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E.ON expects Q3 results to be hit by European heat wave

German multi-utility E.ON SE expects the effect of this summer's high temperatures on wind generation to weigh on its results for the next quarter after second-quarter earnings for its renewables business were buoyed by the commissioning of new onshore and offshore wind farms in Europe and the U.S.

The European heat wave could have an adverse impact "in the range of low- to mid-two-digit million euros," company CFO Marc Spieker told journalists during an Aug. 8 earnings call, noting that there have not been operational constraints so far on the company's nuclear energy subsidiary, PreussenElektra GmbH.

"In the wind business, the picture is slightly different. If you look at wind yields in different markets, we were below what you would expect in a normal year," Spieker said, adding that wind yields had been low in the previous year as well. "But this is also something that the business actively counters, [for example] with efficiency measures, so that we don't see a danger here [to our long-term result]."

France's Electricité de France SA temporarily halted four of its nuclear reactors earlier in August because of rising temperatures in the Rhine and Rhone rivers, whose water the plants use for cooling, according to an Aug. 4 Reuters report.

Capacity additions buoy earnings

Adjusted EBIT for E.ON's renewables business rose to €65 million in the second quarter, up by 44% from last year's second-quarter earnings of €45 million, and sales rose from €334 million in the second quarter of 2017 to €340 million.

The company said this was primarily due to increased output following the commissioning of the 305-MW Radford's Run wind farm in Illinois and the 228-MW Bruenning's Breeze wind farm in Texas in December 2017, as well as the 400-MW Rampion offshore wind farm in the U.K. in April of this year.

"We expect Renewables' adjusted EBIT [for the full year] to be above the prior-year level, in particular because of the addition of Rampion wind farm," the company said in its earnings release.

Innogy takeover going ahead

E.ON's planned asset swap with German utility RWE AG involving innogy SE, RWE's renewables, network and retail subsidiary, is proceeding on target, Spieker said.

The deal would integrate innogy into E.ON, but hand almost all of both companies' renewables businesses to RWE, leaving E.ON focused on its network and retail businesses while creating a traditional and renewable generation powerhouse in RWE, with a 16.67% stake in E.ON. E.ON would retain the renewables business operated by subsidiary e.disnatur Erneuerbare Energien GmbH in Germany and Poland and a 20% stake in the Rampion wind farm, as well as the minority stakes, held by its subsidiary PreussenElektra, in the Emsland and Gundremmingen nuclear power stations, which are operated by RWE.

Spieker said the company had taken "the usual precautions" to ensure regulatory approval of the deal, which he expects will be submitted to the European Union's antitrust division in several months, but would not comment on the probability of different legal options for structuring innogy's integration.

"We have all the means in our hands to integrate [innogy]. The options we laid out remain on the table, which range from concluding a profit and loss transfer agreement to merger scenarios," he told analysts. "I will not speculate about specific implications, because there are so many subtleties and routes ... which make this a very lengthy and not very fruitful discussion."

Including the result of a voluntary public takeover offer in July, E.ON would hold 86.2% of innogy's shares. Both companies expect the transaction to close by the end of 2019.