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RWE takes material earnings hit from Texas freeze as impact on Europeans emerges

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Tahoka onshore wind farm in Texas. Owner Ørsted sees limited negative impacts from the Texas freeze as most of its assets do not have firm delivery obligations. Peer RWE meanwhile faced $9,000/MWh prices as it compensated customers for stalled capacity.
Source: Ørsted A/S

Outages of onshore wind turbines and unfavorable pricing conditions during extreme cold weather in Texas will trigger a "significant negative earnings impact" for RWE AG's onshore wind and solar segment, the German power producer said Feb. 18.

RWE owns over 3 GW of mostly wind and some solar capacity in the state, and reduced availability of its generation fleet meant the company had to buy spot volumes to meet its supply obligations. Sky-high power prices in the area make this an expensive problem, which was further exacerbated by the Public Utility Commission of Texas directing grid operator Electric Reliability Council Of Texas Inc. to make price adjustments, RWE said.

The situation sent costs to buy back power as high as $9,000/MWh at times. "As a result, the adjusted EBITDA of the onshore wind/solar segment in 2021 are expected to be negatively affected in the range of a low to mid-three-digit million euro amount in total," the company said.

RWE is still working to return some of the affected equipment back into service.

Some investors appeared spooked, with RWE's share price declining by about 3% on Feb. 19, before nearly fully recovering by 2:00 p.m. CET.

Barclays analysts said that while earnings will be hit significantly this year, fears could be overblown as the issue is likely a one-off event. "Although the current year hit is large with continued uncertainty over when the Texas weather issues will end, ultimately this relates to extraordinary conditions (coldest winter in decades) that are unlikely to repeat," they said in a Feb. 19 note.

Jefferies analysts expect a 10% hit on RWE's previously projected €3.2 billion 2021 earnings, adding that the utility may seek to recoup losses from insurance.

While frozen turbines were not the main reason why millions of Texans lost electricity supply, the disruption is set to be costly for other renewables asset owners across the state, too. Canadian developer Innergex Renewable Energy Inc. expects adverse effects from the disruption to cost between C$45 million to C$60 million.

Danish power producer Ørsted A/S also owns wind assets in the state, but does not expect a costly fall-out from the icy weather.

The company does not have firm delivery obligations for most of its wind and solar projects in the U.S., a spokesperson said. "While our trading team does use some firm obligations as part of our revenue management, which is common in the industry, we had unwound the majority of our short positions before the power market was impacted by the extreme weather and as a result, we currently assess that any EBITDA-impact on a group level is not material," they added.

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Barclays analysts said there will be limited read-across of the events for Spanish utility Iberdrola SA, which owns 1.3 GW of onshore wind in Texas via subsidiary Avangrid Inc. This represents only a 14% share of the company's U.S. assets, they said, and Texas itself only contributes 1% to overall earnings for this year.

An Iberdrola spokesperson said the company estimates that the impact on its financial results "would not be material as the effect of these conditions on our sites have not affected the ability to fulfil our very limited obligations across this region."

Some European power producers may even see positives from events in Texas. Spain's Acciona SA, which operates three wind farms in the state totaling 450 MW, said it has been similarly unaffected by the weather event.

All of Acciona's assets are operating and contributing to the stability of the system, said Rafael Mateo, CEO of the company's energy business, on a Feb. 19 earnings call. "We are not expecting any negative impact; maybe we are expecting a positive impact," he added. Acciona declined to elaborate on Mateo's comments.