For all that, some analysts believe that the market may be underestimating the profit potential of RWE’s growing renewables business, particularly wind.
The $26 billion market-cap company’s wind and solar farms today generate some 9.2 gigawatts, enough to power more than three million homes. Renewables, which include wind, solar, hydro, and biomass, now contribute around 20% of RWE’s annual power output.
But wind and solar deliver around 50%, or €1.5 billion, of RWE’s core adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, of €3.2 billion for 2020. The company has the world’s second-largest wind operation, with 27 offshore wind farms and more than 100 onshore wind farms in the U.S., Europe, and Japan.
With ambitious plans to expand in offshore wind, RWE has been competing for key seabed auctions. At least in the U.S., opportunities for wind might be growing, with President Joe Biden opening up areas along the East Coast to wind farms. Deutsche analyst Olly Jeffery predicts RWE may be able to build 1.5 gigawatts a year of offshore wind farms between 2027 and 2050, with a return on investment 33% greater than the market has built into the share price.
“Offshore wind is a huge growth opportunity,” he wrote in a recent note. “RWE has a strong incumbent position and development pipeline, so it is well set to play a significant role.”
Analysts at German private bank Metzler forecast that shares could rise 38% to €47. Commerzbank predicts a 19% increase to €40 and Société Générale an 18% pop to €39.10.
Chief Executive Rolf Martin Schmitz said in a statement that there are plans to invest €5 billion in renewables and storage facilities between 2020 and 2022, which should expand capacity to more than 13 gigawatts. “RWE is growing—while maintaining its consistency and value,” he said.
The firm traces its history to the founding of the Rheinisch-Westfälisches Elektrizitätswerk, or RWE, in 1898, which went on to supply Essen, a city in the industrial Ruhr region of Germany, with electricity. It first floated shares on the German stock market in 1922.
In 2018, RWE announced a complicated asset swap which enabled it to take a 16.7% stake in rival E.ON (EOAN.Germany)—since reduced to 15%—and to purchase its renewables business.
That move helped diversify RWE from its reliance on carbon fuels. In February, it sought to bolster its green credentials by competing in the fourth round of offshore bid tenders in the United Kingdom conducted by The Crown Estate. It won two sites able to generate three gigawatts of power, while paying the lowest price for the highest capacity.
Louis Boujard, an analyst at broker Oddo BHF, wrote in a February note that the auction was encouraging since it lends credibility to the company’s competitiveness, “establishes RWE as a key offshore player in Europe,” and was “a great catch, well executed.”
Offshore wind capacity could hit around 1.4 terawatts by 2050—a terawatt is 1,000 gigawatts—up from 29.1 gigawatts in 2019, and RWE is well positioned to play a major role.