Green Germany: Gas-Fired Power Plants No Longer Viable

  • Date: 14/11/12
  • Gerrit Wiesmann and Pilita Clark, Financial Times

Eon, Germany’s biggest utility by sales, has ditched its profit target for 2013 after warning that its gas-fired power stations have become “barely profitable to operate” because of weak economic conditions and a surge in renewable energy in Europe. Eon said it would close two gas-fired plants in Germany and possibly others elsewhere.

Eon shares fell 11.5 per cent to €14.64.

Johannes Teyssen, chief executive, said “dislocations in European energy markets are stronger than ever” and he would consider further cost cuts and asset sales and review investment plans. “Prices and margins are under pressure in every European market.”

German power companies are struggling to adapt to the government’s decision to phase out nuclear power generation by 2022, in the wake of the Fukushima disaster in Japan, and to boost renewable energy generation. Now the eurozone crisis and the region’s economic slowdown appear to be compounding their problems.

Germany’s energy reforms have seen a flood of subsidised electricity produced by wind and solar power plants drive down wholesale prices during times of peak demand, eroding the profitability of gas-fired power plants in particular.

Mr Teyssen said operating margins at some gas plants were so low they could not cover recurring costs, let alone the cost of capital. With renewable energy enjoying priority access to the grid, one gas-fired plant had run only nine days this year.

Although nine-month earnings before interest, tax, depreciation and amortisation were up 35 per cent on the year-ago period, the company said targets for 2013 were no longer achievable. In the spring Eon had forecast that next year’s ebitda would rise to €11.6bn-€12.3bn with an underlying net profit of €3.2bn-€3.7bn.

“We have a lot of work to do now,” said Mr Teyssen, promising to publish a fresh forecast for 2013 and broader guidance into 2015 at the start of next year. “We have come to realise that we have to change more radically and faster than we had planned.”

Eon said it would close two gas-fired plants in Germany and possibly others elsewhere. In addition asset sales could be increased from its current plan of €15bn, of which €13bn have already been realised. However, Mr Teyssen cautioned it was “way too early” to say whether Eon would have to cut more than the 11,000 jobs being shed globally.

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