Analysis: RWE scales down renewables spend

GERMANY: RWE, one of Germany's four largest energy companies, has caused increasing consternation in the UK in recent months by selling stakes in several onshore and offshore wind farms.

Cable installation on RWE's Nordsee Ost wind farm
Cable installation on RWE's Nordsee Ost wind farm

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This includes downsizing the Triton Knoll offshore project and abandoning the 1.2GW Atlantic Array offshore wind project altogether.

Both these projects have been under development by RWE since the mid-2000s and formed a vital part of the UK's plan to generate 25% of its total electricity needs by 2020. A cornerstone of the UK's future electricity supply strategy appears to be crumbling.

But for RWE, the moves are part of a repositioning to deal with problems that include drastically reduced earnings due to ongoing low wholesale electricity prices at a time when the company struggles with massive EUR 30 billion in debts.

In the UK, RWE's conventional generating division made a EUR 69 million operating loss in the first nine months of 2013, compared with a EUR 162 million profit in the equivalent 2012 period. And the market is not getting any easier. "Profits are not an entitlement, they should be earned by companies competing keenly to offer consumers the lowest prices and the best service," said Andrew Wright, chief executive of UK power regulator Ofgem, in early January.

RWE's move towards a more cautious approach on offshore wind follows the sunk investments in Atlantic Array, which the company declined to disclose for being commercially sensitive but are believed to be around EUR 15.6 million. Meanwhile, Triton Knoll was downsized to 600-900MW in January from 1,200MW.

Troubles at home

Proving it is not just RWE's UK plans that have been hit, there has been an EUR 260 million impairment loss on its German offshore project Nordsee One in 2013. The utility also plans to divest its offshore wind installation vessels Victoria Mathias and Friedrich Ernestine, it announced in mid-September 2013.

The company has also announced sharply reduced overall renewables investment. A July 2013 company presentation heralded EUR 2 billion investment by RWE over the period 2013-2015, but this had dropped to just EUR 1 billion renewables investment over the period 2014-2016 in a January 2014 presentation.

It is believed most of this money will go towards the development of two offshore projects, Nordsee Ost in Germany and Gwynt n Mor in the UK, by 2015. The RWE Innogy presentation on 15 January said RWE has an onshore pipeline of 700MW. The final investment decision is due in the period 2014-2016 for 380MW in the UK, 130MW in Germany, 100MW in the Netherlands and 80MW in Poland. Actual installation could thus take place after 2016.

Other "building blocks" to improve its balance sheet could affect more UK wind investment. RWE aims, for instance, to reduce "discretionary" capital expenditure by EUR 2 billion over the 2013-2016 period — that is, optional investments to expand business may be reduced or cancelled if they are no longer deemed profitable, which arguably could include offshore wind investments.

On the brighter side, partnering is viewed as a good possibility to implement projects with less capital, according to Hans Bünting, CEO of the company's renewable division, RWE Innogy. Divesting stakes in onshore and offshore wind projects also enables capital to be "recycled", such as sale of 49.9% of the 90MW Rhyl Flats offshore project to Greencoat UK Wind  and UK Green Investment Bank announced in March 2013.

Now, RWE is looking for project finance partners for the Nordsee Ost (Germany) and Galloper (UK) offshore projects, with investment decisions on the two facilities due this year, Bünting said. There has clearly been some slippage. Last August, a final investment decision for Nordsee Ost had been heralded for the start of 2014.  RWE is seeking investors in a buyers market. Other offshore projects also looking for investors in the current uncertain climate include Bard's permitted Veja Mate and Windreich's permitted MEG I.  Considerations at the EU Commission not to set a binding renewables target for 2030 does not help the investment climate, with the UK among the EU member states opposing a fixed target.

As part of the transformation to deal with its stringent financial situation, RWE now intends to act as an offshore and onshore wind project developer, selling projects to buyers at a profit instead of developing them for its own asset portfolio. It hopes to continue in the role of project operator and shoulder electricity marketing for these projects, Bünting said. RWE has set up an 870MW  "virtual power station" of renewables capacity for marketing electricity into which the 295MW Nordsee Ost will be integrated once it is operating, he said. Scheduled full commissioning in Q1 2015 looks optimistic.

With offshore wind looking wobbly, the company's future commitment to the UK electricity market looks uncertain. This follows a provisional decision in January to close seven fossil-fired stations, admittedly several of them veteran cases, by 2023 at the latest. This, in turn, followed the exit from a UK nuclear strategy in 2012, when Horizon Nuclear Power, a joint venture with fellow German energy company E.on, was sold to Japan's Hitachi.

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