UPDATE 5TH OCTOBER: A court order forces the suspension of the clearance at Hambach forest, with the courts requiring more time to consider a lawsuit brought by environmental organisation BUND. This resulted in a notice of impact on 2019 profits by RWE and a sharp drop in its share price (6.5% at the time of writing), to their lowest levels since March. Will the expansion of the Hambach mine ever take place? If not this is only the start of the trouble for RWE shareholders. 

Last Thursday, RWE’s CEO, Rolf Martin Schmitz, said that RWE would stand to lose €5 billion if RWE couldn’t extend their mine at Hambach forest. The protests at Hambach have grown stronger in Germany in the last days and weeks, bringing RWE’s actions under intense scrutiny. The €5 billion valuation is 38% of RWE’s €13 billion market capitalisation.

RWE’s share price seems to have started to twitch. Since 12-Sep, the day the police started to move into the forest, RWE’s share price has so far fallen by 5%, compared to a modest 0.5% fall for European utilities and a 3% gain for the German DAX.

What’s the latest on the protests? RWE plans to clear a large swathe of ancient forest and protesters have been occupying the site for as long as 6 years in purpose-built treehouses. Clearance of the treehouses started last week with 4,000 police and a lot of machinery. Tragically, a journalist died on Wednesday while observing the protests. He fell from a treehouse. The protests stepped up with 7,000 protesters on Sunday despite the heavy rain.

Here is the update from just the last 24 hours:

  • Treehouse clearances restarted.
  • Greenpeace issued a press release saying the Hambach mine may not now be lawful.
  • The railway has been blocked, preventing coal deliveries to RWE’s power plant.  
  • Solidarity protests in Hamburg, Turkey, and outside London’s RWE offices.
  • Hackers brought the RWE website down last night for several hours.

The forest clearance date is 14-Oct. It’s not possible to predict how big these protests could snowball by then.

These are not the first protests over mine extensions in German history, but these protests are different. The protests are swinging political support against RWE, and with the German Coal Commission planning an imminent decision on how to phase-out coal, political support is everything.

How is RWE losing political support? RWE has turned down two opportunities to postpone the clearing of Hambach forest last week. Firstly on Tuesday when the Coal Commission met, and secondly on Thursday morning after the death of a journalist in the forest. By demanding that the police push ahead with the clearance, RWE is showing how unengaged and unsympathetic they are. Even where RWE has traditionally had support from local municipalities, these municipalities have begun divesting their stakes. But they still own 1/6th of total RWE shares; the protests are likely to speed that divestment process.

Large institutional investors are starting to take notice too. On the 14th of September, Deka Bank released a statement urging RWE to “..suspend clearing work until the final result of the Coal Commission currently meeting has been achieved.” They added that: “as shareholders, we have no benefit from an escalation. On the contrary, we see the risk that RWE will unnecessarily jeopardise its reputation and future viability.”

How bad could the outcome of the Coal Commission be for RWE if political support for coal wanes? One only needs to look to the Netherlands. The Dutch Government brought in a comprehensive plan to replace the country’s coal plants (the majority of which are only 3 years old), with renewables by 2030. What’s more, compensation will not be paid to the utilities, because a carbon floor price will be brought in to make coal plants unprofitable. RWE owns one of the Dutch coal plants and has already threatened to sue the Dutch Government, worried this may set a precedent for the German coal phase-out. There are also solid reasons why the Coal Commission could retire RWE units faster than other German plants: many of RWE’s lignite units are the oldest, least efficient, dirtiest and least flexible – with the highest fixed costs, and in a region with the lowest unemployment rate.

RWE has a good story to tell investors in the short-term for its lignite and nuclear business, with high power prices and its carbon mostly hedged – shielding it from the recent surge in ETS prices. But in 2022, a cliff-edge emerges. Its nuclear plants close in 2021 and 2022. The high power prices are mostly caused by high gas and hard coal prices, meaning lignite has not yet been penalised by the higher carbon price. But with the carbon price quadrupling in the last 12 months, RWE’s lignite business is riskier than ever. Investors seem to be extrapolating today’s good times forward. But they could be in a for a nasty shock.

Already there are rumours of a 2038 coal phase-out date gaining consensus in the Coal Commission, with much of the coal closure effort front-loaded, with many sides still arguing for something more ambitious. If the Coal Commission agrees to an ambitious outcome, a rapid shutdown of RWE’s lignite assets without compensation could send RWE’s share price tumbling.

Investors need to keep track of the protests in Hambach and how they impact the work of the Coal Commission. RWE’s share price could be in for a rough ride.