Europe's focus on achieving its ambitions environmental targets will drive the closure of more and more thermal and nuclear baseload generation plans, which renewables will find difficult to fully replace over the next three years, leading to tightening of power supply and rise in electricity prices. European power companies are expected to direct their profits towards energy transition related projects, driving domestic and inbound deal activity.

This ongoing report on the European power and utilities sector is released on a quarterly basis and offers a single-source summary of the following pressing industry topics:

Price & margins: Rise in power demand

During 9M21 (9 Months of 2021), electricity prices in Europe skyrocketed, driven by a surge in wholesale gas and power prices globally. Further, lower gas supplies, a longer heating season in 2020–21 and unfavourable weather conditions for producing renewable energy resulted in an undersupply. This will likely result in inflated electricity bills in the upcoming winter months. In 3Q21, European coal-fired generation became more economical than gas-fired, as clean dark spread was above clean spark spread. Gas-fired generation decreased, and coal-fired generation increased, both q-o-q and y-o-y.

Central Western Europe futures (EUR/MWh)

In August, Belgian and Dutch power prices were around EUR100.0/MWh due to the reduction in wind generation and cooler temperature. France regained as top European power exporter in the first half of the year, as nuclear generation recovered from the impacts of the pandemic.x

Regulatory developments

Energy transition is expected to dominate the Power & Utilities sector for the immediate future. 46 countries, including European nations such as the UK and Germany, agreed to phase out coal at the COP26 climate conference in Glasgow, Scotland, implying a rise in investments in the renewable energy sector.

Financial performance: How have European P&U companies performed?

In 2Q21, most KPMG P&U 20 companies reported a q-o-q decline in revenue and EBITDA growth, similar to second quarters of previous years. EnBW, Fortum and Uniper reported the largest decline in q-o-q EBITDA growth.

In 3Q21, KPMG P&U 20 reported revenue growth in positive territory, compared with 2Q20, supported by higher power and gas prices along with higher volumes of trade. Further, the KPMG P&U 20 reported steady EBITDA growth on a y-o-y and q-o-q basis, driven by improved operational performance. RWE Aktiengesellschaft, Natural Energy and Uniper contributed the most to the positive movement.

EUROSTOXX utilities index january 2019 to September 2021

In 2Q21, the median Net Debt to EBITDA for KPMG P&U 20 companies stood at 9.7, down from 12.5 in 2Q20 and up from 9.2 in 1Q21, indicating improvement in debt position. National Grid, EDP and Fortum reported highest Net Debt to EBITDA ratios (above 25) among the KPMG P&U 20 companies during the quarter. In 3Q21, the median Net Debt to EBITDA for KPMG P&U 20 companies stood at 10.8, vs. 9.7 in 2Q21 and 9.7 in 3Q20. National Grid, EDP and Veolia Environment reported highest Net Debt to EBITDA ratios (above 16) among the KPMG P&U 20 companies during the quarter.

Mergers & acquisitions: Post-Covid growth halted

During 2Q–3Q 21, the European power and utilities sector witnessed a slump in the total deal value, owing primarily to high-value deals being executed in 1Q21 and 4Q20. The top five P&U industry M&A deals during 2Q21 and 3Q21 accounted for 51 percent of the overall deal value (EUR47.4 billion), of which the sale by Suez of its water & waste business accounted for EUR10.7 billion.

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