Tuesday, November 13, 2012

E. ON's Value drops €3bn as it puts it;s earnings targets under review

As Noted in my previous post, investors continue to lose faith in the profitability of traditional European generation companies - because the companies have reduced prospects of being profitable without outperforming renewables in the search for non-market revenues (aka, by some, subsidies).

E.ON upends mid-term targets on lack of business clarity: Recharge News

The huge challenges confronting European utilities were hammered home as E.ON put its mid-term earnings targets under review, citing stiff headwinds for its traditional power-generation business in the absence of capacity mechanisms for back-up plants.

Nearly €3bn ($3.8bn) was erased from E.ON’s market capitalisation as shares fell more than 10% on 13 November on the update.

E.ON, by some accounts the world’s largest non-state energy utility, insists it will meet the updated 2012 forecast it issued in August. However, its guidance for next year no longer seems achievable “considering the substantial economic uncertainties and the structural changes in the energy industry” in Europe, according to chief executive Johannes Teyssen.
E.ON’s forecast for 2015 – revamped in the wake of Germany’s decision to phase out nuclear and prioritise renewables – has also been placed under review.
Ratings agencies have been ramping up warnings that renewables may pose a structural threat to the creditworthiness of utilities like Dong, E.ON and RWE – traditionally low-risk companies upon which many institutional investors rely, and ironically among the largest renewables investors in the world.
With an eye on Europe’s carbon targets, E.ON has invested heavily in the gas side of its business in recent years, and only several days ago brought a massive new underground gas storage facility on line in northwest German, among the largest of its kind in Europe.

But Teyssen says that gas-fired power plants are “barely profitable” in Europe, in language that many will see as lumping pressure on EU governments to rapidly establish some sort of capacity mechanism. Such a system would see gas operators paid to keep plants on line to act as back-up for renewables.

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