Financial health of electricity producers: the dual challenge of energy transition, and security of supply

Colombus Consulting has published the 7th edition of its annual study on the financial health of European power producers. In the context of falling electricity consumption in Europe and growth in turnover following the post-Covid recovery, energy companies are continuing to invest in renewable energy. The high volatility of prices, notably due to the geopolitical situation, has important consequences for both consumers and producers, but also for the financing of the energy transition.

Electricity consumption is decreasing in Europe (EU, UK, and CH)

At the beginning of 2023, the geopolitical context continues to put pressure on energy supplies despite a drop in electricity consumption during the early winter. In this context, electricity producers continue to invest in renewable energies to diversify their sources of supply.

Spectacular revenue growth for electricity producers in 2022

“The cumulative turnover of energy suppliers increased by 88% between 2021 and 2022. This increase is almost 10 times greater than the increase between 2020 and 2021. However, profitability does not follow the same trend,” says Samy Bélaïba, energy consultant at Colombus Consulting. Indeed, the cumulative EBITDA of energy companies (excluding Fortum) fell by 11% in the first half of 2022. This observation concerns all energy companies, even if this growth hides strong disparities. However, nine energy suppliers did better in 2021 on this indicator, which shows that the other five players studied suffered significant losses in 2021. “Alpiq and BKW, thanks to rising prices on the energy markets, are seeing their turnover increase,” adds Samy Bélaïba. Valuation adjustments to financial hedging transactions have a strong impact on Alpiq’s EBITDA (see box above)

Price volatility that benefits neither the producer nor the consumer

The very high volatility of electricity prices observed in recent years benefits neither the consumer nor the producer. Stabilizing the market is a complex equation and several strategies have been envisaged by Member States to mitigate the effects of the price surge: capping gas prices, financing non-targeted tariff shields and/or targeted tariff schemes, opting for the single buyer system, taxing super-profits.

Security of supply in Switzerland depends on the successful articulation of the deployment of decarbonized modes of production

“The current rate of development of photovoltaic and wind energy in particular is not sufficient in view of the ambitions described in the Energy Future 2050 plan. Electricity needs, due to the replacement of fossil fuels in transport and heat production, will increase by at least 25%,” adds Samy Bélaïba.

Photovoltaic production, which has increased significantly over the past year, now covers 6.3% of Swiss needs, although there are calls to preserve green spaces.

The development of wind power has slowed down. Some projects initiated 20 years ago are still awaiting federal or cantonal approval. The stakes are high, as this corresponds to an estimated annual production of 493 GWh, in addition to the 1.2 TWh in the early stages of the procedure or planning. “Geothermal energy also has a role to play. It could produce 2 TWh of electricity per year in 2050, but prospecting for suitable sites will take time,” concludes Samy Bélaïba.

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