RWE raises earnings forecast as energy crisis boosts power prices
German utility emerges as big winner from soaring cost of gas and electricity
RWE has raised its full-year earnings guidance as the German utility emerges as a big winner from the energy crisis that has driven the cost of power and gas to record highs and fuelled inflationary pressure across the continent.
Citing a “dynamic market environment”, the company said it now expected to generate €3.6bn to €4bn of adjusted earnings before interest, tax, depreciation and amortisation in 2022, up from an earlier forecast of €3.3bn to €3.6bn.
“It all boils down to higher energy prices,” said Lueder Schumacher, analyst at Société Générale, referring to the new profit forecasts.
He said the earnings upgrade had been driven by RWE’s often overlooked Dutch biomass business, which turns waste from the wood and paper industry into pellets that are burnt to generate electricity, plus its nuclear and coal-fired power plants, which managed to secure higher generation margins.
German baseload power prices surged last year, rising from about €50 per megawatt hour in January 2021 to a record €438 in December, before retreating this year to less than €200 MWh.
RWE’s biomass business in the Netherlands benefits if market prices rise above a maximum level set by the government, which they did in December when power prices across Europe surged to record levels.
RWE expects its gas, biomass and hydro power unit to deliver adjusted ebitda of €700mn to €900mn this year, up from an earlier estimate of €550mn to €650mn. In coal and nuclear, guidance has been revised to a range between €650mn and €750mn, up from €550mn to €650mn.
Schumacher said it was good news that most of the upgrade was attributable to RWE’s biomass business, and that Germany’s biggest power producer could raise guidance further later in the year.
About 30 per cent of RWE’s output from wind and solar farms is not sold under fixed price contracts. These so-called merchant volumes are sold forward in the future markets, where prices for 2022 and 2023 remain high.
JPMorgan said in a recent report that it expected German power prices to average €154/MWh in 2022 and €135/MWh in 2023.
RWE is one of several German power generators, notably Uniper, that sought extra financing in recent months based on expectations that gas prices would remain volatile into the next winter.
Security of gas supplies remains a big concern in Europe, particularly with concerns over a Russian invasion of Ukraine still high. Germany, Europe’s largest gas importer, plans to pass measures in spring that would force energy companies to build up reserves.
RWE shares rose 5.4 per cent to a near 11-year high of €38.90 on Thursday, extending gains of the past year to 20 per cent.
“With our diverse portfolio, both from a technological and geographical point of view, RWE is a reliable generator of electricity,” said RWE’s chief financial officer Michael Müller. “In a dynamic market environment, we are able to secure higher generation margins.” RWE is due to publish its annual results on March 15.