Hard winter and higher charges fuel E.on profits

Lower demand and a fall in wholesale prices hit the group's profits in the rest of Europe
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The Independent Online

E.on, the German energy giant that is one of Britain's "big six" suppliers, has profited handsomely from its UK customers, reporting a 13.2 per cent jump in profits for the first half after increasing prices by about 9 per cent.

The co-owner of the world's largest wind farm, the recently opened London Array just off the Kent and Suffolk coast, reported underlying earnings of £274m in the first half of 2013 yesterday.

That compares with £242m a year earlier and comes after the company boosted its "dual fuel" price for combined gas and electricity customers by 8.7 per cent in January. Prices for gas-only customers rose 9.4 per cent.

However, E.on said it was the hard winter, rather than the price increase (which it blamed on rising wholesale costs in Britain), that had boosted its UK profits.

"Sales at the UK regional unit rose primarily because of higher retail sales resulting from increased demand due to low temperatures, particularly in March," a spokesman said.

Whatever the breakdown of E.on's rising profits, its UK performance is in stark contrast to the company's performance in the rest of Europe, in particular Germany, where a dire market contributed substantially to a 42 per cent drop in the group's profits.

Germany's biggest utility reported net income of €1.9bn (£1.2bn) after wholesale power prices fell in its key home market and demand for gas-generated power declined.

The company also warned that unless the situation improves it will have to close more gas-fired stations: it had already announced last month that it would mothball an unprofitable gas-fired plant in Malzenice, Slovakia, just over two years after the €400m plant went into service.

"A sober view of the situation indicates that, at least for 2013 and 2014, no recovery is in sight," Johannes Teyssen, E.on's chief executive, wrote in a letter to shareholders.

"Our traditional business is suffering from low capacity utilisation and excessively low wholesale prices. These adverse factors will continue, and according to our analysis, may actually get worse," he continued.

"Unless the business environment of the energy industry in our core European markets changes tangibly, other plant closures will be unavoidable," Mr Teyssen added.

Low wholesale prices, and the fact that solar and wind energy take priority in being fed into the power grid, mean gas plant operators in Germany are losing €16.5 per megawatt hour.

Analysts said the problem of falling wholesale prices for gas power is a Central European issue, with Germany the biggest casualty, and doesn't apply to the UK where gas power is in much greater demand.

E.on said that although its profitable renewable energy business in wind and solar power continued to grow – by 3 per cent to €1.3bn in the first half – this was not enough to offset the loss in gas-power profits.

The group is also suffering from Germany's decision to abandon nuclear power by 2020, a change which has forced it to cut thousands of jobs and shed billions of euros of assets.

"At the moment, it's all about how to survive," said Michael Schneider, a fund manager at Deka Investment. "There are too many problems: overcapacities, falling profits and stretched balance sheets."

Analysts said that any problems E.on was having in Germany were unlikely, at least for the next few years, to affect its UK business, which is largely separate from the rest of the group.