Holding out two hands

Op: 20 augustus 2014
Door: vdvdstoep

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Holding out two hands

Last week, RWE presented its results for the first six months of 2014. The EBITDA (the results before interest, tax, depreciation and amortization of loans and goodwill) is 32% lower than in the first six months of 2013. When the EBITDA is adjusted for ‘one-off’s (are you still following me?) the results are even 62% lower than in 2013….

I can hear you think: “Too bad for RWE!” Right? Don’t worry, the EBITDA for the first six months of 2014 still is 3.4 billion euro. Nothing RWE should be sad about. RWE chief Peter Terium begs to differ: because new black-outs are expected!

Explanation
The general explanation for the bad results is brief and focusses on two main topics: the mild winter (which resulted in low gas sales) and the on-going period of low electricity prices.
Terium gives a more comprehensive explanation. He declares that RWE is going to take another 1.000 MW from the marked, which totals to a decrease of 9.000 MW in RWE’s capacity on the European market. RWE is not the only party lowering the capacity and Terium warns the government to take action, as the energy supply and security are in danger. Terium takes the opportunity to pledge for a ‘capacity mechanism’: a subsidy for parties like RWE to secure profits for their fossil-fuel powered energy plants. Speaking about black-outs…

Fossil investments
According to their own website, since 2006 RWE invested approximately 12.4 billion euro in fossil fuelled production capacity. With this investments it developed 12.4 GW of fossil generation, an average investment of 1 euro per Wp: a good average. From this 12.4 billion euro, 4.5 billion is used for 7.2 GW gas powered plants: a lower investment of 0.62 euro per Wp. The investment per Wp for coal (3 GW and 5.3 billion euro) is considerably higher: 1.72 euro per Wp. Oddly, RWE will take out mainly gas powered plans.

Magritte Group
RWE, together with other energy giants, is part of the self-appointed Magritte Group. Some other companies in this group are E.On, Enel, ENI and Iberdrola. Dutch company GasTerra is part of the group as well. End 2013, the Magritte Group appeared prominently in the news. It called for a halt on subsidies for renewable energy, because “the rise of renewable energy would shortly lead to black-outs in Europe”. The Magritte Group already had to cope with a significant black-out; since May 2008 the shared market value of the ten publicly traded members (GasTerra is not publicly traded) dropped with 264 billion euro. In the beginning of this month the companies’ combined value was even less than 300 billion euro. If you are a director of such a company and have negotiated options, you better hope these are put-options.

Sustainable investments
On their website RWE tries to brand itself as a sustainable company. Very peculiar, as the chief is constantly speaking out against renewable energy, but alright. RWE is fairly open about current projects, but also about planned activities and developments of renewable capacity, concerning both wind on land and on sea.

According to the RWE website, it is currently building 1 GW and developing even 4,8 GW. All wind-energy! And this all “heavily subsidized”, as Terium himself puts it.
Other members of the Magritte Group are also doing their utmost. A quick look on the website from E.On learns that one of its goals is to realise 350 MW wind-energy capacity onshore, plus 150 MW offshore. Thus, E.On has the goal to build half a GW of wind-energy capacity annually. The website of Enel Green Power shows us that, for 2014 – 2018, it plans to build no less than 4.6 GW renewable energy capacity. It already developed 0.9 GW and 2.2 GW is currently under construction. The interim figures from Iberdrola show that it realised 536 MW (another half a GW) additional capacity.

Market failure
The members of the Magritte Group are good at playing the game and Terium seems to be their spokesperson. They are threatening with black-outs and shouting out for capacity mechanisms to keep their already existing fossil generation profitable. Under the flag of security of supply they are simply asking for subsidies to compensate their failures. At the same time they are cashing in on subsidies for renewable energy themselves: the issue they detest and even constantly blame for their lacking results.

Again looking at RWE, we see a company that developed 12.4 GW fossil generation in the past eight years, now decommissions 9 GW, while developing 5.8 GW renewable generation. We see a company that is lagging behind. We see a company that is partly to blame for the current overcapacity in the market, still mainly fossil, and a company holding out two hands; the left hand for renewable energy subsidies and the right hand for subsidies to “keep their existing fossil generation operational” in order to prevent black-outs.

Such a company does not deserve a ‘capacity mechanism’ to keep fossil generation operational. Such a company deserves a slap in the face.

Jan Willem Zwang


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