Two of Europe’s major utilities have demonstrated the signs of a post-coronavirus lockdown recovery, highlighted by growing renewables capacities.
EDF and RWE both reported their Q3 results at the end of last week. While COVID-19 lockdowns have trimmed demand for electricity over the period, sustained renewables deployment and the associated revenue were bright spots for both companies.
RWE said it expected to complete 800 megawatts of wind and solar deployments in Q4, on top of the 500 MW already commissioned. It expects its wind and solar capacity to reach 10 gigawatts by the end of the year, on its way to a 13 GW target by 2022.
The changing generation mix of the German company has been laid bare in the first nine months of 2020. The combined output of the firm’s lignite and hard coal plants is down by more than one-third in the first nine months of 2020 compared to the same period last year. The output from wind and solar, meanwhile, nearly tripled from 6.1 billion kilowatt-hours to 17.1 billion kilowatt-hours.
This trend will continue as Germany’s coal phaseout continues and RWE adds more renewable capacity. In September it won 1.8 GW of new seabed leases for offshore wind projects in the U.K. In the first week of November, it closed the €400 million ($473 million) deal to acquire an onshore wind and solar pipeline of 2.7 GW from wind turbine manufacturer Nordex. The majority of the projects, 1.9 GW worth, are in France.
In revenue terms, the company made €1.6 billion ($1.9 billion) of revenue from its wind and solar assets in the first nine months (9M) of 2020 compared to €743 million ($879 million) in the first nine months of last year.
EDF’s pipeline swells
EDF posted a decrease in sales of 4 percent to €48.8 billion ($57.8 billion) for 9M 2020 compared to €51.0 billion in 9M 2019. According to EDF, sales would have been “almost stable” if the impacts of the coronavirus pandemic are accounted for.
Gloomy forecasts for the EDF’s nuclear output have partly recovered over the course of 2020, with an increase announced in Q3 to 325 to 335 terawatt-hours. In April, that figure was reduced to 300 TWh. Before COVID-19 took hold, the forecast had been 395 TWh.
As with RWE, renewables offered some welcome good news.
The company is currently targeting a total renewables portfolio of 50 GW by 2030. In February, Jean-Bernard Lévy, EDF’s chairman and CEO, said it would revisit that target because “it really looks like we are going to exceed it, and by quite a significant gap.”
EDF, which is majority-owned by the French government, has amassed a global portfolio of 32.5 GW of renewables, including 9.8 GW of wind and solar and 22.3 GW of hydropower. According to figures released alongside its Q3 results, the current wind and solar pipeline totals 39.1 GW, with 14.2 GW in North America and 15.4 GW in Europe. It is widely expected that solar and wind will provide the majority of the remaining capacity.
In October, EDF Renewables acquired the 4.5 GW solar development pipeline of Geenex, located in PJM territory.
In India, its Eden Renewables business won 1,350 MW of solar capacity in Rajasthan. It also commenced construction on a 400 MW onshore wind project in Saudi Arabia.
Investment outlook on the rise
RWE noted that 85 percent of its investment in 2020 has been “green,” which it defines as any project adhering to the criteria set forth in the EU’s “taxonomy rules.”
That's a critical issue with hundreds of billions of euros' worth of green stimulus funding up for grabs. Most recently, natural gas has been denied the status as a “transition fuel.” Anything with 100 grams of CO2 equivalent per kWh won’t be considered sustainable. That figure is linked to the threshold required to keep global warming below 1.5 degrees Celsius.
RWE CFO and CEO-elect Markus Krebber told an investor analyst call that the financing outlook for renewables is improving.
“We see lower cost of capital because we have had low interest rates for a long time, and they could go lower,” said Krebber, explaining that its cost of capital is calculated using average interest rates over six- to 18-month periods.
As renewable technologies mature and deployment builds out megawatts' worth of capacity as well as experience for those involved, the cost of the risks involved fall.
“You’re going to feel more comfortable with the risk profile once you have done five or six offshore construction projects with the same partner,” he said.
Krebber also said that the profit levels had now stabilized for projects, with those bidding more aggressively in auctions unlikely to meet investors’ demands for returns. The end result is that RWE is not too concerned about funding its renewables surge, while also expecting the value of its development pipeline to grow in a positive financial environment.
RWE launched a capital raise in August, increasing the volume of its shares by 10 percent and raising €2 billion in the process. In its quarterly report, RWE said the proceeds of the deal would be used to implement projects from the Nordex pipeline.
RWE has also been developing a “green bond” framework to fund wind and solar projects. In April, three European utilities, EDP, EnBW and SSE, all issued their own green bonds and raised €2.5 billion in total. Engie, E.ON, Iberdrola and offshore wind developer Ørsted have also launched green bonds this year.
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