RWE Seeks Growth From Egypt to U.S. as German Power Slumps

  • ``We need equity in order to grow'' as costs, debt cut: CEO
  • Utility to enter new markets gradually, growing organically

RWE AG Chief Executive Officer Peter Terium is turning to sun and wind in markets from Egypt to California as domestic profit plunged amid the lowest German power prices in more than a decade.

Germany’s biggest power producer will increasingly focus on grids, customers and renewables in new markets, Terium told reporters at a strategy presentation in Dubai on Sunday. The operating result of conventional generation, ranging from brown coal to nuclear, slumped more than 80 percent in the first half of 2015 from three years earlier, just before Terium became CEO.

“We can’t limit ourselves to the countries in which we’ve operated up to now,” Terium said. “California and Egypt are regions we are very interested in,” especially in wind and photovoltaic, he said.

With a 48 percent drop on Germany’s benchmark DAX index this year, RWE is one of the losers of Chancellor Angela Merkel’s unprecedented shift to renewable energy. While EON SE is spinning off its conventional power generation into a separate company in the second half of next year, Terium has no such plans yet and is trying to transform RWE by cutting costs and targeting new markets.

"You can’t escape reality at home with some solar and wind plants," Ingo Becker, an analyst at Kepler Cheuvreux in Frankfurt said by phone. "In order to transform a utility, you need double-digit billion figures, and RWE doesn’t have this money right now."

Cutting Debt

Terium has reduced the company’s gross controllable costs and net debt by about 25 percent since he became CEO in 2012. His contract was extended until 2021 in March.

German benchmark next-year wholesale power prices are trading near their lowest level since 2003 on the European Energy Exchange AG in Leipzig. They’ve slipped almost 70 percent after peaking in 2008.

RWE plans to become more active in the Middle East and North Africa, where renewable energy capacity will increase about eightfold to 47 gigawatts by 2020 from 2013, according to slides at the presentation.

Joint Ventures

Partnerships and joint ventures will be a first step, while acquisitions of “smaller holdings” may also occur as RWE wants to use its knowledge from the renewable energy expansion in its home market, Terium said. RWE is also pursuing a tender for a combined-cycle gas turbine with an attached solar plant in Kuwait, he said.

Future projects in the region may include the areas of power transmission or distribution grids, smart grid management and international electricity trading, Terium told a conference in Dubai on Tuesday.

RWE’s focus is likely to shift toward building power plants and energy network infrastructure for third parties as the company’s balance sheet doesn’t leave too much room for investing in large, new projects, Elchin Mammadov, a utilities analyst at Bloomberg Intelligence, said Tuesday by e-mail. "The easiest way to do that would be by forging ties with an Arab partner,” he said.

RWE is still in talks on cooperation in projects with an Arab partner, which had been interested in buying a stake of the utility earlier this year, Terium said Tuesday. Talks are not exclusive, he said, not ruling out the company may revisit the plan to sell a stake later.

“Equity is still an issue,” Terium said. “We need equity in order to grow.”

Before it's here, it's on the Bloomberg Terminal.