* Expects 2011 operating profit to fall 20 pct
* Analysts see 2011 operating profit down 16 pct-poll
* Posts 2010 operating profit of 7.7 bln euros
* Analysts forecast 2010 operating profit 7.5 bln euros
* Shares fall 5 percent (Adds analyst comment, CEZ earnings, background)
By Peter Dinkloh
ESSEN, Germany, Feb 24 Germany's RWE (RWEG.DE), Europe's fifth-largest utility, said it will cut investments and sell assets to limit the burden of higher taxes and lower power prices that will lead to three years of falling profits.
The power provider plans to sell assets worth 8 billion euros ($11 billion) and reduce investments by 3 billion through 2013, but profits will nonetheless drop during that period before they start to pick up again in 2014.
RWE's situation is "pitch black," Kepler Equities analyst Ingo Becker said. "After disposals, everything looks even worse."
An unprecedented 8-year period of ever rising earnings on the back of climbing commodity and power prices ended for power providers last year, and the effects of the economic crisis are weighing on earnings.
"The company is preparing for a difficult market environment," RWE Chief Executive Juergen Grossmann said on Thursday. "We are rolling up our sleeves."
Utilities' share prices have been dropping already for the last two years -- with the industry being the worst performing sector -- as investors realised that demand for energy is slumping, even though profits of power providers still benefited from power sold at record prices for delivery in the future.
Accordingly RWE posted a record operating profit for 2010 of 7.7 billion euros, 8 percent higher than in 2009 and more than the 7.5 billion expected according to the average of 14 analysts in a Reuters poll. [ID:nLDE71K1DL]
But the all-time high also marks the end of that winning streak.
For six years a tax and a renewable energy levy on nuclear power plants will take around 2.5 billion euros annually off the profits of German utilities, in an agreement that will in turn allow them to operate the highly profitable plants for some 12 years longer.
Due to those factors RWE is forecasting operating profit will drop 20 percent this year to some 6.16 billion euros ($8.47 billion), more than the 16 percent decline predicted by 14 analysts in a Reuters poll.
The largest emitter of carbon dioxide in Europe predicted its operating profit would be at 5 billion euros in 2013, when it will have to fully pay for emission certificates.
That is almost 30 percent less than it previously predicted and some 20 percent less than what analysts expect according to Thomson Reuters StarMine.
Shares slumped 5.8 percent to 49.09 euros at 1105 GMT, while the Stoxx 600 Europe utilities sector index .SX6P was down 0.7 percent.
Other European utilities on Thursday posted earnings in line with what the market expected.
Spanish power provider Iberdrola (IBE.MC) said earnings before interest, taxes, depreciation and amortization (EBITDA) rose 10 percent to 7.5 billion euros, as expected by analysts polled by Reuters. [ID:nLDE71M1Q4]
Chairman Ignacio Galan predicted EBITDA in 2011 would climb in line with its medium term expectations of a rise of as much as 9 percent.
British utility Centrica (CNA.L) reported adjusted operating profit of 2.4 billion pounds ($3.89 billion) in 2010, in line with analyst estimates according to StarMine. [ID:nLDE71N0BJ]
Czech power group CEZ CEZPsp.PR said net profit dropped by 9 percent last year to 47.2 billion crowns ($8.54 billion), above the company's guidance for full year profit of 46.7 billion. [ID:nLDE71N0Z9]
CEZ was due to report results on Monday, but by mistake released a press statement on the results on Thursday.
CEZ shares slid 0.7 percent, Centrica was down 0.3 percent and Iberdrola lost 0.7 percent. ($1=.7270 Euro) ($1=.6165 Pound) ($1=5.525 Crown) (Reporting by Peter Dinkloh in Frankfurt, Jonathan Gleave in Madrid, Adveith Nair in London and Jan Lopatka in Prague; Writing by Peter Dinkloh; Editing by Jon Loades-Carter)