RWE to cut 6,750 jobs across Europe

14 November 2013
By Edd Gent
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An RWE advertising placard, reading

An RWE advertising placard, reading "with guarantee to economise"

RWE will cut 6,750 jobs across Europe and reduce costs by €1bn (£840m), as the expansion of renewables hits wholesale prices.

The German power giant had previously announced cuts, which when combined with those announced in a letter to shareholders today count for roughly 18 per cent of its workforce.

The firm predicted its pre-tax profit for 2014 would fall from 2013, at between €7.6 and €8.1bn, compared to about €9bn this year – largely due to the transition to renewable energy in Germany, where power from solar and wind are increasingly replacing that from fossil fuel power stations.

“We have identified additional measures to be implemented over the next four years, representing a gross volume of €1bn,” said CEO Peter Terium. “Allowing for general cost increases, an earnings potential of at least €500m is expected to come from these efficiency measures, which should be realised in full and in a sustainable manner from 2017 onwards.”

Frederik Dahlmann, assistant professor of Global Energy at Warwick Business School, said the development is in line with several recent announcements by major European utilities.

“While some speak of industry transformation, there are others who believe a new industry is emerging altogether,” he said.

“The recent announcements about poor financial profits, resulting in restructuring efforts and efficiency programmes highlight the significance of major strategic planning mistakes and unforeseeable external events that are now causing severe headaches for the companies’ executives.

“The first error was that these utilities invested into new (predominantly fossil-fuelled) power plants which, at least for the time being, they can no longer operate in a commercially viable way. The recession is continuing to affect many of Europe’s countries and utilities are faced with stagnating demand for their energy as a result.

“The second issue is that companies like RWE also appeared to be extremely reluctant to predict the severe impact that renewable energies would be having on their home markets. These new forms of power generation are legally given precedence to the grid with the outcome that existing fossil fuel plants must often either be switched off or operate at a loss.

“Lastly, the nuclear accident at Fukushima caused a major policy change in Germany with the effect that both E.On and RWE were suddenly left with a much reduced income stream from their nuclear power plants that they used to rely on.”

As an added blow, German parties negotiating the formation of a coalition government want to make utilities pay more to dismantle their nuclear power plants and protect taxpayers from billions of euros in related costs, according to documents obtained by Reuters.

"A ... fund could be considered to safeguard the financing of the disposal of nuclear assets," the paper from the working group on environmental policies said.

Under the new proposal, the utility companies could be forced to pay into the fund, which would be under political control.

Over a dozen working groups are hammering out policy compromises on a range of issues with the aim of forming a government in December. The nuclear proposal would have to be approved by a larger coalition panel led by Merkel and other party leaders before it was set in stone.

"We expect cooperation from the nuclear power operators in the switch to renewable energy and an acknowledgement of their responsibility for the orderly ending of the use of atomic energy," the paper said.

The idea of a fund reflects concerns that Germany's four nuclear power companies have taken insufficient precautions to pay for the dismantling of the plants and storage of atomic waste, despite the fact that  E.ON, RWE, Vattenfall and EnBW have already put aside €30bn in provisions.

Currently, German taxpayers would be liable if one of the companies, which have become heavily indebted partly because of Germany's drive towards renewable energy, filed for bankruptcy.

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