RWE Said to Drop Two Coal-Fired Power Contracts as Demand Falls

Dec 23, 2013 4:50 am ET

Dec. 23 (Bloomberg) -- RWE AG, Germany’s biggest electricity producer, plans to drop at least two long-term contracts to buy wholesale power because of sagging energy demand, two people familiar with the matter said.

RWE won’t extend agreements with generator and trader STEAG GmbH for several hundred megawatts of hard coal-fired power that expire in the next two years, one of the people said. RWE also isn’t renewing contracts with other operators of two smaller hard-coal plants, the other person said without being specific. Both asked not to be named because the matter is private.

German power prices for 2014 slumped 17 percent this year as renewable energy production surged and power consumption fell to the lowest since 2009, cutting margins at gas- and coal-fired power stations. RWE will shut 3,100 megawatts of capacity in Germany and the Netherlands, about 7 percent of its production in northern Europe, and is looking to idle more stations, the Essen-based company said in August.

Stephanie Schunck, a spokeswoman at RWE, declined to comment on decisions not to extend contracts because the matter is private. A decision on 1,450 megawatts of contracted hard coal plants will be taken at the end of 2013, Chief Financial Officer Bernhard Guenther said Oct. 15.

German utilities can buy power from other generators at fixed rates with the intention of selling the electricity at a profit. The long-term contracts can lose money if prices stay low for extended periods.

Joint Owners

RWE and STEAG jointly own two power plants in the Rhine- Ruhr area: the 717-megawatt Bergkamen hard-coal station of which RWE owns 51 percent, and two 710-megawatt hard-coal units in Voerde where RWE has a 25 percent stake, according to STEAG’s website.

German 2014 power, a European benchmark, fell to a record low of 36.20 euros a megawatt-hour in August, according to broker data compiled by Bloomberg. The contract traded at 37.35 euros a megawatt-hour as of 10:05 a.m. Berlin time.

Power use in Germany’s biggest energy market fell 1.8 percent to 596 terawatt-hours this year from 2012, according to AG Energiebilanzen e.V., an association of energy lobbies and economic research institutes.

--Editors: Andrew Reierson, James Herron