* Renewables account for less than 3 pct of operating profit
* Germany installed 25 GW of solar capacity since 2010
* RWE to tackle end-customers in renewable push
By Christoph Steitz and Tom Käckenhoff
FRANKFURT/DUESSELDORF, Oct 31 A latecomer to
renewable energy, Germany's RWE is trying to turn
itself green at a time when it lacks the two resources it needs
most: time and money.
Struggling with falling earnings, 35 billion euros ($48.2
billion) in net debt and a 72-percent drop in its shares from
their 2008 peak, Germany's no. 2 utility has slashed the amount
of its own cash that it plans to invest in wind, solar and other
renewables, and is embarking on a search for partners.
Documents seen by Reuters this week outline a new
'capital-light' approach, under which RWE would bank on third
parties to come up with most of the funds for expensive
"We are convinced that we are not the best capital provider
for that investment programme, even if we had the financial
resources available," says one of the documents, entitled "RWE
Outsourcing some of the green energy spending may be wise,
given RWE's investment track record, but achieving the
transformation will be neither quick nor easy. It is banking on
financial investors, the papers show, and aiming to benefit from
their growing interest in renewable assets.
RWE declined to comment on the new strategy.
"TRAIL OF TEARS"
The documents do not name prospective partners, but Allianz
, Europe's biggest insurer, and Munich Re,
Europe's biggest reinsurer, have started to pour billions into
solar and wind parks, taking advantage of state-guaranteed
Large wind parks usually require investments of at least 1
billion euros, but returns are guaranteed over roughly 20 years,
giving pension funds a good and stable investment case.
RWE, in turn, has a proven track record of constructing and
operating these plants.
Investors should not expect a quick fix, however.
"Debt-laden RWE is facing multiple and transformational
challenges," said Michael Schaefer, analyst at Equinet Bank.
"The 'trail of tears' is long, longer than the market may
German utilities face unprecedented challenges: a
state-ordered exit from nuclear power; tepid energy demand in
Europe; and a massive boom in renewable energy that is pushing
conventional sources out of the market.
The installation of millions of solar panels has turned
households into mini-producers of power and cut dependency on
big players like RWE, E.ON and EnBW.
The squeeze forced RWE earlier this year to slash its
investment goal for renewable unit RWE Innogy to 2 billion euros
by 2015, down from 5 billion. It also scrapped a target of
deriving more than a fifth of its production capacity from
renewables by 2020, up from 8 percent now.
"Conventional power generation used to be the biggest profit
driver at RWE. If this shrinks, so do investments," said Hans
Peter Lafos, a member of RWE's supervisory board.
RWE has invested about 46 billion euros in new plants,
technologies and acquisitions since 2006, the documents show,
while operating profit has grown just 5 percent. Some 30-40
percent of its plants are loss-making, as a massive surplus in
energy from renewable sources takes priority in being fed into
the grid, increasingly edging out gas and coal plants.
RWE anticipates that profits from traditional power
generation could plunge to zero by 2020, and could raise the
share of earnings derived from renewables to up to 10 percent by
that date, the documents show. The ratio is now less than 3
percent, compared with more than 12 percent at E.ON.
But in a country where some 25 gigawatts (GW) of solar
capacity have been installed since 2010 -- equivalent to the
capacity of 25 nuclear plants -- it takes patience as well as
investment to catch up with the green trend, analysts say.
RWE Chief Executive Peter Terium, a soft-spoken 50-year-old
Dutchman, can afford neither, repeatedly saying he aims to get
the group back on track in the next two years.
Apart from seeking cash to finance its renewable expansion,
RWE also aims to expand in the retail market, which includes
energy services and management. But the peculiarities of these
highly fragmented sectors make them hard to penetrate quickly.
RWE sees at least 370 million euros in additional operating
earnings by 2022 that could come from decentralised business
models, such as energy efficiency, according to the documents.
This equates to 6 percent of group operating profit in 2012.
Terium has also said that RWE could serve as a fossil-fuel
backstop for villages and cities that rely solely on green
energy sources, adding RWE could also manage energy flows for
those entities as a business model.
But there too, the going will be tough: the company will
have to compete with many small and nimble start-ups that have
been in play for some time. They include groups like power plant
operator Next Kraftwerke, which links solar, wind and biogas
units to respond fast and flexibly to big shifts in energy
"This is a very laborious and small-scale business," said
Thomas Deser, senior portfolio manager at Frankfurt-based Union
"E.ON and RWE are too far away."
($1 = 0.7262 euros)
(Editing by Mark Trevelyan)