FRANKFURT Germany's biggest utility E.ON (EONGn.DE) on Tuesday called for compensation for its loss-making gas-fired power stations after posting a 12-percent fall in first-quarter earnings.
Germany's utilities are under pressure from expansion of renewable energy capacity which is threatening the business model of their conventional power plants, most notably gas.
Even though loss-making, gas-fired power plants are needed for constant or "baseload" energy supply, which variable solar or wind energy sources cannot provide.
To keep plants on standby, Germany's power groups are calling for adequate compensation payments as part of a so-called capacity market, which would cover their losses.
"I'm confident that the German federal government will soon set a course that will enable conventional power plants to provide a continuous, reliable backup for the intermittent output of renewables and ensure that our economy and population have a reliable supply of electricity 24/7," Chief Executive Johannes Teyssen wrote to shareholders.
This so-called capacity mechanism is already being discussed or implemented in other European states, including France and Britain, which are also faced with weak wholesale prices that have made gas-fired plants unprofitable.
E.ON's first-quarter earnings before interest, tax, depreciation and amortization (EBITDA) came in at 3.16 billion euros ($4.35 billion), the group said, versus a 3.2 billion average forecast in a Reuters poll.
The decline was mainly due to a mild winter in Europe and weak wholesale prices.
E.ON's comments echo those from peers GDF Suez GSZ.PA and EnBW (EBKG.DE), which also took a hit from mild weather in the first quarter.
E.ON, whose market value has more than halved since 2010, is closing or mothballing more than a quarter of its plant capacity in Europe and has sold about 20 billion euros ($27.51 billion) in assets in response to a crisis exacerbated by weak energy demand across the continent.
"E.ON has reported Q1 numbers that are slightly below market expectations but with guidance confirmed and few surprises in the numbers we expect a muted market reaction today," RBC Capital Markets analyst John Musk wrote, rating the stock "underperform".
The company kept its forecast for 2014, still expecting EBITDA of 8-8.6 billion euros and underlying net income of 1.5-1.9 billion.
Also suffering under 31.14 billion euros of net debt, E.ON, which was formed in 2000, is mulling whether to sell even more assets, most notably in Italy and Spain, sources told Reuters earlier this year.
($1 = 0.7270 Euros)
(Editing by Victoria Bryan and Jason Neely)