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STEAG afflicted by fall in electricity prices – future programme shows first signs of success

2016, the STEAG Group, Essen/Germany, generated sales of 3.9 bn €, an 8 % increase, thanks to the expansion of its energy trading activities. At 123 m €, the operating income (EBIT) is almost 50 % less than the previous year. EBITDA of 281 m € were 118 m € less than in 2015. The Group had anticipated these drops in sales and made an announcement to that effect at an early stage. They have been attributed to changes in the German market brought about by government policy, namely the energy transition, which caused a dramatic fall in electricity prices over the last year. This led to declining or negative margins in conventional power stations throughout the industry.

“In 2016, we consistently adapted to the steadily deteriorating market conditions, especially in Germany,” said Chairman of the STEAG Management Board, Joachim Rumstadt, at the presentation of the 2016 consolidated financial statement. “As part of our STEAG 2022 future programme, we have boosted our efficiency and savings potential considerably, we are currently repositioning our portfolio and have already successfully established new opportunities for growth.”

STEAG has had many years of success in keeping its fleet of power stations well-positioned in the market by optimising the costs and earnings structure at an early stage. However, the persistent fall in electricity wholesale prices forced the Group to make a tough decision. To increase economic efficiency and prevent losses, in November 2016 STEAG decided to disconnect multiple power station units from the grid over the course of 2017, which amounts to about 40 % of its power station output in Germany (in total, approximately 8,000 MW). Between 800 and 1,000 STEAG Group jobs in Germany were affected by the decommissioning and other changes to the Group as a result of STEAG 2022. To account for this, around 150 m € of balance sheet provisions were made for staff and decommissioning power stations in the 2016 consolidated financial statement. Two of the power station units registered for (provisional) decommissioning have since been classed as systemically important by the transmission system operator.

The Group’s operating income – with EBIT to the sum of 123 m € – was primarily generated abroad and by subsidiaries. STEAG Energy Services GmbH was commissioned with managing operations for a further 2,500 MW of power station output in 2016. The subsidiary STEAG New Energies GmbH was able to complete construction of and commission three large decentralised plants, a combined heat and power station and two power stations, for Ford and Karlsberg-Brauerei as well as the Technical University of Darmstadt. In France, STEAG New Energies GmbH connected two of its own new wind farms to the grid and acquired three more plants in Germany. Thanks to the acquisition of two waste-to-energy plants with an incineration capacity of 475,000 t/a and the foundation of a new subsidiary, STEAG Waste to Energy GmbH, the strategic new entry into the globally expanding waste-to-energy market is complete. In 2016, STEAG Power Minerals GmbH was able to negotiate a long-term cooperation agreement with a company from Qatar, the Hawar Group, in order to strengthen trade and sales of power station by-products, such as fly ash and gypsum, in the Middle East and India. In South East Asia, STEAG and the Australian financial services provider, Macquarie Corporate Holdings, have founded a joint ASEAN platform, which is designed to take on the role of a development company and accelerate the financing, construction and operation of gas, coal, wind, solar and hydropower plants in the region.

However, over the next three years – while the Group is being restructured – the outlook remains subdued; not until 2020 does STEAG anticipate a noticeable increase in earnings.

For 2016, STEAG will pay a dividend (profit transfer incl. taxes) of 55 m € to its stakeholder, KSBG Kommunale Beteiligungsgesellschaft GmbH & Co. KG, (2015: 80 m €), so that the municipal shareholders can also afford to pay debt obligations (interest and repayments) accrued through the purchase of STEAG in full this year.

To make a success of the energy transition, in 2016 the STEAG Group commissioned six storage batteries, which, with a total primary operating reserve of 90 MW, have made a significant contribution to equalising fluctuations in the German grid produced by the inconsistent production of electricity from renewable energies, since autumn last year. STEAG is pioneering this technology and plans to use it in other countries.

The STEAG Group is purposefully pursuing its strategic positioning as a technologically minded producer and provider of electricity and heating. With a rated capacity of 10,130 MW in 2016 – 8,000 of which is produced in Germany – STEAG is one of the largest electricity producers in Germany, where it operates power stations at eight different STEAG locations. In the course of decommissioning five power station units in Voerde and Herne, 2,500 MW of capacity were disconnected from the grid in Germany in 2017. STEAG owns and operates three overseas coal power stations in Colombia, the Philippines and Turkey. In addition, as a service provider, STEAG Energy Services GmbH is responsible for the operation of more than 6500 MW of capacity in India, Brazil, Botswana, Spain, Georgia and Saudi Arabia among others. In 2016, STEAG had a total of 6,104 employees, 43 % of which were outside of Germany.

Thanks to expansion in recent years, the STEAG Group has a total rated capacity of 800 MW of renewable energies and decentralised generation. STEAG operates a total of 200 decentralised plants, such as wind farms, combined heat and power stations, and biomass and biogas plants, in Germany, Romania, Turkey and Poland, partly as an investor and partly as a service provider.

The “Fernwärmeschiene Rhein-Ruhr” joint venture, in cooperation with Fernwärmeversorgung Niederrhein GmbH and Energieversorgung Oberhausen AG, reached a significant milestone in 2016 with the submission of all documents for the official planning procedure. The objective of the venture is to secure a long-term, ecological heat supply for an entire region.

In 2016, STEAG invested 223 m € – roughly the same as the previous year (219 m €). The majority of investment in material assets was spent on the six large battery systems. Together with a partner, STEAG invested in the preparation of initial exploratory drilling for a geothermal power station in Indonesia, as well as wind farms in France, and exploited the boom in the heating market by taking shares in a district heating company in Poland. (STEAG/Si.)