2021-09-24-KPMG-European_Utilities_betting_on_Energy_Transition_35页_7mb

Summary

This KPMG report analyzes the European power and utilities (P&U) sector during the first quarter of 2021, focusing on price trends, financial performance, regulatory developments, and merger & acquisition activity. Key findings include:

1. Price & Margin Trends

• Electricity prices remained high across Europe, driven by reduced renewable generation, colder weather, and increased carbon prices. Germany recorded the largest year-on-year increase in base load electricity prices (72%). UK prices hit record highs due to post-Brexit market decoupling and tight supply.
• Gas and coal prices surged, supporting coal-to-gas switching, but declining inventories pressure in some regions. Carbon prices reached record levels, incentivizing cleaner power generation at the expense of coal.
• Clean spark spreads (gas-fired power profitability) outperformed clean dark spreads (coal-fired) in most EU countries, facilitated by high carbon costs. However, spreads turned negative in some markets like Germany and France.
• Forecast indicates elevated power prices and renewables-led growth through 2023, driven by capacity closures and rising carbon costs.

2. Financial Performance

• KPMG’s P&U 20 companies showed steady revenue and EBITDA growth in 1Q21, driven by improved operational performance and focus on renewables. However, revenue growth was subdued year-on-year after pandemic-induced declines in 2020.
• Net debt decreased, and ROCE improved, reflecting debt reduction and operational stability. Companies increased long-term capex for renewables, driven by ESG commitments (e.g., Enel plans EUR 70 billion renewable investments by 2030).

3. Regulatory Developments

• Green transition remains central, with policies including Germany’s EEG 2021 aiming for greenhouse neutrality by 2050, a UK £1-billion green innovation fund, and the EU’s recovery plans allocating €30 billion for sustainability.
• Courts and governments enforced stricter carbon regulations, such as the Dutch court ordering Shell to cut emissions by 45% by 2030, and Russia introducing carbon reporting and low-carbon certificates.

4. Mergers & Acquisitions

• Deal activity increased by 8% year-on-year to EUR43.4 billion. Key transactions included National Grid’s acquisition of Western Power Distribution (€16.6 billion) and investments in renewables (e.g., Total acquiring Adani Green Energy’s shares).
• Deals clustered around energy transition themes, signaling a shift towards renewables and sustainable technologies.

Conclusion
The European P&U sector demonstrates resilience amid pandemic recovery, with strong focus on renewables, energy transition, and decarbonization. Key challenges include market volatility and geopolitical risks (post-Brexit, Russia sanctions), but opportunities in ESG-aligned investments and green hydrogen initiatives remain dominant trends.