RWE offsets falling coal generation with RES as H1 earnings rise

London — Germany's biggest power generator RWE offset falling coal generation with new renewables and expects 2020 earnings at the upper end of the range forecast after earnings rose in the first six months despite falling power demand due to the coronavirus crisis, it said Aug. 13.

RWE's fossil-fueled generation fell 19.5 TWh to 38 TWh in the first half led by German lignite and UK gas, it said.

Renewables meanwhile rose 9.5 TWh to 15.4 TWh after it integrated E.ON's green assets, resulting in an overall 18% increase for adjusted group EBITDA to Eur1.8 billion ($2.1 billion), it said.

Offshore wind earnings rose almost 20% to Eur585 million mainly due to strong winds in Q1 with the segment forecast to contribute nearly half of annual group earnings, now expected to be toward the upper end of the forecast range of Eur2.15 billion-Eur2.45 billion, it said.

Earnings at its non-core unit of legacy German lignite and nuclear plants also doubled year on year to Eur310 million due to higher achieved margins, it said.

Lignite and nuclear accounted for half of RWE's non-renewable power generation, but lignite output fell sharply to 14.3 TWh, averaging only 3.3 GW compared with 5.6 GW in H1 2019.

RWE lignite plants have been hit by mining restrictions at Hambach since 2019 with the coal exit law now setting a clear path to close 2.7 GW by end-2022 to preserve the Hambach forest.

Lignite, nuclear hedging secures margins

RWE has been hedging output years in advance with 2020 margins around Eur3/MWh higher on year at Eur27/MWh despite EU CO2 prices hitting a 14-year-high in July.

RWE is financially hedged carbon until 2030, but no longer provides hedged EUA CO2 prices, it said.

German spot power prices plunged almost Eur15/MWh to average Eur23.40/MWh in the first six months as power demand fell 5% on the year due to the coronavirus.

For 2021, the company had 70-75 TWh of planned lignite and nuclear production hedged at a margin of Eur32/MWh, slides for an investor presentation show.

For 2022, hedged margins were stable at Eur32/MWh, but expected production volumes fell to 55-60 TWh, reflecting closure of one reactor and further lignite units with no overall change compared during Q2.

For 2023, the company expects 40-45 TWh of lignite production hedged at a margin of Eur26/MWh after adjusting production plans to the coal exit law with only 7 GW lignite capacity remaining part of that unit after 2022.

RWE CFO Markus Krebber told analysts that CO2 fuel switching prices would be less relevant in future.

RWE Hedging Positions for German lignite & nuclear (as of end-H1 2020)

Source: RWE H1 2020 presentation (*=actual production, **FY 2019 report)

Renewables pipeline

Company strategy is now firmly focused on expanding its wind and solar portfolio from 9 GW now to around 13 GW by end-2022.

RWE plans to acquire a 2.7-GW RES project pipeline from Nordex for around Eur400 million -- mainly focused on France -- with some 500 MW expected to come online by 2025.

Key focus will be offshore wind despite a gap emerging between 2022 when Germany's Kaskasi and Britain's Triton Knoll projects are expected to come online and 2025 with focus on auctions.

Germany plans to auction some 10 GW of new projects for the 2025 to 2030 period with focus on the auction design proposals.

CFO Krebber, set to take over as CEO in 2021, called for a rethink favoring so-called CfDs rather than the second component design proposed by the government to differentiate between zero-subsidy bids.

RWE also focuses on hydrogen with plans to develop a 100-MW electrolyzer at Lingen as part of the GETH2 project, while RWE will also be part of the AquaVentus vision for an offshore hydrogen production cluster around the North Sea island of Heligoland. RWE has joined the European Clean Hydrogen Alliance, it said Aug. 11.

RWE Generation (TWh)

Source: RWE (*including biomass co-firing)