a realistic goal. But it depends on the price offered to us," Terium said.

Initial bids for the unit came in between €3.5 billion and €5 billion, sources have said.

RWE also confirmed its outlook for the current year, still expecting an operating profit of between €4.5 and €4.9 billion, down from €5.881 billion last year.

RWE shares traded up 1.1 per cent at €29.04 by 1217 GMT.

Originally published by Reuters. Reproduced with permission.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles