German utility RWE AG (RWE.XE) plans to step up its cost-cutting efforts by "several hundred millions of euros" to mitigate an expected sharp decline in earnings from its fleet of conventional power plants, a person familiar with the matter said Monday.

The person added that RWE is presently discussing further cost-cutting measures in anticipation of a sharp deterioration in profits at its power generation business, which has been hit hard by muted energy demand in a weak European economy.

The situation has been further exacerbated by poor utilization rates of power plants, because of increasing electricity production from renewable energies such as wind and solar.

The comments come after daily newspaper Handelsblatt earlier Monday reported that RWE intends to cut costs by at least 500 million euros ($657 million) to mitigate the tough trading conditions on Europe 's power markets.

The person familiar with RWE's cost-cutting plans couldn't confirm the figure reported in the newspaper, but added that RWE is considering several hundreds of millions of euros in additional savings.

A spokesman for RWE's power generation unit declined to comment on the information. However, he added that RWE's Chief Executive Officer Peter Terium has repeatedly warned that the company needs further cuts to reduce debt and mitigate pressure on its earnings.

Like many of its European peers, RWE has warned that it may have to mothball power plants because, depending on the kind of fuel they use, they are loss-making or don't generate enough cash.

The renewed cost cutting would complement an existing program, through which RWE hopes to save EUR1 billion through 2014.

RWE faces the challenge of reducing a debt pile of around EUR33 billion, which ballooned due to the 2009 acquisition of Dutch utility Essent for more than EUR7 billion and Germany's swift response to the 2011 nuclear disaster in Japan to accelerate a planned nuclear exit, which resulted in billions of euros in write-downs on nuclear power assets and lost profits.
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