Eon posted a 20 per cent fall in profit on Wednesday as the expansion of renewable energy in its home market squeezed wholesale power prices.
Germany’s biggest utility by market value reported that underlying net income, the measure it uses to calculate dividend, fell from €1.9bn in the first half of 2013 to €1.5bn in the first half of this year.
The utility said the expansion of clean energy in Germany was the primary cause of a decline in the price for German baseload power.
However, there were some bright spots for investors. A cost savings programme that included trimming layers of management had a positive effect on earnings, as did higher production from the Skarv gas condensate and oilfield in the North Sea.
Earnings from Eon’s fossil fuel power generation businesses in Italy and Spain rose in the first half, while ebitda from renewables increased by 7 per cent to €870m.
Eon’s full-year earnings forecasts remain unchanged. The utility predicts ebitda between €8bn and €8.6bn and underlying net income between €1.5bn and €1.9bn for 2014.
Eon’s shares were up more than 5 per cent to close at €13.87 after results beat analysts’ forecasts.
Germany aims to generate up to 60 per cent of its electricity supply from clean sources by 2035, up from 23 per cent last year.
In a letter to shareholders, Johannes Teyssen, Eon chief executive, welcomed the reform, but urged Berlin to follow the example of the UK and introduce a capacity market that offers producers predictable revenue in exchange for ensuring security of supply.
RBC Capital Markets analyst John Musk said in a note to clients that there is “potential for structural change in Germany . . . that will eventually improve Eon’s prospects”.
This includes plans for capacity markets and a proposal to create a publicly owned foundation that would administer the decommissioning of nuclear power stations – dubbed a nuclear “bad bank”.
Germany’s economics minister Sigmar Gabriel will present plans for a new market design this autumn.
He is expected to include modest capacity market proposals to maintain a small number of power stations as a reserve supply.
As profits have slumped in its home market, Eon has looked for growth abroad, focusing on ventures in Brazil and Turkey.
However, the first-half figures showed that earnings before interest, tax, depreciation and amortisation in countries outside the EU had fallen by 26 per cent, or €81m. Ebitda at Eon’s Russia unit was 24 per cent below the prior-year level.
Investors have welcomed Eon’s overseas strategy. Thomas Deser, a fund manager at Union Investment, a top 10 shareholder, said: “The expectation as far as economic demand is concerned is very favourable long-term for Brazil, Russia and Turkey. If you want to go for growth you have to be in these countries.”
Mr Deser said the “big question mark” is Turkey, which is at risk of being affected by conflict in the Middle East.
RWE, Germany’s second biggest utility by market value, is due to report second-quarter results on Thursday.
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