RWE CEO Sees Tough Years Ahead for Conventional Power PlantsBy
Hardly possible to cut costs as quickly as hedged prices fall
New CEO Schmitz can’t see electricity price trend reversal yet
RWE AG, Germany’s largest power producer, expects difficult times for its generation business for years to come as it continues to focus on efficiency.
“We were hardly able to cut costs as quickly as hedged prices are falling -- 2017 and 2018 will be tough,” Chief Executive Officer Rolf Martin Schmitz said in his first interview with international media since taking the role last month after the split off of RWE’s green energy business. The Essen, Germany-based company will continue the unit’s “extremely tight and efficient” cost management “so that we can survive with less margin.”
RWE’s policy of selling its power in advance, or hedging, has delayed the full effect of the lowest wholesale power prices in more than a decade in February amid Germany’s shift away from nuclear and conventional generation. The company has sold 90 percent of the power from its nuclear and lignite plants through 2018, with next year’s prices 14 percent below this year’s level, before falling further.
RWE dropped as much as 2.6 percent before trading down 2.2 percent at 11.96 euros at 12:03 p.m. in Frankfurt, extending its losses since Innogy SE’s Oct. 7 listing to 17 percent. The country’s benchmark DAX index increased by 0.8 percent in that period.
While a recent recovery in the German year-ahead electricity price resulted in RWE’s gas-fired plants, some of which returned from mothballing, to increase their full-load hours to an average 1,100 from January through September from 200 a year earlier, their financial contribution will be “marginal,” according to Schmitz. If prices stabilize, they’ll start to reach the company from 2018, he said.
Year-ahead prices have risen 54 percent after hitting the lowest since at least 2002 on European Energy Exchange AG. They are still 13 percent below their five-year average.
“I can’t see a stable trend on power prices or a trend reversal yet,” Schmitz said Tuesday in Cologne. Reactor outages in France that helped boost prices across the region only have “a temporary effect´´ and the units will be operating again in a few months, he said.
RWE won’t follow Sweden-based competitor Vattenfall AB in shortening its hedging horizon to about a year but “will maintain long-term hedging” as long as there’s no stable long-term trend, Schmitz said. “We are no gamblers and need a certain stability,” he said.
RWE will continue to push for a capacity market in Germany that pays conventional power plants, whose operating hours are decreasing, to guarantee security of supply. Schmitz said there’s the “highest urgency” for the mechanism to be in place after the country’s last reactors are shut in 2022.
RWE has cut costs in its conventional generation unit by 1.5 billion euros ($1.6 billion) since 2013. A cut of 100 million euros was executed earlier than anticipated, resulting in an improved outlook for its annual operating result earlier this week. The profit will be stable this year, compared with an earlier forecast of a “significant” decrease. It rose 7.4 percent in the nine months through September, RWE said Nov. 14.
Schmitz, who succeeded Peter Terium, declined to quantify the savings the company is seeking by cutting 2,300 jobs at the unit from last year’s levels, to 11,900 by 2020.