German Utilities Hammered in Market Favoring Renewables
While utilities across Europe have seen demand dwindle, those in Germany are also contending with a phase-out of nuclear energy. RWE and EON acknowledge the decision to close all reactors by 2022 forces them to abandon plants they had counted on to produce income for years.
Smaller competitor EnBW Energie Baden-Wuerttemberg AG said last month it will shut four plants in Marbach and Walheim following “a drastic fall in revenue.” The utility expects earnings from generation and trading to plunge as much 40 percent this year.
The shift from fossil fuels has also hurt other operators in the country. Vattenfall AB, a Swedish utility with coal and nuclear plants in Germany, announced plans July 23 to split off non-Nordic units after writing down $4.6 billion. It will have to cut investments and push through deeper cost cuts, it said, partly blaming the failure of nations to align policies.
“The idea of an integrated European energy market is in shambles,” Chairman Lars G. Nordstroem said last month. “Energy politics is becoming increasingly national. Everyone looks at their natural assets and their policies.”
Eoin Treacy's view Nothing highlights Europe's energy disadvantage
more than the underperformance of the utility sector. Not only is the Eurozone
a major energy importer without a significant domestic supply of oil and gas,
but a number of countries have embarked on an ideological quest to introduce
renewable energy at uncompetitive rates.
The FTSE350 Utilities Index has been trending higher against the DJ Euro Stoxx Utilities Index since 2008 and continues to sustain a progression of higher reaction lows. Since utilities such as RWE and E.ON are not about to go out of business, the question now is whether enough of the bad news been priced in?
The DJ Euro Stoxx Utilities index has lost downward momentum over the last 18 months and has rallied from the 200 area to test the medium-term progression of lower rally highs over the last month. A sustained move back above the MA would be required to begin to suggest a return to medium-term demand dominance.
EDF's nuclear productive capacity represents a relatively fixed cost which has contributed to the shares being the sector's best performer this year. It bottomed in January and has held a progression of higher reaction lows since. While somewhat overextended in the very short term, a sustained move below €20 would be required to question recovery potential. RWE and E.ON are among the sector's worst performers this year. They will both need to break progressions of lower rally highs to question the medium-term downward bias.