Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis-Europe's power firms locked out of record price bonanza

Stock MarketsSep 17, 2021 11:55AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Iberdrola's power generating wind turbines are seen at dusk at the Moranchon wind farm in central Spain, December 17, 2012. REUTERS/Sergio Perez/File Photo

By Susanna Twidale, Isla Binnie and Stephen Jewkes

LONDON/MADRID/MILAN (Reuters) - Several European power firms have been shut out of bumper revenues from record high gas and electricity prices as their sales are largely locked in at lower prices, and face extra pressure from governments acting to protect consumers.

Power generators say government intervention could prevent longer-term investment needed to drive the bloc's energy transition plans, while smaller retail suppliers without the capital to hedge could go bust - limiting choice for consumers.

Benchmark European gas prices have soared some 250% this year due to a number of factors such as low stock levels, high demand in Asia and infrastructure outages, taking power prices to record highs across Britain and Europe.

In theory it should be a profitable time for generators with nuclear or renewable wind, solar and hydro generation, able to benefit from the high wholesale prices without also needing to pay the higher coal and gas input costs.

But with most generators having already hedged their forward sales they say there has been little opportunity to benefit, while government action in Spain has prompted an outcry.

"Electricity companies forward-sold 100% of their base production (hydro, nuclear and renewable) in 2021 and more than 75% of their 2022 production months ago, at much lower prices than the spot market," Spain's electricity providers association AELEC, formed of EDP, Endesa, Iberdrola (OTC:IBDRY) and Viesgo, said.

Endesa, a unit of Europe's biggest utility Enel (MI:ENEI) blamed the impact of soaring gas prices for a 3% drop in earnings for the first half of the year.

Spooked by the impact on consumers, with many households still struggling with the economic impact of COVID-19, the Spanish government swooped to ensure generators don't make windfall profits, and claw back the perceived excess.

Analysts at Barclays (LON:BARC) forecast the impact on Iberdrola, Spain's largest power generator, which both generates electricity and has retail customers, at more than 450 million euros for 2021.

An Iberdrola spokesperson said current national regulation had exacerbated the problem of rising international gas and electricity prices, at a critical time for multi-billion euro investment plans to meet emissions reduction targets.

"The intervention in Spain will not solve these issues... This reaction will only create more problems for customers in the months and years ahead," the spokesperson said.

Madrid's moves rocked power companies' shares. Enel is trading more than 6% down since Monday, while Iberdrola has seen more than 8% of its value wiped off the market this week.


The move has raised the spectre of possible interventions in other countries.

In Germany, energy prices are being debated in the run-up to the Sept. 26 election.

Italy, where retail power prices are set to rise by 40%, is looking to review the way electricity bills are calculated in an effort to curb prices, two sources said.

Italian broker Equita said the estimated worse-case impact on Endesa core earnings of 1 billion euros is not the main worry, but rather the worsening regulatory environment and the fear of similar decisions in other countries.

"It is absolutely flabbergasting that countries randomly break into the market and confiscate revenues, making it impossible for companies to make the necessary modernisation improvements for those generation assets that are going to carry the security of the grid," said Kristian Ruby, Secretary General of Eurelectric, Europe's electricity industry federation.

In Britain the price impact has been keenly felt on some of the country's small energy suppliers, less able to hedge their requirements.

"The smaller suppliers tend to have less available operating capital, and less capacity to hedge forward, meaning any unhedged positions will be more challenging to meet with the recent spike in wholesale prices," said Dan Starman, Head of Assets and Infrastructure at Cornwall Insights.

Four smaller British power companies with more than 600,000 customers combined have ceased trading just this month and more could follow. [nL1N2QG1CT}

Ofgem earlier this week issued independent supplier Arvo Energy, which has round 40,000 customers, with an order requesting further details on its financing. Reuters was unable to contact Arvo Energy for comment.

Britain already has a cap on the amount suppliers can charge for their standard tariffs set by regulator Ofgem. This is set to rise to an average of 1,277 pounds ($1,762.90) a year but industry sources said on current prices the average would be more than 1,500 pounds a year.

Another price cap review will be announced next February with most analysts predicting another rise to come.

($1 = 0.7244 pounds)

Analysis-Europe's power firms locked out of record price bonanza

Related Articles

World stocks at 1-month high as bond yields soften
World stocks at 1-month high as bond yields soften By Reuters - Oct 19, 2021 4

By Saikat Chatterjee LONDON (Reuters) - World stocks climbed to a one-month high on Tuesday as a rally in technology shares and prospects of solid corporate earnings helped...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email