RWE warns of frugal future after historic net loss

ESSEN, Germany Tue Mar 4, 2014 1:18pm GMT

Peter Terium, CEO of RWE AG gestures during a news conference in Essen March 4, 2014. REUTERS/Ina Fassbender

Peter Terium, CEO of RWE AG gestures during a news conference in Essen March 4, 2014.

Credit: Reuters/Ina Fassbender

Related Topics

Quotes

   

ESSEN, Germany (Reuters) - Germany's biggest power producer RWE AG (RWEG.DE) said forays into new business areas would not be enough to fill a hole left by the demise of conventional power plants, offering little hope that the group can regain its former earnings potential.

The company on Tuesday posted a net loss of 2.76 billion euros ($3.80 billion), its first in more than six decades, after a surge in solar and wind capacity undercut the profitability of its power plants and triggered nearly 5 billion euros in writedowns.

Many of Europe's big power producers have been slow to respond to a fast-growing renewable sector and have also been hit by weak energy demand and record-low wholesale power prices.

The rise of solar and wind energy, which are given priority access to German power grids, has hurt RWE's coal- and gas-fired plants, some of them state-of-the-art, and has eroded much of their former earnings power.

"I grant we have made mistakes. We were late entering into the renewables market - possibly too late," RWE Chief Executive Peter Terium told journalists on Tuesday.

Terium pledged the group would increase efforts in new energy efficiency and renewable power to drag it out of a sector crisis that has destroyed more than 70 percent of its share value since 2008.

But he warned that these new initiatives, which include helping clients save energy through apps and software as well as expanding in retail power supply, would not offset a decline in plunging power plant earnings.

Terium said he expected earnings contribution of about 500 million euros from services and decentralised energy by the end of the decade.

In 2013 alone, profits from traditional power generation fell by 1.9 billion euros but still accounted for 24 percent of the group's total. Renewables, in contrast, accounted for just 3 percent.

LIGHTS OUT

Last week, a 15 billion euro writedown dragged French peer GDF Suez (GSZ.PA) deep into the red and the company warned that the crisis in the European utilities sector would last for a long time.

RWE's Terium said he expected earnings at its power plants to fall even further in the coming years, adding that 20-30 percent of the company's power stations could not currently cover their operating costs.

He added that the group may decide to close or mothball further plants in 2014, after having announced such plans for more than 5,000 MW, or nearly 10 percent of its total capacity.

Burdened by 30.1 billion euros of debt, RWE is looking for several ways to raise cash, including asking shareholders for provisional approval for a share issue of up to 20 percent of its existing share capital, or as much as 3.5 billion at RWE's current share price.

The group is also selling its oil and gas exploration unit DEA RWEDE.UL, which it still expects to complete this year.

"This is a realistic goal. But it depends on the price offered to us," Terium said.

Initial bids for the unit came in between 3.5 billion euros and 5 billion, sources have said.

RWE also confirmed its outlook for the current year, still expecting an operating profit of between 4.5 and 4.9 billion euros, down from 5.881 billion euros last year.

RWE shares traded up 1.1 percent at 29.04 euros by 1217 GMT. ($1 = 0.7260 euros)

(Editing by David Holmes and Mike Collett-White)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Miner39er wrote:
Renewables mandates and subsidies are destroying the energy infrastructure that has served us well. There is no viable substitute for central-station thermal electric energy.

Renewables mandates & subsidies are unbearable and must be withdrawn. Germany has had its experiment in utopia, and the results are clear–it doesn’t work. It’s dysfunctional.

After the mandates and subsidies are withdrawn, The excellent system presently in place will still be functional. Otherwise, get ready to freeze-in-the-dark.

Mar 05, 2014 2:46pm GMT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.