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Higher power prices offset coal, lignite drop for RWE in Q1

London β€” Rising power prices and a strong trading unit performance offset a 7 TWh fall in coal and lignite generation for RWE in Q1 2019, the German utility said Wednesday.

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Lignite-fired generation fell 24% for the quarter, partly as a result of a court order halting clearance of the Hambach Forest that forced the company to ramp down its lignite mining operations, it said.

Hard generation in German and Dutch plants was down 34% while gas-fired generation at German and Dutch plants was up 18% for the quarter.

Coal plant run times fell 10 percentage points, while those for gas plant were up by a similar amount, CFO Markus Krebber said. These levels were expected to continue for the rest of 2019.

Earnings at the group's supply and trading unit, including the gas and LNG business, swung from a loss of Eur25 million ($28 million) for Q1 2018 to a gain of Eur252 million for the latest quarter in volatile markets, Krebber said without going into detail.

CAPTURING RISING PRICES

RWE's average hedged CO2 price for 2019 and 2020 was unchanged at Eur5/MWh, while that for 2021 increased 28% to Eur9/MWh (from Eur7/MWh at end-2018). A first view on 2022 saw CO2 volumes hedged at Eur14/MWh.

For lignite and nuclear output, hedged power prices were unchanged for 2020 at Eur31/MWh versus Eur29/MWh for 2019.

For 2021, however, RWE's average achieved price was increasing, up over 5% to Eur39/MWh for the period.

This implied a Eur55/MWh achieved price for 2021 for the 10% of output sold during Q1 2019, investment bank JP Morgan Cazenove said, with RWE effectively capturing German power strength.

RWE disclosed implicit fuel hedging positions for 2022 for the first time, some 50% of planned lignite/nuclear generation hedged at Eur44/MWh, it said.

This included Hambach restrictions of 15 TWh/year for 2020 and 2021, but not yet any measures resulting from the German coal exit plans.

The so-called coal commission in January recommended the closure of 3 GW of lignite capacity by 2022 exclusively focusing on RWE's plants in the Rhenisch mining area in West Germany with a call to preserve the Hambach Forest.

In March, RWE CEO Rolf Martin Schmitz said he expected legislation detailing the first wave of lignite closures to be passed early next year. There were no updates at Tuesday's earnings call.

RWE's future strategy would focus on renewables with company management confident of taking control of a combined RWE/Innogy/E.ON unit by the end of the year following an complex asset swap with E.ON.

The new renewables unit would seeking partners in the US offshore wind market, Krebber said, specifically mentioning oil and gas companies as potential co-venturers.

RWE was committed to investing Eur1.5 billion/year in renewables over the next three years as well as securing a Eur5 billion credit line, Krebber said. There was no shortage of projects to back, he concluded.

--Andreas Franke, andreas.franke@spglobal.com

--Edited by Jonathan Loades-Carter, newsdesk@spglobal.com