FRANKFURT Germany's No.1 utility E.ON (EONGn.DE) warned of weakening power demand in Europe and signalled it may have to close plants and step up saving efforts after cutting its outlook for next year.
"In most European markets, the gross margin for gas-fired units is approaching zero or is indeed already negative. One factor is that the demand for electricity remains very low," Chief Executive Johannes Teyssen said on Tuesday after the company published financial results.
At 0806 GMT, shares in E.ON plunged 8.1 percent, and also weighed on main peer RWE (RWEG.DE), whose shares were down 4.1 percent.
Weak demand for electricity on the back of Europe's economic crisis has reduced revenue and capacity utilisation at German energy companies' power plants and has curbed their trading activities.
E.ON's European units are a key market for E.ON and, including Russia, accounted for about 46 percent of earnings before interest, tax, depreciation and amortisation (EBITDA) in the first nine months of 2012.
In a surprise statement late on Monday, E.ON had warned it may no longer be able to reach its outlook for 2013, citing weak economic conditions that have hurt the energy industry.
According to the International Energy Agency (IEA), total primary energy demand in the EU is expected to decline by 2 percent in the 2010-2015 period, compared with a 10 percent rise globally over the same period.
The German year-ahead power delivery contract, the benchmark in wholesale trading, currently trades at 47.45 euros a megawatt hour (MWh), down nearly 11 percent year-to-date.
CONCERNS TO GROW
"Investors' concerns regarding the prospects for European utilities in the current economic, commodity, regulatory and political environment are more likely to grow than recede," JP Morgan analyst Ian Mitchell said.
German energy groups are also grappling with the nuclear phase-out that was decided by Chancellor Angela Merkel last year, following Japan's nuclear disaster in Fukushima, caused by a 9.0-magnitude earthquake and subsequent tsunami.
CEO Teyssen talked of immense pressure from the dismal conditions in power generation.
"We will therefore continue to optimise our conventional power plant portfolio and are looking into the possible closure of sites," he said.
Unprofitable plants, that will nevertheless be needed to ensure overall power system stability, would need transitory deals to be worked out with network operators and authorities, to compensate E.ON for the operations, he said.
E.ON has said it will not build new coal or gas fired capacity in western Europe until 2020, except for existing projects including the huge Datteln 4 coal block costing 1.3 billion euros where it reiterated on Tuesday it would face further delays.
E.ON's nine-month earnings before interest, tax, depreciation and amortisation (EBITDA) rose 35 percent to 8.8 billion euros ($11.2 billion), exceeding the 8.47 billion average forecast in a Reuters poll.
($1 = 0.7867 euros)
(Editing by Maria Sheahan and Mike Nesbit)