19.09.2016 - The year-on-year contraction of around 30% in European wholesale prices for electricity is a clear sign that the price slump will last longer than expected a year ago. Axpo therefore has to adjust the value of its production plants and make provisions for energy supply contracts again in the 2015/16 financial year. In addition, the most recent impairment test has shown that the new Limmern pumped-storage power plant has to be impaired by CHF 540 million. As these adjustments are expected to burden the Group's operating profit (EBIT) by some CHF 1.4 billion, the Group is likely to post a negative net result again for the year.
The profitability of the Limmern pumped-storage plant strongly depends on the difference in prices for base load electricity and peak current, which is used to cover peak consumption periods and to balance the grid load. This margin is not enough to guarantee the profitable operation of the plant, and Axpo does not expect the situation to change in the medium term. Axpo is therefore posting a massive write-down on the value of this epic power plant, the largest in its power plant fleet. Even though this power plant is immensely important for the security of supply in Switzerland, it cannot be operated profitably in the coming years.
In spite of the substantially changed market conditions for pumped-storage plants, Axpo expects that it will be able to improve the profitability of the Limmern power plant in future if the trend towards increasingly irregular energy production should continue. To this end the company must be able to exploit all possible sources of income (spot, intraday, option and system service markets, capacity, grid and supply reserves) while the burden of taxes and duties must be reduced. Balancing energy is the trump card of the new Limmern pumped-storage power plant with its state-of-the-art and flexible pump turbines.
The unpleasant price forecasts are accompanied by much regulatory and political uncertainty. In addition to the Limmern pumped-storage plant, the new value adjustments affect the hydropower and nuclear power plants and the energy supply contracts with partner plants and French nuclear power plants.
The postponement of the date for restarting Block 1 of the Beznau nuclear power plant to the end of 2016 was also considered in the context of the impairment test. As announced in spring, the standstill of the plant from August 2015 until the planned restart at the end of 2016 is likely to cost around CHF 200 million.
Wholesale prices for electricity remain low because of the ongoing increase in the supply of subsidised energy in Germany in particular, low prices for CO2 certificates and primary energy (coal, gas and oil) on the international markets, the cautious economic outlook in Europe and the resulting drop in demand for electricity. Coupled with increased state intervention in the domestic and foreign energy markets, this has led to massive market distortions in the past few years. As a result, it is no longer profitable to sell electricity from conventional, unsubsidised production.
To take better account of the challenging market environment, Axpo adjusted its strategy, which had been established back in 2014, to the fundamentally changed parameters in January 2016. The focus now falls on cost management and the development of new sources of revenue in order to reduce the dependence on the electricity price. The operating result for the first half of the current financial year (1 October 2015 to 31 March 2016) already confirms that the earnings from the subsidised renewable energies in which Axpo is strategically investing are continuously rising.
Axpo will present full details of its operating result after impairments for the current financial year 2015/16 (1 October 2015 – 30 September 2016) at the financial press conference on 21 December 2016.
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