The two faces of RWE: green champion and defender of coal
German energy giant RWE will soon find itself in a unique position in the European power industry — a major renewables player that is actively fighting for coal.
At a time when the European electricity industry is working towards becoming carbon-neutral, RWE is something of an outlier. It clearly sees the profits that can be made from renewables, but has so many coal-fired power plants that Germany’s plans to phase out the fossil fuel by 2038 will be damaging to the company.
RWE chief executive Rolf Martin Schmitz has become something of a hate figure among climate campaigners, despite his company’s claims that it will soon become Europe’s third-largest green-energy generator and the world’s second-biggest offshore wind producer, once its complex deal with rival utility E.ON goes through (see panel below).
It will have 8.6GW of renewable generation from the onset, and has announced plans to spend €1.5bn ($1.7bn) per year on new capacity — adding 2-3GW annually.
“Our view of the business is global: our renewables strategy sees worldwide activities in all three leading technologies: on- and offshore wind, PV and storage,” says RWE spokeswoman Regina Wolters.
Yet the company also has 17.5GW of lignite and hard coal-fired capacity in Europe, which it plans to hang onto as long as possible, while expanding its lignite-mining business.
“RWE is a large corporation with a very high share of coal-fired power plants, thus ‘stranded assets’ on its balance sheet,” says Claudia Kemfert, head of the energy, transport and environment section at the respected DIW think tank in Berlin. “That makes the transition towards more renewable energies difficult, even if they are trying to boost [the renewables] share through participations from other companies.”
She points out that RWE — which is based in the city of Essen, at the heart of the Ruhr coal-mining region — has been relatively slow to embrace renewables, compared to some of its competitors, which may make it harder for the company to compete.
“Iberdrola and Enel, contrary to RWE, have bet on renewable energy with all its new business models clearly more consistently and for a longer time now. They have a competitive advantage over RWE.”
EU clears RWE to become European green giant
When the so-called coal-exit commission set up by the German government published its findings in late January, it recommended phasing out the use of coal and lignite in power generation by 2038. Many renewables and green groups complained this was unambitious and demanded swifter action.
By contrast, Schmitz said the 2038 deadline was too soon.
A statement from the company declared: “The Commission’s recommended end date of 2038 for coal-fired power generation is far too early for the company. It is therefore reasonable to re-examine this date in 2032.”
Schmitz had already alienated large swathes of society in October during a brutal standoff with protesters trying to prevent RWE from clearing the Hambach Forest near Cologne to expand its lignite open-cast mine. When police were called in to evict protesters from their makeshift homes in the trees, freelance journalist Steffen Horst Meyn died after falling from a rope bridge between the tree houses. The eviction was immediately suspended by the regional government.
The day after Meyn’s death, Schmitz went on the popular Maybrit Illner TV talk show and said his company would not compromise on its plans.
EU starts antitrust probe of E.ON purchase of Innogy parts
“The assumption that the forest can be saved is an illusion,” he said. “And I am deeply dismayed that for such an illusion, for such a symbol, a man has died yesterday.”
Then directly after talking about Meyn’s death, Schmitz added: “An ad hoc standstill of the Hambach Forest would cost €4-5bn.”
He later told the Kölner Stadt-Anzeiger newspaper: “There’s no possibility of leaving the forest standing,”, adding that allowing part of the woodland to remain untouched was “technically impossible. We need the ground beneath the remaining forest in order to keep the embankments [of the open-pit mine] stable.”
Schmitz’s cold reaction did not win RWE any sympathy and increased pressure on the company to keep the forest intact.
A month later, a court made a preliminary ruling that barred RWE from clearing the forest until litigation proceedings against the utility’s plans had been completed.
A ruling this week by another court upheld the utility’s plans, including cutting down the forest, but appeals by environmental groups are likely to drag out court proceedings until the government and utilities have negotiated details of a German coal exit.
In the wake of the legal proceedings, and after talks with the usually pro-coal state government of North-Rhine-Westphalia, RWE grudgingly agreed not to clear the forest until the autumn of 2020.
RWE faces backlash as man dies during lignite protest
The move came after the coal-exit commission declared that it was “desirable” that the forest stay intact.
Schmitz responded to this aspect of the report by saying that saving the forest would cost 4,600 jobs and billions of euros.
“One would have to ask oneself how much is a tree worth,” he said.
He also declared that, in the interest of RWE shareholders and employees, he couldn’t rule out suing the government if Berlin were to adopt the commission’s recommendations — even though the panel recommended that utilities should receive compensation, while coal-reliant regions should benefit from €40bn of investment.
Schmitz said the company expects up to €1.5bn for every gigawatt of shuttered lignite capacity. It currently has 10.3GW of lignite power plants in Europe (and another 7.2GW in hard coal plants), most of them in Germany.
Berlin-based think-tank Energy Brainpool says RWE’s claims are excessive. In 2020, the 15 lignite plants would be expected to make a combined profit of €1.3bn, but by 2022 this is set to reduce to €673m due to rising costs for CO2 allowances, Energy Brainpool calculates.
“To support coal companies via fees with billions in taxpayer money sends out a wrong signal and causes annoyance in many people,” says Sönke Tangermann, board member at independent renewables producer Greenpeace Energy, which commissioned the Energy Brainpool report.
RWE CEO stresses critical mass as key for renewables success
“As one of Europe’s largest power plant operators, RWE would even profit from early shutdowns,” he pointed out.
Grilled by journalists, Schmitz at the presentation of 2018 company results today remained stubborn on the Hambach Forest and compensation demands, saying any future compensation for shutting down power plants will have to be at least twice as high as payments received for shifting coal plants into a stand-by reserve as has been done in recent years.
For the Hambach Forest to remain standing, RWE would need to devise a new operational plan for lignite, which could take many years, the CEO said, and require a review of technical options with regards to site safety, re-cultivation and water management.
“At any rate , it is already clear that preserving the remainder of the forest will cost a great deal of money. So it does not make any sense from an economic or operational point of view.
“But symbols are costly things, so you have to be willing to pay for it,” Schmitz said, adding that violent attacks by protesters against the police, RWE employees and operations need to end, as does the “illegal occupation of the forest.”
RWE also argues that Germany will still need fossil-fuel power plants for decades to come.
“As long as a 100% supply security cannot be given by renewable energies, fossil power plants will be needed as back-up,” says Wolters. “That means that kilowatt hours produced will become ever less important, while providing kilowatts will matter,” she said, hinting that a capacity market for fossil-fuel plants would be required to back up variable renewables — which in itself could cost consumers further billions.
The new green giant
Despite RWE’s backs-to-the-wall defence of its coal-fired capacity, the company’s effort to gain muscle in renewables has been generally applauded.
When the E.ON deal was first announced last year, Schmitz said gaining “critical mass is key to success in the field of renewable energy. Before this transaction, neither Innogy nor E.ON were in such a position.”
Size is certainly a factor in tenders, especially in offshore wind. But not everyone agrees that utilities have to become giants to succeed.
“Size in future will matter less and less, to the contrary,” says Kemfert. “The time of large providers, who operate big power plants and supply the market with gas, is increasingly over.
E.ON CEO says Innogy deal on track despite ‘expected’ EU probe
“New business models are in demand that are based on decentral solutions, digitalisation, renewable electricity and heating supply, including storage and sustainable mobility.”
Smaller or municipal utilities have a competitive edge over large corporations such as RWE in those fields, Kemfert thinks.
She adds that all companies that bet on renewable energy will have a good chance to survive in the future.
“Those, who cling to old habits for too long and have too many relics from the past, by contrast, will have a hard time,” she augurs.
The RWE/E.ON deal
UPDATES to add CEO comment