Environmental law firm ClientEarth has urged Germany's financial regulator BaFin to place RWE AG under scrutiny over a market disclosure that wiped over €1 billion off its market value.
The German utility was the subject of a 2018 court order that prevents it from expanding a lignite mine in Hambach Forest, western Germany, until the end of 2020. Its lignite and nuclear generation subsidiary, RWE Power AG, said this could result in an annual loss of several hundred million euros beginning in 2019. As a result, the parent company saw its share price drop almost 14%, representing a loss in market capitalization of over €1 billion.
U.K.-based ClientEarth is claiming that RWE overstated the impact of the court ruling. ClientEarth lawyer Peter Barnett said that a proper investigation is required so that investors can be "given correct information with which to make decisions."
"The profitability of RWE's lignite fleet is in decline, but not because of last year's court decision. The claim that the Hambach ruling would affect the company's bottom line in the amount notified to the market does not withstand scrutiny," Barnett said. "The profitability of the German lignite fleet is collapsing. RWE needs to be upfront with its investors about this."
Germany plans to shut down roughly one-third of its remaining hard coal and lignite-fired power stations by 2022, with the rest taken offline by 2038 at the latest, in order to achieve its climate targets and continue the country's transition toward renewable energy.
RWE, which has about 8 GW of lignite power plants alongside its own coal mines, has previously said that compensation for lignite closures, which the state wants to coordinate directly with plant operators, should range between €1.2 billion and €1.5 billion per gigawatt in order to take into account the effect on its mining operations.
Hermann Ott, head of ClientEarth's German office, said it would be a "gross dereliction of duties if the government were to give a golden handshake to a dying industry." He added, "RWE's attempts to push back the coal phaseout and its claims for large compensation payments ignore the economic reality of coal's decline."
ClientEarth is calling for BaFin to undertake a formal investigation, and if necessary impose an administrative fine and report any criminal offences to the public prosecutor's office.
RWE said in an email response to S&P Global Market Intelligence that the company was unaware of the complaint or any investigation by the financial watchdog. RWE spokeswoman Regina Wolter said in an email, "If BaFin asks us for a comment or further information regarding this matter, we will of course comply."