Verbund Faces `Major Upheaval' for Power With Renewables Focus

  • Congestion managment and virtual power plants stabilize result
  • 2016 profit seen lower on continued wholesale price pressure

Verbund AG’s full-year sales and profit rose after Austria’s biggest utility launched a new business tapping into the growth of renewable energy and helping it shake off a plunge in European power prices.

Adjusted net income rose by a quarter to 269 million euros ($295 million) as revenue climbed 3 percent to 2.97 billion euros, Vienna-based Verbund said Wednesday in its annual report. The company proposed a lower-than-expected 30-cent dividend as management sought to strengthen cash flow. Net income probably will dip to about 230 million euros this year, the company said.

Verbund generated “considerable additional income from flexible products in the area of energy trading, especially control power and congestion management,” Chief Executive Officer Wolfgang Anzengruber told shareholders, adding that the industry is weathering “times of major upheaval.”

European utilities have been writing down the value of coal and gas power plants after a surge of subsidized renewable-energy capacity helped depress wholesale electricity prices to 14-year lows. The slump has in turn forced Verbund, which generates 93 percent of its electricity from renewables, to look for other areas of growth and expand its grid management and storage businesses.

Verbund shares dropped as much as 28 cents, or 2.6 percent, to 10.56 euros at 1:48 p.m. in Vienna. The stock has dropped 37 percent in the last 12 months.

Grid Revenue

Sales from grid management services rose a quarter to 440 million euros, while revenue from other sources like virtual power plants almost doubled to 194 million euros. Electricity sales fell 4 percent to 2.34 billion.

Compared with other European utilities, Verbund’s already high concentration of renewable power sources may expose it to less risk, according to an e-mail from Juan Camilio Rodriguez, an analyst at Alphavalue, an institution in Paris that advises clients to buy Verbund stock.

“In terms of company risks, the highest ones I see for future depreciations would be coming from those groups with a generation portfolio highly dependent on coal and nuclear,” said Rodriquez, who suggested investors cut investments in Germany’s RWE AG and EON SE because of the risk of further write downs. On Wednesday, EON reported a record 7 billion-euro loss after cutting the value of its coal- and gas-fired plants.

“The new energy world has taken a disruptive turn,” Verbund said. “We are gearing our business toward 100 percent renewable energy generation from hydropower, supplemented by wind power, with a strict focus on cost-efficient generation.”

The company, 51 percent owned by the Austrian government, is also looking to boost electricity demand. It’s Smatrics GmbH joint venture with Siemens AG is targeting electric car sales and has installed 200 charging stations across the country.

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