German Utilities Warn of Plant Closures as Falling Prices Bite

By: Tsveta van Son
Tsveta van Son
Tsveta van Son is part of Invezz’s journalist team. She has a BA degree in European Studies and a… read more.
on Aug 14, 2013, Wednesday, August 14th: German power giant RWE AG (ETR:RWE, FRA:RWE) today warned that it would take plants offline due to falling electricity prices and the continuing solar energy boom which has reduced profits at gas and coal-fired power stations. RWE followed rival German utility E.ON SE (ETR:EOAN, FRA:EOAN), which yesterday reported a 15 percent drop in first-half core profit and also warned of future power plant closures. RWE’s share price has shed more than four percent in German trading today, while E.ON’s share price has lost more than one percent.

**RWE Reports Rise in Profit**
Essen-based RWE said in a statement that it had decided to take a total of 3,100 MW of generation capacity offline in Germany and the Netherlands and that it was assessing other power stations. “In view of the latest price developments on power exchanges and the continuing, subsidy-driven solar boom, the situation is far from being remedied,” Reuters quoted chief executive Peter Terium as saying in a letter to shareholders.

RWE’s first-half earnings before interest, tax, depreciation and amortisation (EBITDA) rose nine percent to €5.5 billion (£4.7 billion). Net income however fell by 38 percent to about €1 billion, mostly as a result of an €800 million impairment loss recognised for RWE’s Dutch portfolio. Recurrent net income climbed 19 percent to €2 billion due to the positive Gazprom arbitration decision.

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In June, the German utility said that an arbitration tribunal had granted its request for a revision of the purchase price for the natural gas supplied under the utility’s long-term contract with Gazprom, noting that the Russian energy giant had to reimburse RWE for gas purchases made since May 2010.

RWE today confirmed its 2013 outlook for an operating result in the order of €5.9 billion and recurrent net income of about €2.4 billion.
**E.ON Posts 15 Percent Drop in H1 Core Earnings**
Yesterday, Dusseldorf-based E.ON posted a 15 percent drop in first-half EBITDA, which fell to €5.7 billion (£4.9 billion) year-on-year. The utility’s underlying income slumped 42 percent to €1.9 billion. Chief Executive Johannes Teyssen noted that the group’s traditional generation business was suffering from low capacity utilisation and excessively low wholesale prices.

“A sober view of the situation indicates that, at least for 2013 and 2014, no recovery is in sight,” Teyssen pointed out, adding that the utility, which has already started taking capacity offline, “must consider closing and mothballing some assets”.
E.ON also maintained its full-year outlook, with EBITDA between €9.2 and €9.8 billion, and underlying net income between €2.2 and €2.6 billion.
RWE’s share price was 5.05 percent down at €21.23 on the Deutsche Boerse XETRA as of 10:06 BST on 14 August 2013, and 4.54 percent down at €21.34 on the Frankfurt Stock Exchange as of 10:19 BST.
**E.ON’s share price was 1.40 percent down at €12.32 on the Deutsche Boerse XETRA as of 10:09**
**BST on 14 August 2013, and 1.46 percent down at €12.34 on the Frankfurt Stock Exchange as of 10:23 BST**

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