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EMEA unregulated utilities poised to shake-off years of earning declines

Publication Date: 21 Nov 2018 - By Gaurav Sharma (Editor ReachX) By Gaurav Sharma (Editor ReachX)
Actionable
Differentiated

Macro Equity Fundamental Environmental, Social & Governance Commodity Equity EU ex-UK MENA UK Energy Utilities

The outlook on the European unregulated gas and electricity sector has changed to positive from stable for the next 12-18 months powered by improved earnings momentum in 2019, according to a leading rating agency.

In a recent note to its clients, rating agency Moody’s opined that sector profits will rise on the “back of returns from investments made over the past few years” in networks and renewables supply and services.

Niel Bisset, Senior Vice President at Moody's, noted: “Higher power prices will also make conventional power generation more profitable. 

“We estimate that 2019 aggregate sector profit will rise by 4%-5%, after a smaller increase in 2018. These rises follow five consecutive years of earnings declines since 2013.”

Utilities have reduced earnings volatility by cutting exposure to commodities and continuing to invest mainly in networks, renewables and supply/services - domestically and outside Europe.

However, political intervention poses a risk to sector earnings as long as elevated power and gas prices and growing renewables subsidies push consumer bills higher, the agency said.

Environmental policies add another element of risk as unregulated utilities, which account for 40% of EU carbon emissions, will need to deliver a significant share of the carbon reductions planned under the EU's 2030 decarbonisation targets, Moody’s concluded.

 

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