RWE boss Markus Krebber warns of energy embargo against Russia

eat The war in Ukraine is currently fundamentally changing the energy market. This was also confirmed by RWE boss Markus Krebber, who was supposed to present the energy group’s strong figures for the past year on Tuesday. It feels “strange”, according to the manager, to hold a press conference in these times, while “a cruel war is raging in the middle of Europe”.

Krebber strongly condemned the Russian attack on Ukraine, but spoke out against an embargo on gas and oil from Russia. He understands the demand for it; However, sanctions must be chosen in such a way that they can be enforced. “An immediate stop would have unforeseen consequences for the heat supply to households,” said Krebber.

In addition, a longer interruption in supply is likely to “permanently damage” the production facilities of industry and small and medium-sized businesses. RWE itself has no active long-term supply contracts for gas from Russia and will not conclude any new energy supply contracts with the country. There is currently only one contract running until 2023 for 15 terawatt hours of natural gas from Russia.

The prices for electricity, gas and other energy sources have been rising massively for months. Panic prevailed on the world market at times due to the war in Ukraine. The gas price rose to more than 300 euros per megawatt hour (MWh) on the spot market and was thus more than ten times as high as a year ago.

Coal prices have also skyrocketed: while a megawatt hour cost 67 euros a year ago, the price is currently 387 euros. In the electricity wholesale trade, one MWh now costs 500 euros – also ten times as much as a year ago.

>> Read here: Fears of a gas supply stop are growing in the energy sector

The energy companies Uniper, VNG and Leag recently had to take out billions in KfW loans in order to have enough liquidity for security payments given the high prices. According to RWE, this has not been necessary so far. “We have extended sufficient reserves and credit lines at short notice,” said CFO Michael Müller on Tuesday. One does not expect to have to resort to support, emphasized Krebber. However, according to company circles, it cannot be maintained forever.

Initially, however, the price development had a clearly positive impact on RWE’s balance sheet. The “extraordinarily strong performance of energy trading” and higher earnings contributions from conventional power generation have led to an adjusted profit (EBIT) of 2.19 billion euros. That was significantly more than in the previous year and also exceeded our own forecast. In January, RWE had already announced a significant increase in the annual forecast.

While the Offshore Wind and Biomass/Water/Gas divisions increased, the adjusted Ebitda of the Onshore Wind/Solar division was significantly below the previous year’s result. RWE attributes this primarily to the cold snap in the US state of Texas last spring, during which numerous power plants failed. The unpredictable weather led to a total loss of 400 million euros. For the current fiscal year, the Group is assuming that business will develop normally.

Energy trading was able to increase significantly due to the price rally. Here, Ebitda climbed from EUR 539 million in the previous year to EUR 769 million in 2021. The coal business also increased significantly again: Ebitda in the coal/nuclear energy segment rose from EUR 559 million to EUR 889 million.

However, the activist investor group led by Enkraft Capital criticizes the group’s increasing coal activities and warns of future burdens: “In 2021, RWE increased electricity production from lignite by 25 percent. Without replacing the lignite activities, RWE will not become a sustainable company in the foreseeable future,” says Enkraft co-founder Thomas Schweppe. Now the profits from the sale of coal-fired power for RWE could flow even longer than assumed.

Comeback for coal?

In order to become less dependent on Russia, Federal Economics Minister Robert Habeck is examining the continued operation of old coal-fired power plants. In view of the Russian attack on Ukraine, it must be ensured that coal-fired power plants are available as a back-up, according to a ministry paper. It refers to lignite-fired power plants from the so-called security reserve.

“We are currently examining which coal-fired power plants can go back online in an emergency or stay connected longer than planned,” said RWE boss Krebber on Tuesday. Another way to help the system is to delay shutdowns that are due this year. “The decision as to whether this should take place will be made by the federal government,” emphasized Krebber. RWE is preparing and is available if necessary. However, that does not change anything on the coal phase-out path, but could at best be a “step aside for a limited time”.

>> Read here: Production stops and supply gaps: This is how the war drives the economy into crisis

But even without additional coal energy, RWE expects a decent result for 2022 at group level, between 3.6 and four billion euros. So far, the company had promised a range of 3.3 to 3.6 billion. For 2022, the utility wants to keep the dividend stable.

More money for renewables

RWE is in the midst of a transition from a former coal giant to one of the largest providers of green electricity in Europe. With the help of an investment offensive worth billions, the group wants to expand its green capacities from the current 25 to 50 gigawatts by 2030.

In 2021, a total of around 3.7 billion euros gross went into the expansion of renewable energies, twelve percent more than in the previous year. At the same time, RWE announced the construction of an LNG terminal in Brunsbüttel. However, CEO Krebber emphasized that the later conversion of the terminal for the import of green hydrogen should be possible. One is optimistic that the project can even be completed before 2025.

But Germany still needs the announced new gas-fired power plants. Here, however, one could consider whether the plants could be operated faster or even immediately with green hydrogen instead of fossil natural gas, according to Krebber.

Despite the good figures, the company’s shares fell by more than two percent at times on Tuesday morning, but then recovered later on.

More: Crisis on the energy market: the federal government had to support the lignite group Leag with a loan worth billions.