Energy Transition Power Outage

Germany’s biggest power companies, RWE and E.ON, reported third-quarter losses as they continue to struggle with the country’s shift to renewable energy.
Hard times for the chief executives, E.ON's Johannes Teyssen and RWE’s Peter Terium.

E.ON and RWE, Germany’s top two energy companies, confirmed within 24 hours this week the existential struggle consuming the industry amid a national shift to alternative fuel sources.

On Thursday, RWE, the nation's No. 2 utility, said that net profit excluding special items in the first nine months plunged by 60 percent from a year ago. A day earlier, E.ON said its net profit fell by 91 percent. Both companies reported losses for the third quarter.

The losses and drops in profit came as the utilities were forced to write down investments on new or nearly brand new nuclear and conventional power plants that have been rendered economically unsustainable in the new economic environment created by Germany's shift to renewables.

Massive German spending on wind and solar power in the wake of Japan's Fukushima nuclear disaster, which led to Germany's decision to exit nuclear power, has created a glut of electricity on the German market and caused the wholesale price of electricity to fall by half.

That has taken a devastating toll on the bottom lines of RWE and E.ON, which have struggled to retrench, slim down and decommission production capacity while at the same time exploring legal avenues to possibly win damages from the German government for its sudden policy change.

 

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Plans to reduce carbon emissions are another potential drag on old coal power plants, which Germany’s environmental minister, Barbara Hendricks, wanted to shut down to reach climate targets in 2020 and 2050. But this plan has been stalled for now, a paper obtained by Handelsblatt showed.

RWE’s chief financial officer, Bernhard Günther, said in a statement that the utility was forced to close down a coal power plant last year due to European Union emission rules, and RWE made less use of some German coal power plants due to weak margins.

E.ON, RWE and the other energy providers are "going to continue to have a tough market environment,” said Benita Barretto, an analyst at Berenberg Bank in London.

“We think that the German power market is over-supplied,” Ms. Barretto said.

The precarious energy situation in Germany reflected itself in the two energy firms’ results, with RWE losing €30 million, or $37 million, in the third quarter this year, and E.ON losing €774 million ($965 million). Last year, RWE’s loss was €370 million in the same period, while E.ON lost €448 million.

For the nine-month period to September, RWE's recurrent net profit, which excludes exceptional items, was €763 million compared with €1.9 billion in the same period last year. E.ON's net profit fell to €255 million from €2.9 billion in the same nine-month period last year.

Both firms stuck to their full year outlook, predicting a drop in operating profit before interest, taxes and depreciation.

 

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E.ON, which has sold assets in Germany due to the energy transition and bought operations in Turkey and Britain, may cut its dividend due to the expected decline in full year 2014 profit, the firm’s financial officer, Klaus Schäfer, said on Wednesday.

RWE slashed its dividend to €1 per share in 2013, compared with €3.50 in 2009.

RWE is still waiting for regulatory approval to sell some European energy operations to a Russian consortium, according to RWE’s Mr. Günther said. The €5.1 billion sale will help RWE improve its finances, which are burdened by a debt pile of €30.7 billion.

RWE shares fell 2.5 percent by noon on Thursday. E.ON shares have dropped 3 percent since reporting results on Wednesday.

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Gilbert Kreijger is an editor at Handelsblatt Global Edition, covering company and markets. Lara Hilmarsdottir is an intern at Handelsblatt Global Edition. To contact the authors: [email protected] or [email protected]