RWE to Close 3.1 GW of Conventional Generation Across Europe on Profit Woes

Europe’s third-largest power provider on Tuesday announced it would take offline 3.1 GW of natural gas and coal power plants in Germany and the Netherlands, citing a “continuing boom in solar energy.”

Echoing several European utilities, Germany-based RWE has underscored the declining profitability of fossil fuel–fired plants that it says is pegged to fundamental changes afflicting the European power sector. E.ON, a larger German utility with European-wide holdings , has already idled about 6.5 GW of capacity and is considering mothballing about 11 GW.

“Political intervention is making our business challenging. In addition, the subsidised expansion of renewables in Germany is causing the margins and utilisation of conventional power stations to decline,” RWE said. Meanwhile, “persistently low prices on the electricity markets are placing burdens on the entire energy sector, and thus also on RWE,” added the company with 16 million power customers in Germany, the Netherlands, the UK, and in Central Eastern Europe.

RWE will decommission the 610-MW hard coal Amer 8 power plant in the Netherlands by 2016. It will also mothball nine gas-fired power plants between this summer and the end of 2014: the 430-MW Moerdijk 2 and two unnamed mid-size units in the Netherlands; the Gersteinwerk F and G gas-steam turbines (each 355 MW); the Weisweiler G and H gas turbines (each 270 MW and which supplement a lignite plant); and the Emsland B and C gas steam turbines (each 360 MW)–all in Germany. In addition, the company has decided to terminate three contracts for 1.7 GW of hard coal capacity. The company’s decommissioning and mothballing decisions mean a total of 4.2 GW could be taken offline over the next year.

RWE said its operating profit during the first half of 2013 from conventional power plants plunged 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.”

For the first six months of 2013, the company reported an overall net income drop of 38%, to €1 billion ($1.3 billion), most of which stemmed from the company’s Dutch generation portfolio. It attributed a 19% increase in revenue, however, to an arbitration settlement ruling under which Russia’s Gazprom was forced to reimburse RWE €1 billion for overpayments in natural gas purchases.

“Many of our power stations are now in the red,” RWE Chief Financial Officer Bernhard Guenther told journalists in a conference call on Wednesday. “This is the greatest crisis our industry has faced for many decades.”

The company has launched what it calls the “RWE 2015″ program, which involves “comprehensive measures to reduce costs and increase earnings. We are also adjusting our organisational structure to cope with the challenges. By decreasing investment and reducing debt, we want to improve our financial flexibility,” it said. Strategies outlined include increased investments in renewable energy and grid modernization efforts.

Sources: POWERnews, POWER, RWE

Sonal Patel, Senior Writer (@POWERmagazine, @sonalcpatel)

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