UPDATE 1-RWE denies report on Garzweiler mine closure

Tue Oct 8, 2013 6:04am EDT

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FRANKFURT Oct 8 (Reuters) - German utility RWE has denied a report it is considering the early closure of its Garzweiler brown coal mine, though it reaffirmed it is pressing ahead with restructuring measures due to the unprofitable wholesale market for power.

The Sueddeutsche Zeitung newspaper said on Tuesday, without citing sources, that RWE's operations at Garzweiler would stop when all the lignite, or brown coal, had been mined from areas already cleared of towns and villages.

That signalled a potential closure in 2017-2018, compared with the official plan to keep the mine running until 2045.

"RWE affirms it holds on to its current plans to continue the Garzweiler II operations," chief executive Peter Terium in a statement, adding flexible brown coal generation plants were needed to complement volatile renewable energy.

RWE and peers E.ON and Vattenfall are searching for ways to cut costs in response to depressed power generation prices, in part due to the sluggish European economy and also to Germany's drive to expand renewable energy.

RWE operates thousands of megawatts of brown-coal-to-power capacity in its core North-Rhine Westphalia region and needs local supplies to fuel them.

Matthias Hartung, CEO of the RWE Generation subsidiary, said there were 1 billion tonnes of brown coal left in the Garzweiler mine, which produces between 35 and 40 million tonnes annually.

"Garzweiler supplies the new brown coal fired power station at Neurath with coal, which is why it makes no sense to shut the mine," said Roland Vetter, head of research at CF Partners, an advisory, trading and investments firm.

However, RWE reaffirmed it was "looking to face its operational challenges with a tough cost cutting programme in all parts of the business."

The group in August listed old brown coal generation capacity under review for potential closure, including the Frimmersdorf P and Q blocks with 287 MW and 285 MW capacity respectively, and Goldbergwerk J of 70 MW.

German forward power prices, at 38.10 euros a megawatt hour for year ahead delivery, have fallen a third in value over the past two years and are trading at levels last seen eight years ago.

"Old power stations are not efficient, the fuels cost too much and on top of this have to cut the hours they run when there is too much renewable supply in the market," Vetter said.

Fixed costs were often not being covered when personnel and maintenance were factored in, he added.

RWE in August 2012 opened 1,100 MW Neurath and still has new hard coal capacity under construction at Hamm.

Coal generation is saddled with uncertainty over long-term emissions rights prices, environmental protests, and comes with costly obligations to recultivate regions after mine closures.

Separately, RWE is planning to bundle its retail sales businesses, a source familiar with the situation said.

This followed a report in business daily Handelsblatt saying it would seek to build a western European holding for distribution activities in Germany, the Netherlands, Belgium and Britain.

RWE stock traded at 26.58 euros, down 1.3 percent at 0925 GMT, underperforming a 0.2 percent fall on the benchmark DAX. (Reporting by Vera Eckert, additional reporting by Henning Gloystein and Tom Kaeckenhoff; Editing by Maria Sheahan and Mark Potter)

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