German Energy Giants Recovering from Nuclear Exit

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) -- Germany's leading energy companies are starting to recover from the country's shock exit from the nuclear power sector over a year ago.

The country's largest utility, E.ON AG (OTC:EONGY) (Dusseldorf, Germany), announced that net profit for the first half of 2012 has tripled. It cited a favourable gas price deal with Russian company Gazprom OAO (PINK:OGZPY) (Moscow, Russia), along with not having to pay the government's controversial nuclear "fuel rod" tax, now that the government is in the process of shutting down the country's 17 nuclear reactors. RWE AG (OTC:RWEOY) (Essen, Germany) is not showing the rapid financial recovery of its rival E.ON, but its financial performance is improving overall. The company, which has not yet finished renegotiating all its gas deals, posted a 0.4% drop in net profits to €1.58 billion ($1.95 billion) for the first six months. E.ON tripled its net profit for the same period to €3.13 billion ($3.9 billion).

At the end of 2011, both companies reported losses amounting to billions of euros as a result of the German government's decision to dump nuclear power. For additional information, see November 16, 2011, article - Nuclear Exit Hits German Energy Giants.

"We successfully renegotiated our gas-procurement contracts and the transformation of our company through our E.ON efficiency-enhancement program is moving forward according to plan," said E.ON CEO Dr. Johannes Teyssen, presenting the results.

However, the company's generation business continues to suffer, which will lead to reduced plant projects in Europe and the possible closure of existing plants if demand does not improve.

"In our power generation business in Europe, however, reduced demand continues to adversely impact capacity utilisation, prices, and margins," Teyssen told shareholders. "We'll therefore further optimise our conventional generation portfolio, reduce costs, enhance our assets' flexibility, and even explore closing assets where necessary. If certain assets in Germany can't be operated economically at this time but are important for ensuring the stability of the power supply, we're therefore working with the relevant agencies (the Federal Network Agency in Germany, for example) and with local system operators to find solutions that will allow these assets to stay in service as reserve capacity for a transition period."

Last week, subsidiary E.ON U.K., outlined the closure timetable for the Kingsnorth coal-fired plant, the first step of which will see its capacity reduced from 1,940- megawatts (MW) to 970 MW by December. It will shut the plant down completely by March 2013, two years earlier than expected. For additional information, see August 21, 2012, article - E.ON Begins Kingsnorth Shutdown in December.

RWE's slower recovery was blamed on a number of factors, including delays to gas price renegotiations.

"The present framework conditions are anything but favourable", said Peter Terium, CEO of RWE. "Mounting state intervention in the energy sector, shrinking power plant margins and fierce competition in electricity and gas supply are all challenges we are facing. We will have to do more to successfully offset the declining margins in electricity generation, simultaneous pressure from a growing number of competitors and the ongoing challenges resulting from the transformation of the German energy industry."

As a result, it announced additional job cuts of 2,400 in the period to 2015, bringing the total to more than 10,000.

The company is still fighting for compensation from the government over the early exit from the nuclear power sector and also announced that that it is planning to halt its new plant build programme, in the face of declining demand for electricity.

Terium said: "We are exiting from nuclear power with conviction -- and not just here in Germany. The cluster risk this technology presents is not an option in the long run. Irrespective of the exit from nuclear energy, our constitutional concerns remain over the effects of the decision to shut-down our Biblis nuclear power plant prematurely and the failure to provide compensation for the accelerated exit from nuclear energy. We will not be building any more major new coal or gas-fired power plants for now, either."

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