RWE rises after beating forecasts for 2022, but energy price caps will hit 2023

By Geoffrey Smith 

Investing.com -- Shares in German energy giant RWE (ETR:RWEG) rose nearly 3%  in early trading in Frankfurt on Tuesday after the company beat its own expectations for profit in 2022 due to soaring energy prices across Europe. 

The group expects earnings to stay at an elevated level for the coming year too, as the rollout of renewable projects across Europe and the U.S. compensates for lower returns at its trading business and its gas-burning power stations. 

The year ahead is set to be one of normalization after an unprecedented spike in wholesale energy prices that followed Russia's invasion of Ukraine and the subsequent disruption of natural gas supplies to Europe. The spike in gas prices that followed the invasion has now completely unwound, and benchmark gas futures in Europe hit a new 20-month low on Monday at only €37.70 (€1=$1.0730) a megawatt-hour, down over 80% from a peak of over €300/MWh.

That spike in prices led basic operating earnings from its gas-fired power stations to triple to €2.37 billion, while earnings before interest, taxes, depreciation and amortization at its onshore wind and solar operations - which is normally a 'price-taking' business where revenue is determined largely by wholesale prices - also tripled to €827M.

Net profit more than doubled to €3.23B from €1.55B in 2021. RWE expects it to fall back to a range between €2.2 and €2.7B this year due to a combination of lower wholesale prices and administrative price caps, but that would still represent an increase of nearly 60% from 2021.

The figures reflect the growing importance of renewables in RWE's energy mix as it winds down its German nuclear and coal facilities. The group expects to grow especially quickly in the U.S. after its acquisition of Con Edison Clean Energy for $6.8B last year. That deal brought its project pipeline up to 24 gigawatts of new capacity.

"Our solid financial situation and our good performance put us in a position to continue investing heavily in RWE’s growth in 2023," said CEO Michael Mueller. The dividend will be raised by 11% to €1 a share, a yield of 2.6% at Monday's closing price.