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Highlights

Lignite unit still profitable despite 26% output drop in H1

Slight rise in hedged power spreads 2020-22

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London β€” Germany's biggest power generator, RWE, expects 60% of its future earnings to come from its new renewables units with its conventional lignite, gas, nuclear and hard-coal plants only expected to contribute 20%, it said Wednesday after reporting strong first-half results.

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"In the future, about 60% [of earnings] will come from renewables, 20% from conventional energy, roughly 10% from our trading business and the remaining 10% from our financial investments," CEO Rolf-Martin Schmitz said in an earnings call.

This is based on a combined EBITDA of Eur800 million ($894 million) in from the renewable activities of E.ON and innogy in the first half of 2019, Schmitz said.

RWE is set to combine the units following the asset swap with E.ON next month, making it one of Europe's biggest RES players with a portfolio of 9 GW and annual planned RES investment of Eur1.5 billion.

That compares with H1 EBITDA earnings of Eur172 million for RWE's German lignite and nuclear unit and Eur99 million for its European coal and gas generation unit.

Very strong earnings contributions from its trading unit in H1 prompted the company to increase its 2019 earnings outlook range by Eur200 million to Eur1.4 billion-Eur1.7 billion.

Next winter 'entirely different' for lignite

Output from its German lignite plants plunged 26% on year or almost 10 TWh in H1 to 24.7 TWh, it said.

"During certain weeks this summer, the extremely low gas prices and higher CO2 prices resulted in gas-fired power stations often generating electricity more cost-effectively than hard coal or lignite power plants," CFO Markus Krebber said. "Next winter, things will be entirely different," he added.

Output from hard-coal plants in Germany, the Netherlands and the UK fell 39% or 5.3 TWh to 8.2 TWh, with RWE also pointing to an extended outage at its Dutch Eemshaven plant and increase biomass co-firing at its Dutch Amer unit.

RWE's gas-fired power plant output was up 1.5 TWh, or 6.5%, on the year at 24.7 TWh, it added.

There was little change in RWE's hedging positions despite a slight rise in fuel spreads with its CO2 position already "financially hedged until the mid-2020s."

Ninety percent of planned lignite and nuclear output for 2020 and 2021 (65 TWh/year) were hedged by the end of the second quarter, unchanged from the end of Q1, it said.

Average prices, however, were up Eur1 to Eur32/MWh for 2020 and up Eur2 to Eur41/MWh for 2021, slides for an investor presentation show.

RWE, one of Europe's biggest CO2 emitters, also hedged its carbon positions long term with 2019/20 hedged at an average price of Eur5/mt, rising to Eur10/mt for 2021 and Eur16/mt for 2022, the slides show.

EUA carbon allowances have traded just below Eur30/mt last month, their highest in 13 years.

For 2022, RWE now has 60% of its planned lignite/nuclear power output hedged through an implicit fuel hedge at Eur47/MWh -- up Eur3 and 10 percentage points from end-Q1.

This includes the Hambach mining restrictions, which slashed the forecast by 15 TWh/year for 2020 and 2021, but not any measures resulting from the German government's coal-exit plans.

Lignite closure compensation talks

Talks with the federal energy ministry about compensation for proposed lignite closures are expected to conclude in H2, Schmitz said.

He declined to give any detail but confirmed the company's call for at least Eur1.2 billion/GW in compensation for up to 3 GW of plant closures.

The government-appointed coal commission in January recommended the closure of 3 GW of lignite capacity by 2022 focusing on RWE's plants in the Rhenisch mining area of western Germany because of calls to preserve the Hambach Forest.

The company is currently working on a new long-term plan for the mine, which would enable a preservation of the forest, with Schmitz declining to provide any compensation estimates specific to the Hambach issue.

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

--Edited by Jonathan Dart, newsdesk@spglobal.com