Power plants slump costs RWE $4.5bn

The continuing difficulties being experienced by conventional power generation in Europe has been highlighted by RWE’s announcement that it will have to write down $4.5bn when the utility reports its 2013 earnings.

Meanwhile Germany’s finance minister said that Berlin may have gone too far in its attempts to protect the environment, saying his government must now “rebalance” its policies to ensure environmental regulations do not cost jobs.

Peter Terium
The slump in profits causing the impairment is “largely attributable” to declining earnings from conventional power generation, RWE said in a statement on Tuesday.

This includes $2bn relating to conventional power plants in the Netherlands, Belgium and the UK, with its renewable business also hit with a $273m writedown.

Michael Schäfer, an analyst at Equinet bank told London-based City AM, that he expected RWE to declare a net loss for 2013, when it publishes its results in March.

Coal and gas-fired power plants have suffered in Europe due to the shift to renewables, which have favoured access to the grid. Profits have also been hit by low wholesale power prices and weak demand for energy because of the crisis in the Eurozone. Gas power generation has been affected by an influx of cheap North American coal, because of the shale gas boom in the US.

The impairments will eat into net income for 2013 but will not have an impact on core earnings or cash, RWE (FWB: RWE) added.

“Throughout Europe, gas and hard coal-fired power stations in particular are under substantial economic pressure,” said Peter Terium, chairman of RWE. “By recognising this impairment, we are taking account of the fundamental changes in framework conditions on the European generation market in particular.

“However, we are already reacting to the difficulties in terms of earnings – with which all European power producers are faced – and are further reducing the costs of our power plant fleet with resolve, in order to increase our earning power.”

Net income at Eon, Germany’s biggest utility, fell by more than half in the first nine months of 2013, compared with the same period the year before, while French utility GDF Suez has also warned it will write down European power assets.

The bleak outlook for conventional power generation had been compounded by the German government ruling out capacity markets for utilities.

German energy minister Sigmar Gabriel said he opposed capacity markets because the costs would be too high, but was prepared to discuss regional solutions to prevent a loss of capacity.

RWE’s announcement foreshadowed a comment from Gabriel’s colleague, the finance minister on Tuesday, when Wolfgang Schäuble took issue with claims that the “green economy” will be a major driver of employment.

Mr Schäuble said Berlin’s decision two years ago to shutter its nuclear power plants and emphasise renewables needed to be re-examined.

“We did it too well and now we have to correct because otherwise we have an increasing of energy costs which will harm jobs in Germany in a serious way in the medium term,” Mr Schäuble said at a forum in Brussels, where he was attending a regular meeting of EU finance ministers. “Therefore, we have to rebalance.”

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