RWE warns 2017 achieved power price 'significantly lower' on market weakness

London (Platts)--14 Mar 2017 1007 am EDT/1407 GMT

* Price expectations lowered
* Current raised levels 'a snapshot'
* Output stable, gas plant margins improved

RWE's earnings from conventional generation are set to decline again this year due to falling power prices, the German generator/trader said Tuesday in 2016 results.

"The 2017 price we achieved for electricity generated by our German lignite-fired and nuclear power stations is significantly lower than the previous year's average of Eur35/MWh ($37.25/MWh)," the company said.

"Consequently, our earnings in conventional power generation will probably be lower than in 2016."

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Almost all electricity generation for 2017 is already sold, RWE said without giving achieved price details.

It noted, however, that Calendar 2017 baseload power averaged Eur27/MWh in 2016, compared to Eur31/MWh for Cal 16 baseload in 2015.

RWE CEO Rolf Martin Schmitz said the company had had to lower its price expectations.

While forward prices for 2018 had recovered somewhat to range near the Eur30/MWh mark, Schmitz said today's prices "are a snapshot; they don't take into account the big picture.

The recovery we have seen since February 2016 can mainly be traced back to the rise in the price of hard coal, resulting in higher generation costs."

Coal prices had been on the rise due to state-ordered production cuts in China. In the meantime, "Beijing had eased the restrictions a bit. So, you can see how fragile things are," he said.

The company noted that utility revenue streams were moving towards "market-oriented capacity premiums for security of supply."

This trend has progressed in the UK. "In Germany, however, the political decision-makers have decided not to introduce a capacity market for the time being," it said.

RWE's 2016 power generation climbed 1.5% to 216 TWh, external electricity sales 1.2% to 264.6 TWh. External gas sales fell 2.9% to 265 TWh.

In terms of generation mix, 34% of RWE's 2016 generation was from lignite, 25% from gas, 20% from hard coal, and 14% from nuclear. The share of renewable energy amounted to 5%.

Large impairments on power plants and costs relating to nuclear waste disposal saw RWE Group post a net loss of Eur5.7 billion for 2016.

German power plants were devalued by Eur3.7 billion while charges relating to the country's nuclear fund were hiked by a 35% premium of Eur1.8 billion.

The value of derivatives was impaired by Eur800 million.

Margins for gas-fired power stations improved, notably in the UK, RWE's second largest market after Germany, the company said.

"In the UK, clean spark spreads exceeded the margins for hard coal-fired stations; in Germany and the Netherlands, however, they are still considerably lower than the clean dark spreads," it said.

Generation from lignite was hit by maintenance and plant outages and while availability of hard coal-fired plants improved, this was counteracted by unfavorable market conditions in the UK.

RWE's Dutch hard coal-fired station Amer 8 was shut from January 1, 2016, to comply with energy policy requirements while the sale of the Lynemouth coal plant in the UK resulted in volume losses.

Production from renewables was slightly down compared to 2015, due to lower wind levels throughout much of Europe.

In the gas markets, spot prices at the Dutch Title Transfer Facility (TTF), the reference market for Continental Europe, averaged Eur14/MWh in 2016, Eur6/MWh less than in 2015.

In TTF forward trading, 2017 forward gas was settled at an average Eur15/MWh. In comparison, in 2015 the price paid for the 2016 forward was Eur20/MWh, RWE said.

--Henry Edwardes-Evans,
--Edited by Jonathan Fox,

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