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RWE shares drop to 7-month low following court order to halt forest clearing

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RWE shares drop to 7-month low following court order to halt forest clearing

SNL ImageBucket wheels dig for coal near the Hambach forest in Germany. On Oct. 5, a court ordered a temporary halt to RWE's plans to fell part of the forest to allow the expansion of the lignite mine.
Source: AP Photo

German utility RWE AG has seen its share price drop almost 14% to the lowest level since early March following a surprise court order that means the company likely won't be able to expand a lignite mine in western Germany until the end of 2020. The company's lignite and nuclear generation subsidiary, RWE Power AG, said this could result in an annual loss of several hundred million euros beginning in 2019.

A higher administrative court in the city of Münster ordered RWE on Oct. 5 to halt the planned razing of several hundred acres of the Hambach Forest in the state of North Rhine-Westphalia for the period of 2018-2020 to allow more time to consider serious issues, including possible effects on a rare bat species. Siding with environmental organization BUND NRW, which had brought the case, the court also said that RWE had not shown that expanding mining at the site by clearing the forest was necessary to guarantee security of supply in the region.

Although RWE can continue mining in the existing Hambach mining area, the company could not be allowed to create "irreversible facts" while the future of the forest was deliberated, the court said.

Shares in the utility closed down by 8.4%, at €18.69, on the Frankfurt Stock Exchange on Oct. 5 and have since continued to slide, closing at €17.67 on Oct. 9. The order initially wiped out more than €1 billion in market capitalization within a single day.

It is still unclear when a final decision on the matter will be reached, but RWE Power said in a statement on Oct. 5 that it expects this might not happen before late 2020 and is calculating damage "in the low three-digit million euro" range annually from 2019 as a result of the court's decision. The company's CEO, Rolf Martin Schmitz, had said on a political talk show on German broadcaster ZDF in September that not cutting down the forest would ultimately cost €4 billion to €5 billion in the long term.

"The halt to the clearance has far-reaching ramifications for RWE Power," the company said in its Oct. 5 statement. "Having already renounced the forest clearing during the last clearance period (2017/18) the company now expects there to be substantial short-term operational effects on the scheduled development of the Hambach opencast mine as early as next year."

A spokesman for RWE said on Oct. 9 that the company expects to reduce lignite mining at Hambach by around 10 million to 15 million tons, thereby cutting power generation at the nearby Neurath and Niederaußem power plants by 9 TWh to 13 TWh.

SNL Image
German utility RWE said it would reduce output from its 3,800-MW Niederaussem Power Station, the second-largest lignite-fired power plant in operation in Germany.
Source: RWE AG

RWE's share price had already declined throughout September as the company was locked in a bitter and escalating dispute with protesters, who had set up camps in the forest. RWE had support from the state government to clear the area to expand its open-cast brown coal mining operations in Hambach, where the company digs up an estimated 40 million tons of lignite every year.

On Oct. 5, RWE said the ban on using heavy machinery in and around the forest would have a "domino effect," impacting not only mining but also the operation of nearby power plants. Brown coal accounts for 15% of power generated in North Rhine-Westphalia, Germany's largest state, according to the company.

Coal commission keeps debating

The dispute over the forest has come at a politically sensitive time, as an independent commission set up by the government deliberates a coal generation phaseout plan for Europe's largest economy.

The so-called Commission for Growth, Structural Change and Employment was convened in June to come up with an exit date for coal generation and includes 31 members representing industry, trade unions, environmental groups and citizens.

For the past several months, its work has been overshadowed by the standoff between environmental activists and RWE in Hambach, although commission members have publicly insisted that RWE's activities there were not part of the commission's mandate.

SNL Image
Protesters clashed with police in the Hambach forest near RWE's lignite mine in September.
Source: AP Photo

Some commentators have argued that the forest dispute could be the coal industry's Fukushima, referring to Germany's decision to speed up its phaseout of nuclear power following the Fukushima Dai-ichi nuclear disaster in Japan in 2011.

Martin Kaiser, the head of Greenpeace Germany, said the court's intervention would generate "tailwind for the commission's work" since mounting anti-coal protests at the mine had proven public support for a swift coal exit.

Martin Frick, the senior policy director at the UN's Framework Convention on Climate Change, said the decision means a "huge stranded asset" for RWE and might even spell "the end of a nearby coal-fired power plant that has been operating for more than 40 years".

"What started with a group of 200 kids chaining themselves to trees … has become a popular movement," Frick told the FT Climate Finance Summit in London on Oct. 9. "The impact of climate change can and will translate into political action … in this case, [RWE is experiencing that] you don't want your company associated with being a producer of those risks."

A leaked plan from one of the leaders of Germany's coal exit commission in September had purported to show a consensus for a gradual coal exit by 2038, including the closure of 7 GW of coal capacity by 2020. But the report was immediately condemned by other members of the commission, who said that the group had not yet reached any final conclusions.

Germany still generates almost 37% of its power from coal, with about 23% of the overall total from lignite coal and 14% from hard coal, according to industry group AG Energiebilanzen. It is also the world's largest lignite producer, digging up more than 171 million tonnes of the fuel source in 2017, according to the German economic ministry.