German utility RWE on Thursday said it plans to ramp up cost-cutting measures at its conventional power plants to compensate for losses from falling electricity prices.
Germany’s second-largest electricity utility plans to cut 2,300 jobs at its coal, gas and nuclear power plants by 2020. RWE projects annual savings of €1.5 billion ($1.6 billion) from the layoffs and other cost-cutting measures.
The Essen-based utility had originally planned to cut 2,000 positions under an efficiency program introduced in 2013. But RWE’s financial outlook has only worsened in the ensuing years.
“There’s no reason to ease up,” said Matthias Hartung, chief executive of RWE’s conventional power division. Times call for increasing efficiency measures and reducing costs, he said.
In the first quarter of 2016, RWE’s earnings before tax and interest collapsed by 20 percent. The utility’s coal, gas and nuclear plants brought in €354 million compared to €441 million the year prior.
The challenge for utilities like RWE has stemmed from Germany’s ambitious effort over the past decade to transition towards renewable energy sources.
In the first quarter of 2016, RWE's earnings before tax and interest collapsed by 20 percent.
RWE, like its rival Germany utility E.ON, has chosen to split the company into two parts. RWE subsidiary Innogy now runs the renewable power divisions, while the parent company RWE maintains conventional power generation.
As German taxpayers subsidize wind and solar energy to finance the country’s transition away from fossil fuels and nuclear power, a glut of cheap electricity has flooded the market, undercutting traditional power generation.
RWE currently receives €27 for a megawatt hour of electricity on the European Energy Exchange in Leipzig. Four years ago, the utility received twice as much.
The state of North-Rhine Westphalia has also cut back on the amount of coal that can be extracted from the region, putting additional pressure on RWE’s conventional power operations.
Originally, RWE was allowed to extract 1.2 billion tons of coal from the region. But an additional 400 million tons now has to remain in the ground.
“That’s a very significant limitation,” Mr. Hartung said.
But there’s also a silver lining. The decision provides “clarity” and “planning security” for RWE by confirming that coal can be extracted in the region through the middle of the century, Mr. Hartung said.
Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. To contact the author: firstname.lastname@example.org