Innogy, RWE’s renewables, grid and retail offshoot, has recorded a 7 per cent fall in core profit but a company spokesperson says results are likely to be improved in 2017.
RWE itself recorded a disappointing result on Monday.
The German company’s chief financial officer Bernhard Guenther said, “The results are in line with expectations and we can confirm the forecast for 2016 and 2017.”
Reuters reports that the results represents a ‘significant blow for RWE’, which is grappling with debt of more than $30bn and last month listed a minority stake in the business on which it relies for stable returns.
The shares are also coming under pressure from growing expectations of higher interest rates.
"We have seen a sell-off at utility shares that have lot of regulated business," Innogy Chief Financial Officer Bernhard Guenther said on Friday, pointing to British peer National Grid , the shares of which fell sharply this week.
"This is due to fears that interest rates will rise again."
Innogy press spokesperson Sabine Jeschke told Power Engineering International that there were mitigating circumstances for this set of results.
"The outlook for 2017’s results is higher than for 2016 – one driver will be the absence of some financial burden we see for this year, for example the quite high capex and opex in the grid business."
Innogy's current pipeline of renewables projects sees approximately 300 MW under construction and 4.1 GW in development. In terms of M&A acitivities the company announced the acquisition of Belectric's solar, battery and O&M businesses in August. The transaction is planned to be completed in the beginning of 2017. A company source told Power Engineering International, either on a par or smaller.
About two thirds of profits at Innogy, Germany's largest energy group, come from regulated gas and power grids, which offer mid-single-digit percentage returns that eclipse current interest rates close to zero percent.
Networks also require heavy expenditure on technology and efficiency upgrades to cope with more renewable energy in the wake of Germany's energy shift away from fossil fuels.
The spin off of Innogy was supposed to ease pressure on RWE’s balance sheet.
RWE retains a 76.8 per cent stake, in a bid to recover from the difficulties associated with core power generation operations, which have come under intense pressure from renewables and a steep decline in wholesale prices.
However, since listing on Oct. 7, Innogy stock has dropped by 14 percent, with analysts citing falling returns on its grids, competition in renewables and low margins at its retail unit.
Innogy’s parent company itself reported disappointing figures on Monday.
Net profit in the third quarter was just $11.8m, the company said, blaming "a very challenging environment" amid falling power prices. Income for the first three quarters plunged 58 per cent. But it said it expected to achieve full-year targets.
"In view of the difficult conditions, above all in conventional electricity generation, we recorded respectable earnings in the first three quarters," RWE's new CFO Markus Krebber said.
RWE said it expected debt to fall in the fourth quarter thanks to income from the sale of Innogy.