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Business

German power giant RWE's profits shrink

Falling wholesale electricity prices caused by cheap renewable energy have been squeezing income at Germany's second biggest power generator, RWE. With profits falling, the company's outlook is far from rosy.

Electricity giant RWE announced Tuesday that its recurrent net income - from which dividends are paid - fell by 44.6 percent to 1.28 billion euros ($1.38 billion) in 2014.

Operating profit, or what a company earns before paying interest, taxes, depreciation and amortization, fell by 9.8 percent to 7.13 billion euros. Sales were also down 7.5 percent at 48.47 billion euros.

RWE said it would nonetheless propose an unchanged dividend of 1.0 euro per share for 2014.

The "crisis in conventional power generation continues," said chief executive Peter Terium. "In spite of this, we will focus once more on growth opportunities in the future, but without losing sight of the need for strict financial discipline."

Germany's expansion of renewable energy has dragged down electricity prices on wholesale electricity markets, eroding the profitability of companies like RWE whose generating capacity consists mostly of coal, gas and nuclear generation plants.

"Framework conditions in conventional electricity generation are deteriorating faster than we can take countermeasures," Terium wrote in the annual report.

"For instance, when I took office in the summer of 2012, a megawatt hour of electricity traded for 49 euros on the German forward market," Terium added. "Since then, the price has dropped to just 32 euros. If electricity forwards remain at this level, sooner or later, RWE Generation will end up with an operating loss, despite the great number of efficiency improvements."

Fight for profitability

Terium went on to say that for this reason, RWE was working with German national policy-makers to rework the electricity market so that conventional power generation would remain profitable.

Looking ahead to the current year, RWE said it expected "a further decline in earnings, despite continuing efficiency improvements and the effects of growth measures."

RWE is carrying a debt load of 31 billion euros. To lighten the balance sheet, the company has sold Dea, an oil and gas production subsidiary, to Russian investors - despite resistance to the sale in Britain, where Dea carries out some of its oil and gas production activities.

nz/hg (AFP, Reuters, dpa)

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