(Montel) RWE has locked in fewer sales on its baseload generation out to three years in advance relative to this time last year, Germany’s biggest power producer revealed on Tuesday.
RWE had sold just 30% of the 80 TWh of potential power from its lignite and nuclear portfolio for 2021 by the end of June. By comparison it had sold more than 70% of its production for three years in advance a year ago.
Closer in the company has maintained the same hedging profile. It has locked in sales on 90% of output between 2018 and 2020. This is the same ratio for the present year out to two years in advance reported by the end of the first half of 2017.
Since the last quarter, RWE has sold an additional 10 percentage points of its 2020 output. It has also locked in slightly higher prices. RWE has secured EUR 28/MWh for its lignite and nuclear units for this year and next and EUR 29/MWh for the years 2020 and 2021.
The gains mark a reversal in the falling prices the company was forced to lock in between 2012-2016 when German wholesale power fell by roughly half.
The lower hedging ratio for 2021 also leaves more room for the company’s power plants to sell into a rising market to reap much more than the hedges of recent years.
The German benchmark front-year power contract is currently trading at EUR 46/MWh. It has climbed 25% this year and has more than doubled off its 2016 trough. The EEX is pricing 2021 delivery at around EUR 42/MWh.Carbon exposure
The company has “financially hedged” its carbon exposure until the end of 2022, locking in EUA prices of between EUR 6-7/t until then, according to slides attached to its first half earnings.
Philipp Ruf, lead analyst for carbon markets at Icis, told Montel in May
it would be a “misunderstanding” to assume RWE had purchased all its carbon allowances to cover the potential power production of its lignite plants for the next five years.
Rather, it hedged the adverse effect of carbon price increases. “They convert the outright power risk into an outright spread risk,” Ruf said. “To do this, RWE has to buy some outright carbon to offset the higher carbon intensity of the lignite generation fleet compared to the spread generation.”
RWE’s spread generation assets include its hard coal and gas power plants that typically sell electricity closer to delivery and face greater exposure to fluctuations in fuel costs.