
European utilities are showing that their business models stood the test of hard times, a year after the start of the pandemic and as the financial reporting season begins, S&P Global Ratings said in a report published today.
What's more, utilities played a critical role during the crisis, providing uninterrupted service despite operating challenges amid social-distancing measures and lockdowns.
"They generally entered the pandemic with solid fundamentals, notably though the continuous strengthening of their activities in recent years, including a growing share of regulated networks and long-term contracted renewables to press on with the energy transition and sector decarbonization," said S&P Global Ratings credit analyst Pierre Georges.
Indeed, in 2020 European policymakers elevated the continent's decarbonization ambitions, with the energy transition becoming a pillar of the economic recovery strategy.
To analyze what all of this means for the sector and which companies we expect will most benefit, S&P Global Ratings today published "The Energy Transition And The Diverging Credit Path For European Utilities."
Our key takeaways:
- Prospects for European utilities generally improved in the past year as they came to terms with pandemic-induced changes to the markets and continued to align themselves more closely with the stronger political commitment to the energy transition, specifically a net-zero carbon economy by 2050.
- This commitment is creating conditions for an investment supercycle, given that European energy policies aim to double renewables capacity by 2050 and need to strengthen power networks amid low interest rates and increasing investor appetite for sustainable finance.
- What's more, we expect the sector this year as a whole will continue to contain key downside risks triggered by the pandemic, including lower energy demand, lower power prices, bad debt, and supply chain disruption.
- Yet, all players will not benefit the same way in coming years in our view and lead to a greater divergence in operating performance, depending on their business portfolios, in-house expertise, and strategies.
- Utilities most exposed to renewables and power networks will perform better, we believe, than those exposed to commodity-linked generation, retail, and supply or gas infrastructure--all less aligned with a net-zero carbon economy.
This report does not constitute a rating action.