RWE announces huge write-down

Conventional power plants in the Netherlands, Belgium and the UK have seen a fall in profits that has hit Germany’s second-largest utility company, RWE.

RWE, which owns UK power company Npower, has said a slump in profits will force the company to write down €3.3 billion (roughly £2.7 billion) when it reports 2013 earnings.

In a statement, RWE said about €2.9 billion of the impairments were “largely attributable to the conventional power generation segment and owed to the significant deterioration in earnings in the continental European power plant sector.”

Peter Terium, chairman of the executive board at RWE AG, said, “Throughout Europe, gas and hard coal-fired power plants, in particular, are under substantial economic pressure.”

RWE said that there were fundamental changes taking place throughout Europe that were affecting prices, profit and power generation.  “By recognising this impairment, [RWE is] taking account of the fundamental changes in framework conditions on the European generation market. However, we are already reacting to the difficulties in terms of earnings – with which all European power producers are faced – and are further reducing the costs of our power plant fleet with resolve, in order to increase our earning power,” Terium explained.

Michael Schäfer, an analyst at Equinet bank, said he expected RWE to declare a net loss for 2013.

A shift towards renewable energy sources in Germany, where generous government subsidies have helped renewable energy account for around a quarter of total production, has led to overcapacity, bringing down wholesale prices.

Profits for power utilities has also been hit by low wholesale power prices and weak demand for energy. Companies across Europe have had the earnings affected by the subdued prices. Net income at Eon fell by more than half over the first three quarters of 2013, while French utility GDF Suez also warned it would write down European power assets.

RWE is now looking to close power plants in Germany and the Netherlands to revive profits. The company recently cut back heavily on capital expenditure in renewable energy and is expected to make further cuts at its RWE Innogy division. 

Edited from various sources by Sam Dodson

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