RWE cuts capital expenditure by $11bn citing investment risks

RWE has released its earnings for fiscal 2024, which show the German energy company reducing its 2025-2030 investment programme by €10 billion ($11 billion).

In response to regulatory uncertainties, suppy chain contraints and geopolitical risks, RWE plans to implement stricter investment criteria for new projects. This means the required rate of return for new projects will shift from an average of 8% to 8.5%

As a result of this rigorous risk management strategy, RWE has decreased planned investment through 2030 by €10 billion.

In November 2024, the company announced delayed investments in US offshore wind citing increased project risk. Also the slow growth of Europe's hydrogen economy has led to a more conservative investment outlook.

RWE stated that the funds saved from this approach will be used for a share buyback programme of up to €1.5 billion ($1.6 billion), to be completed by the second quarter of 2026.

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Markus Krebber, CEO of RWE AG, commented in a statement: “Given higher uncertainties in the investment environment, we have raised the requirements for future investments. As a result of stricter risk management and higher return expectations, we will invest less than previously planned through to 2030. Nevertheless, we are confirming our financial targets: adjusted earnings per share of €4 by 2030 and an annual increase of the dividend by 5% to 10%.”

Asset manager Elliott Advisors, which advises funds with a cumulative economic interest of close to 5% in RWE AG, welcomed the announcement, stating that these measures demonstrate "a first step towards more disciplined capital allocation".

Elliott issued a statement that said: "We welcome RWE's decision to reduce its 2025-2030 investment programme by €10 billion, or 25%, while also implementing stricter investment criteria, raising return targets, and accelerating its farmdown strategy.

However, Elliot criticized RWE's decision to cut investment but not increase its buyback programme: "We share the market's disappointment with the lack of clarity regarding the Company's commitment to enhance shareholder returns. Given the announced capex reduction and RWE's persistent undervaluation, we believe there is a compelling opportunity to significantly increase and accelerate the ongoing share buyback programme. We look forward to continuing our constructive dialogue with the Company."

RWE's financials show the group's earnings exceeded expectations, with adjusted EBITDA of €5.7 billion ($6.2 billion) and adjusted net income of €2.3 billion ($2.5 billion).

The company has reaffirmed its mid- to long-term earnings targets despite lower capital expenditure.