E.ON faces further losses on expiry of forward power deals

ESSEN, Germany, March 9 (Reuters) - German utility E.ON made advance sales of its central European power production at above-market prices for most of the next three years, raising the prospect of growing losses once the contracts expire.

E.ON released the information along with group results for 2015, posting a record loss for the second year in a row in a challenging market environment for fossil fuels.

Slides prepared by the company for an analysts’ call showed that it achieved prices of about 38 euros ($41.64) per megawatt-hour (MWh) for 2016 power, around 33 euros/MWh for 2017 and about 30 euros/MWh for 2018. The price for last year’s volumes averaged 49 euros/MWh.

Once current contracts expire, the company will successively post more losses on conventional power from coal, gas and nuclear generation, executives said.

Rival RWE, which has been similarly affected by slack demand and competition from renewable power in recent years, said on Tuesday that it had sold 90 percent of 2016 output at 35 euros, more than 80 percent of 2017 volumes at below 35 euros and 40 percent of 2018 production at around 30 euros.

European generators continuously hedge future production to lock in prices while traders track hedging ratios to assess the size of volumes already tied up with counterparties.

Thomson Reuters wholesale market data on Wednesday indicated the price of German 2017 baseload power at 22.25 euros , with power for 2018 delivery at 21.05 euros .

E.ON reported that core earnings (EBITDA) at its E.ON Global Commodities (EGC) arm, a barometer of health for European wholesale energy markets, rose 110 percent year on year to 223 million euros in 2015. That was in stark contrast to the 10 percent decline of group EBITDA to 7.6 billion euros.

Board member Leonhard Birnbaum said that among the reasons for the increase was that EGC traders had successfully traded more gas volumes and taken advantage of price volatily.

Bernhard Reutersberg, another board member, said that E.ON’s future gas business would rest on two pillars: exploitation of more global trade opportunities in liquefied natural gas (LNG) and the driving forward of existing pipeline gas ventures.

E.ON, which is in the process of moving market-leading gas infrastructure and accounts into its unit for conventional generation and trading assets, Uniper, is also part of the Nord Stream 2 consortium of European companies due to expand a Russian pipeline with partner Gazprom. ($1 = 0.9127 euros)

Reporting by Vera Eckert; Editing by David Goodman