January 10, 2013

RWE's Renewables Unit Calls For More Reform of German Energy Policy

Germany urgently needs to press ahead with reforming its energy market, but a series of elections, including general elections in the autumn, could mean standstill for much of 2013, said utility RWE AG's (RWE.XE) renewable energies chief Thursday.

Speaking to journalists at the company's head office in Essen, Hans Buenting, managing director of RWE Innogy GmbH, said that the government's top priority in terms of energy policy this year should be a reform of the renewable energies law to help contain the spiraling costs of subsidizing "green" technologies like wind and solar power.

However, asked how much progress he expects to see on the energy policy front in 2013 as lawmakers across the political spectrum are gradually entering campaign mode, Mr. Buenting said: "Personally, I don't think we will see much progress ahead of the general election."

Mr. Buenting warned that more action is required to avoid massive cost overruns and secure continued support from the population for Germany's ambitious energy revolution, which includes plans to exit all nuclear power production over the next decade and a massive expansion of renewable energies.

"In its present form, the renewable energies law isn't sustainable...," in light of rapidly rising costs for the support of "green" technologies.

The law is the center-piece of Germany's strategy to source at least 35% of electricity consumption from "green" technologies by 2020 and at least 80% by the middle of the century. It regulates fixed prices that operators of renewable power facilities are guaranteed for their output. The subsidies are slapped on retail power prices, which means that consumers are paying the costs of the country's energy revolution.

The system has come under increasing fire from consumer groups and industry alike, who fear that private incomes and profits could severely suffer if power prices continue to rise.

RWE's Mr. Buenting also said that legislation aimed at speeding up the expansion of power grids and the construction of grid connections for planned large-scale offshore wind farms, which passed by lawmakers late last year, may require more adjustments to provide further incentives to invest in renewable projects.

For instance, liability issues for delayed grid connections for offshore wind farms have been addressed in a bill passed in December, which RWE says has considerably improved planning capabilities for investors.

Mr. Buenting criticized, however, that the liability rules only compensate an offshore wind farm operator for up to 90% of lost revenue if a grid connection is delayed or damaged.

In consequence, RWE is still considering possible legal action to claim compensation, if the damages caused by significant delays to hooking up the planned offshore wind farms to the German power grid exceed the payments under the new liability rules, Mr. Buenting said.

Mr. Buenting also said that considerable delays to connecting German offshore wind farms to the power grid have forced RWE Innogy to review its medium-term profitability targets.

So far, the company targeted 500 million euros ($653 million) in operating profit by 2014, but Mr. Buenting said that delays to grid connections and falling power prices across Europe due to the weakening economy could mean the target will be reached later than planned.

Mr. Buenting declined to elaborate on the matter, adding that RWE will provide more details at its annual press conference March 5.

He also said that he expects RWE Innogy to have delivered on its 2012 profit guidance for an operating profit at around the 2011 level of EUR181 million.

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