May 14, 2020 / 7:39 AM / 18 days ago

RWE raises net debt to hedge carbon prices up to 2023

FRANKFURT (Reuters) - RWE, one of Europe’s biggest power generators, raised its net debt in January-March partly to lock in sales of its output over the next few years and to pay for accompanying carbon emissions permits, it said on Thursday.

The German utility has hard coal and brown coal plants alongside gas, nuclear and renewables generation capacity, so it needs to cover its fossil fuel output with carbon allowances to meet legal requirements and to guard against margin risks.

RWE said its net debt rose in the first quarter to 8.7 billion euros from 7 billion on Dec. 31, 2019, citing mainly timing effects of the forward sales or hedges and seasonally strong CO2 buying needs. The company said lower pension provisions offset some of the increase.

RWE’s presentation on its first-quarter results published on Thursday showed that more than 90% of its German nuclear and brown coal production for 2021, 2022 and 2023 was sold ahead at 32 euros ($34.57), 32 euros and 26 euros per megawatt hour (MWh) respectively for the three years.

RWE’s 2020 output was sold at 27 euros/MWh after carbon costs.

Eikon Refinitiv German baseload power for all generation types for delivery in 2021 closed at 35.4 euros/MWh on the European wholesale market on Wednesday, 2022 at 39.5 euros and 2023 at 41.9 euros.

Carbon emissions allowances for December 2020 expiry traded 1.2% down to 18.45 euros a tonne on Thursday. The contract had ended trading on Dec. 31, 2019 at 24.6 euros.

Wholesale power traders and analysts use these hedge rates to track company earnings and to assess future volumes tied up with counterparties and the value of forward production.

RWE’s hedging numbers factored in the impact of an agreed phasing out of brown coal plants under deals between the Berlin government and power producers to end the use of coal by 2038.

Rival Uniper last week gave some details of its latest hydropower and nuclear hedging activity and E.ON detailed German nuclear hedges on Tuesday.

Reporting by Vera Eckert, editing by Jane Merriman

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