* CEO says security of supply under threat
* Germany should follow Britain, France in plant support
* H1 operating profit 2.27 bln eur vs 2.29 bln in Reuters
* H1 recurrent net income 749 mln eur vs 786 mln in Reuters
* Keeps 2014 outlook
(Adds CEO comments, background, share price)
By Christoph Steitz
FRANKFURT, Aug 14 Germany's RWE
reported a 40-percent plunge in first-half profits, blaming
loss-making power plants and warning that power supplies were
under threat unless an ongoing crisis in Europe's energy sector
Germany's power sector has been in turmoil, hit by a
prolonged period of weak energy demand, low wholesale power
prices and a surge in renewable energy sources which continue to
replace gas-fired and coal-fired power plants.
The country's decision to abandon nuclear power by 2022 has
put more pressure on utilities, as they will have to switch off
profitable nuclear plants while spending billions on renewables.
At the same time, some of their mostly-idle plants will be
needed to provide round-the-clock power supply, or "baseload"
steady power in situations when intermittent solar and wind
power sources cannot produce electricity.
"More secured power station capacity will be taken offline
than is added through capital investment. This does not bode
well for security of supply," Chief Executive Peter Terium said
Earlier this week, RWE, Germany's largest power producer,
said it was considering mothballing a further 1,000 megawatts
(MW) of power plants that are unable to recuperate their costs
as they only run a fraction of the time needed to be profitable.
Over the past six year, shares in RWE have lost nearly two
thirds of their value, massively underperforming Germany's
benchmark DAX index, which has gained more than 46
percent over the same period.
The energy sector's imbalance has sparked a debate among
European governments and utilities companies about creating
so-called capacity mechanisms.
The idea is to reimburse energy firms for plants that no
longer cover their costs, but are needed to secure supply of gas
and electricity when renewable power supplies cannot.
Britain and France are pressing ahead with such plans, while
talks between the German government and the country's energy
groups about a solution are planned for the second half of 2014.
RWE's Terium said Germany should follow Britain and France's
Heino Hammann, an analyst at NordLB who has a "hold" rating
on RWE shares, said the situation in Germany's electricity
sector could result in supply shortages.
"When this point is reached is unclear," he said.
"On the other hand, utilities are preparing their bargaining
position. In the end the question remains: who will pay?
Customers or the state?" Hammann said.
Since Germany announced its switch from stable nuclear and
fossil fuel supply to renewables, the risk of power shortages in
parts of the country has risen because reliable back-up capacity
is being forced to shut, putting greater strains on the grid.
RWE said in March that 20-30 percent of its power stations
could not cover their operating costs, after posting its first
annual net loss in more than six decades.
Since the start of 2013, the company has closed 12,600 MW of
capacity, nearly a quarter of its European portfolio.
In the first half of its financial year, the group said
operating profit fell 40 percent to 2.27 billion euros ($3
billion), slightly lower than the 2.29 billion average forecast
in a Reuters poll of banks and brokerages.
Like larger French peer GDF Suez, RWE's results
were also hit by a mild winter.
Recurrent net income declined by nearly two-thirds in the
period to 749 million euros, also lower than the 786 million
RWE kept its outlook for the current financial year and
still expects operating profit of 3.9-4.3 billion euros and
recurrent net income of 1.2-1.4 billion.
The outlook excludes contributions from RWE's oil and gas
exploration and production unit DEA, which it sold to
a group of investors led by Russia's Mikhail Fridman earlier
this year. RWE expects the deal to close by the end of 2014.
Shares in the group fell 2.7 percent in early trade and were
down 2.2 percent by 1142 GMT, while Germany's blue chip index
was up 0.5 percent.
($1 = 0.7482 euro)
(Editing by David Clarke)