German utility's race for renewables seen as too little and late
RWE AG, the German utility whose coal-fired plants make it Europe’s largest carbon emitter, officially started the company’s largest renewables project on Thursday, a wind farm in Liverpool Bay off Britain’s coast.
The trouble for RWE is the Gwynt y Mor project, able to generate enough power for about 400,000 homes, could prove too little, too late for a utility some investors said has failed to adjust to the transformation of Europe’s power industry.
RWE generated 4.8% of its electricity from alternative energy last year, less than half the proportion of competitor EON SE. In Germany as a whole, 26% of power came from renewables. Even in the UK, where RWE is one of the top six power suppliers, the figure was 19%.
The Essen-based utility, forced to close its German nuclear reactors and grappling with power prices that have fallen every year since 2010, is getting left behind.
Mr Ernst Gerlach, director of Verband der kommunalen RWE- Aktionaere GmbH, a municipal investor association that represents 23% of the company’s shareholders, said that “RWE certainly hasn’t focused on renewables in time.”
In fact, the company’s cutting back on wind and solar investment. In order to shore up its finances, RWE’s reducing its annual capital expenditure on renewables to a third of 2013’s EUR 1 billion in the 3 years through 2017. There’s little prospect of the company ending its reliance on burning coal, especially lignite, a soft type of the fossil fuel.
After this year’s disposal of the company’s oil and gas unit for EUR 5.1 billion, including debt, Mr Peter Terium, CEO, sees RWE in a controlled offensive on wind power, he told reporters on Wednesday in Dusseldorf.
Thursday’s inauguration catapults the company to No. 3 in Europe’s offshore market, he said in a speech at Gwynt y Mor’s operation center in Mostyn, North Wales.
While Mr Terium admits RWE has made mistakes regarding renewables, including underestimating the development of solar power, he said that “it’s reasonable not to spend more money than comes in.”
According to Mr Thomas Deser, a fund manager at Union Investment and a big RWE shareholder, “RWE lacks financial scope to significantly expand renewables and reduce the gap to more advanced competitors.”
He said that “The company strategically has reached a deadlock because the business model to a big part is based on the production of lignite and the generation of electricity from it and from nuclear power.”
While coal-fired production has held its market share in recent years because Germany needed both renewables and fossil fuels to compensate for closed nuclear reactors, there are signs that could be about to change.
Europe can’t afford to keep coal-fired plants going and meet stringent targets to reduce emissions. Germany’s government expects utilities to cut carbon dioxide output in the country by an additional 22 million tonne by the end of this decade to help meet the nation’s target to reduce emissions by 40% from 1990.
Source : Bloomberg