German power generator RWE, Europe’s biggest corporate emitter, shifted the way it managed its CO2 purchases last year amid thinner profit margins for producing thermal power, the company said in its annual results.
Presentation slides showed RWE hedged forward slightly more than 20% of its year-ahead western European hard coal and gas-fired generation, down from 40% a year earlier.
The company said it had a “new CO2 purchase policy” which involves buying more EUAs after the year they are required to cover emissions for, rather than simply buying whenever forward electricity sales are made.
“We changed our procurement strategy for CO2 emission certificates in 2014. While until 2013 we purchased most of the certificates in the same year as the CO2 was emitted, we shifted the timing for the purchase of the certificates we needed for 2014 to the beginning of 2015, the year we have to submit them. This general policy will continue for the time being,” said RWE’s CFO Bernhard Guenther in a webcast analyst conference call.
Jan Frommeyer, an analyst at ICIS-Tschach, said it was highly doubtful that this meant RWE had entered the market to buy more than 140 million spot EUAs in Q1 2015, as it would have been almost enough to absorb all the supply sold at auction by governments over the period.
Buying on this scale would likely have sent prices well above current levels near €7.
Frommeyer said it RWE was likely continuing to hedge as normal, but using futures that expire in Jan., Feb. and Mar. 2015 rather than the far more liquid Dec-2014 contract.
“We also saw in the open interest a higher demand for non-December deliveries, which backs this interpretation,” he said, referring to exchange data.
ACCOUNTING SHIFT
A carbon trader agreed with this view, suggesting that RWE may be doing this mainly for accounting purposes, to postponing EUA-related cash flow by a year.
RWE’s spokesman gave no further details at the time of press.
In its financial results, RWE re-iterated its long-held stance of hedging much of its electricity sales forward to guard against carbon and fuel price movements.
“We sell forward most of the output of our power stations and secure the prices of the required fuel and emission allowances in order to reduce short-term volume and price risks,” it said.
RWE’s hedging rates are closely watched by market participants as the company’s CO2 output accounts for almost 10% of all emissions covered in the EU ETS. As the main buyers of EUAs, the purchase patterns of utilities can have a major bearing on price levels.
RWE said its cashflows in 2014 had improved by €0.8 billion to €5.6 billion, mainly due to a €2.1 billion relief from its “higher reduction in CO2 inventories”.
It said it received 5.8 million free EUAs for 2014 and that overall “this represents a shortage of 148.3 million metric tons, which we made up for by buying emission allowances, mostly in early 2015.”
OUTPUT DOWN 5%
RWE’s total electricity generation fell by 5% to 208.3 billion kilowatt hours (kWh) in 2014 mainly due to unplanned shutdowns for repairs at lignite power stations and the 2013 closure of the UK’s Didcot A coal-fired power station, the company said.
– Electricity sales volumes decreased by the same margin, 5%, to 258.3 billion kWh, which RWE said was due to milder weather cutting demand for heating.
– The company said that it expected energy consumption to be higher in 2015 amid more normal, cooler weather and projections of economic growth.
– RWE’s EU-based CO2 emissions also fell 6% year-on-year to 154.1 million tonnes from 163.9 million tonnes, but the overall drop in generation meant the carbon intensity of the group’s output only dropped slightly to 0.745 tonnes/MWh, down from 0.751.
– “The highly efficient gas-fired power stations we commissioned as part of our new-build power plant programme were unable to make the desired contribution to improving our CO2 balance due to the unfavourable market conditions for these plants,” its results statement said.
– The company has an internal target to cut its carbon intensity to 0.62 tonnes/MWh by 2020.
– RWE said all of its carbon credit portfolio of CDM and JI credits, amounting to 47 million units, had been submitted for compliance.
By Ben Garside – ben@carbon-pulse.com
