In 3Q20, most companies in KPMG P&U 20 experienced an improvement in revenue and EBITDA values, driven by the improving energy market environment. An uptick in Capex was also recorded across most utilities in 3Q20 vs. 2Q20 — implying recovery in the sector and renewed focus on capital investments to drive business.
The above financial performance of key P&U companies was a leading indicator of what was to come in 4Q20. No wonder electricity prices and input prices (including oil and coal) witnessed a rise on both q-o-q and y-o-y basis in 4Q20. Furthermore, the EUROSTOXX index witnessed a steady rise in 4Q20, propelled by successful clinical trial outcomes for COVID-19 vaccines and the prospect of a return to normalcy.
Some part of this recovery is supported by the regulatory developments within the European P&U sector that continued to focus primarily towards Green transition. For example, in December 2020, 22 EU member states signed a memorandum of understanding in which they expressed their willingness to support the development of a European value chain for green hydrogen and vowed to invest in the new key technology.
While it may be too early to exactly surmise how the 4Q20 performance of these companies might be1 — early indications and forecasts from analyst reports paint a positive growth story. The M&A activity has steadily increased in 2020 – from a 1Q historical low to a +60% growth (q-o-q) in number of deals and +267% growth (q-o-q) in total M&A deal value (mostly explained by the Veolia-Suez deal) to EUR 39.9 billion in 4Q20. For European P&U players, US remains a preferred region for making new acquisitions and has become especially attractive post the US elections.
It is expected that the year 2021 will be a witness to good growth rates for most P&U players in Europe as the European Union continues to focus on reduction in carbon emissions and achievement of net-zero targets. This will gear these companies to expand on their renewables portfolio further and it is likely that 2021 will witness a record-breaking feat for renewables auctions. Finally, European clean spark spreads remain above dark ones since 1Q19 (in France, Germany and the UK) – indicating a clear market premium to cleaner power plants.
Following a similar trend like the previous quarters, in 4Q20, regulatory developments within the European P&U sector continued to focus primarily towards Green transition. For example, in December 2020, 22 EU member states signed a memorandum of understanding in which they expressed their willingness to support the development of a European value chain for green hydrogen and vowed to invest in the new key technology.