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Global Economy

Light and shadow for the energy giants

E.ON's half-year results are "solid", says CEO Leonhard Birnbaum. Euphoria sounds different. Although the Essen-based energy giant has made a profit again, this has declined, among other things, due to the rise in energy prices.

Quite different with RWE, the other large energy company based in Essen. Here the profit has doubled in the first half of the year – a direct consequence of the rising energy prices. The two companies show how different the effects of price increases on the energy industry are.

RWE focuses on power generation

That has to do with the respective strategies of the companies, explains Andreas Loechel, an energy economist from the Ruhr University in Bochum: "RWE has gone heavily into energy generation, with renewable energies as a new focus. E.ON has detached itself from the generation business and is concentrating on the grid business and energy sales," said Loeschel. Seen in this way, E.ON is now buying electricity from RWE, among other things.

"It was a conscious decision by E.ON to part with generation – with a secure yield and lower risk," says Loeschel. That worked well at first. Currently, however, the higher procurement costs are becoming a problem for E.ON, which the company is gradually passing on to its customers. "Our company would be better off if we didn't have these high prices," says E.ON CEO Birnbaum.

"The sun sends no bill"

Energy producer RWE, on the other hand, is benefiting from the higher prices, and CEO Markus Krebber never tires of emphasizing how much his company is investing in renewable energies. It should be five billion euros by the end of the year, but the group profit in the first half of the year is "only" around two billion euros. RWE intends to forego an increase in the dividend, i.e. higher distributions to shareholders – in favor of green investments.

Clearly a lucrative business. Because while the imports of gas and hard coal are becoming more expensive, renewable energies are much less affected by rising costs: "The sun doesn't send any bills," says energy economist Loechel. The renewables are currently "big profit makers".

Import tax instead of excess profit tax?

This development puts RWE at the center of the discussion about an excess profit tax. The SPD and the Greens have proposed such a tax that could redistribute profits from energy companies to their customers. RWE boss Krebber does not want to comment directly on this; that is a political decision. However, he again points out that RWE invests its profits in renewable energies. Energy economist Loechel is skeptical about an excess profit tax with regard to RWE: "The fact that you can generate profits with renewables is exactly the news that is needed. We want such incentives for investments in the transformation."

From his point of view, the really relevant excess profits are made by gas and oil companies, but they are not based in Germany. Therefore, the starting position in this country is different than in Great Britain, for example, where the energy companies BP and Shell are based and where the government has already decided on an excess profit tax. In order to specifically tax gas from Russia, Löschel alternatively proposes a European import tax on supplies: "That would directly tax the gas producers' excess profits."

RWE waives revenue from gas surcharge

When the half-year figures were presented, RWE boss Krebber made an announcement with which he might want to take the wind out of the sails of the advocates of an excess profit tax. According to Krebber, RWE wants to forego income from the planned gas levy.

According to plans by the federal government, this surcharge is to be paid by all gas customers from October and go to energy companies that are suffering losses due to the reduced deliveries from Russia. While energy importers like Uniper are threatened existentially, RWE can remain calm here. RWE also has corresponding losses, but you can compensate for them yourself, according to company boss Krebber.

Share of gas and coal still highest

RWE's green success story also includes the fact that the company continues to produce most of its electricity using fossil fuels. Gas and coal are the company's largest electricity suppliers, followed by renewable energies. Due to the energy shortage, RWE will also be bringing three blocks of its lignite-fired power plants back online from October.

However, the general trend is clear. In the coal and nuclear energy sectors, profits fell slightly over the past six months, while solar, wind, hydro and biomass all rose sharply. The renewed profitability of renewables should motivate the energy giant to actually invest more in green energy.

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