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RWE hedged 2018, 2019 power sales below market prices
March 14, 2017 / 10:39 AM / 6 months ago

RWE hedged 2018, 2019 power sales below market prices

ESSEN, Germany, March 14 (Reuters) - RWE has sold the bulk of its 2018 and 2019 power generation at prices below current wholesale market levels, which bodes ill for power generation margins in coming years, data from the German utility showed in Tuesday’s earnings report for 2016.

* For 2018 it hedged more than 90 percent of German power volumes at 27 euros ($28.73) per megawatt hour and for 2019 more than 70 percent at about 25 euros/MWh, RWE said.

* By comparison, German calendar year 2018 baseload power in the wholesale market traded on Tuesday at 29.80 euros and 2019 power was at 27.75 euros, Thomson Reuters data showed.

* Wholesale energy traders track utilities’ hedging ratios and prices to assess the size of future volumes already tied up with counterparties such as traders, banks and consumers, and the value of forward production.

* The RWE hedges apply to nuclear and brown coal-generated electricity produced in RWE’s core German market. RWE also produces electricity in hard coal and gas-fired power stations in Germany and other EU countries.

* Electricity delivered last year from RWE’s German plants fetched 35 euros/MWh on average while the bulk of 2017 sales were made in the past at 31 euros.

* RWE’s conventional power generation unit last year benefited from plant closure and efficiency gains, which raised its adjusted earnings before interest and tax (EBIT) by 5 percent year on year to 627 million euros, it earnings report showed.

* It has projected significantly lower earnings at the unit this year, blaming lower realised generation margins.

* European power prices have been recovering slightly for the past six months after supplies tightened overall as France closed larger than expected numbers of nuclear reactors for additional safety checks in the winter.

* Prior to that, prices had been in an almost continuous downtrend since 2011.

* The French crisis has brought the market into backwardation until 2019 but prices from 2020 onwards have been lifted by ongoing plant closures.

* Chief Financial Officer Markus Krebber said in a press conference that RWE could still benefit from higher prices for the 30 percent of 2019 volumes that are unsold.

* “At this level, the plants are at break-even, but the position is not fully closed, so we can participate in further recovery,” he said.

($1 = 0.9398 euros)

Reporting by Vera Eckert; Editing by David Goodman

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