German Utility Takes 3,100 MW of Conventional Generation Offline

RWE's Neurath lignit coal-fired power station at Neurath in Grevenbroich, Northrhine-Westphalia (Germany). (Credit: Stodtmeister http://en.wikipedia.org/wiki/File:Kraftwerk_Neurath_Bl%C3%B6cke_A-E_%2B_BoA_Neubau.jpg)
RWE's Neurath lignit coal-fired power station at Neurath in Grevenbroich, Northrhine-Westphalia (Germany). (Credit: Stodtmeister http://en.wikipedia.org/wiki/File:Kraftwerk_Neurath_Bl%C3%B6cke_A-E_%2B_BoA_Neubau.jpg)

RWE (Germany), one of the Europe’s five leading electricity and gas companies, is shutting down six conventional energy plants. According to a press-release issued by the company, the reason for the closure is that due to the continuing boom in solar energy, many power stations throughout the sector and across Europe are no longer profitable to operate. Recently, we reported that E.ON, the world’s largest investor-owned electric utility service provider, is closing its combined cycle gas turbine power plant in Slovakia due to the heavily subsidized growth of renewables in the EU.

During the first half of 2013, the Conventional Power Generation Division’s operating result fell by almost two-thirds. The massive reduction in power station margins is a major factor in this development. RWE can still benefit from the fact that it sold most of its electricity production two to three years in advance on the forward market at prices that were higher than they are now. However, this effect will decrease year by year. After a detailed analysis, the Group has decided to take a total of 3,100 MW of generation capacity offline in Germany and the Netherlands. Further power stations are being assessed and all options to improve the company’s economic efficiency are being explored.

Like E.ON, RWE blames persistently low prices on the electricity markets that are placing burdens on the entire energy sector. In the first half of 2013, RWE was able to offset these burdens thanks to the positive outcome of the arbitration proceedings with Gazprom. Alongside a slight increase in revenue, to €28.5 billion ($38 billion), EBITDA was up 9% to €5.5 billion ($7.3 billion) and the operating result increased by 12% to €4.1 billion ($5.4 billion). In spite of this, net income fell by 38% to about €1 billion ($1.3 billion). The main cause was the market-induced impairment loss of about €800 million ($1.1 billion) recognized for the company’s Dutch generation portfolio. Recurrent net income was about €2 billion ($2.6 billion). This 19% increase is attributable to the one-off effect of the positive Gazprom arbitration decision.