Utility RWE AG (RWE.XE) Thursday reiterated that its earnings will come under severe pressure over the next few years as low electricity prices across Europe erode the profitability of its power plants, the company's core business.
Utility RWE AG (RWE.XE) Thursday reiterated that its earnings will come
under severe pressure over the next few years as low electricity prices across
Europe
erode
the profitability of its power plants, the company's core business.
Chief Executive Peter Terium told shareholders at the company's annual general
meeting that forward power prices for deliver in 2014 and 2015 are around 12
euros ($15.7) per megawatt-hour lower than one year ago.
He added that power prices have fallen mainly as a result of the rapid
expansion of renewable energies that has eroded the utilization rates of large
fossil-fueled power plants. Additionally, muted electricity demand across an
ailing European economy has put further downward pressure on power prices.
"As a consequence, significant parts of our conventional power plant fleet
are losing money," Mr. Terium said.
While 2013 earnings are expected to remain more or less flat, Mr. Terium said
that "it will be virtually impossible to maintain this earnings level
after 2013."
Like other European utilities, RWE sells much of its annual power production
several years ahead to lock in generation margins. Most of its 2013 was sold in
the past two to three years at prices far above present market prices.
RWE has previously pledged to respond to the increasingly difficult trading
conditions on
Europe
's energy markets by cutting
costs, reducing investment and selling assets.
For this year, the company expects earnings before interest, taxes,
depreciation and amortization to amount to around EUR9 billion, just below the
EUR9.3 billion recorded in 2012.
Operating profit is expected to come in at EUR5.9 billion after EUR6.4 billion
in 2012.
Recurrent after-tax profit, the earnings figure that determines RWE's annual
dividend payout, is expected to remain mostly unchanged from the 2012 level of
around EUR2.5 billion.
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