In 1Q21, most companies in KPMG P&U 20 experienced a growth in revenue and EBITDA values, supported by favourable market fundamentals and increased focus on renewable energy. During the quarter, Capex to EBITDA ratio witnessed a sharp drop on a quarterly basis driven by decline in Capex of most companies. However, many leading European utilities have significantly increased their long-term capex programmes to propel their renewables portfolio.

In 1Q21, electricity prices across Europe remained high and matched the levels last seen at the beginning of 2019, along with extreme volatility, especially in the UK. Higher power prices across Europe and the UK were driven by colder weather; reduced contribution from renewable sources; conventional plant unavailability; and new Brexit trading arrangements. However, the EUROSTOXX index witnessed a slight decline in 1Q21.

The European P&U industry continued to recover from the COVID-19 pandemic in 1Q21, with deal value growing 8 percent q-o-q to EUR43.4 billion. National Grid’s EUR16.6 billion acquisition of PPL’s UK-based distribution business — Western Power Distribution was the largest deal of the quarter.

Following a similar trend like the previous quarters, in 1Q21, regulatory developments within the European P&U sector continued to focus primarily towards Green transition. For example, the new EEG came into force in Germany on 1 Jan 2021, which addresses long term aim for greenhouse gas neutrality by 2050. Clean spark spreads – measuring the profitability of gas-fired generation by considering variable costs – were above clean dark spreads during the second half of 1Q21 in Germany, France, Spain, and the UK – indicating a clear market premium for cleaner power plants. However, the spreads in 1Q21 fell to negative levels, during the whole period in Germany, France, and partially in Spain, indicating negative margins, due to carbon prices reaching a historical high.

According to S&P Global Platts Analytics, European power prices are forecast to remain at current elevated levels until 2023 on capacity closures, slight demand gains and rising carbon prices. The trends of renewables-led growth and coal phase-out have further strengthened in early 2021 as indicated by strong carbon prices and heightened ambitions from governments and investors to decarbonize their respective economies and companies.

European Utilities betting on Energy Transition

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Key Findings

Following a similar trend like the previous quarters, in 1Q21, regulatory developments within the European P&U sector continued to focus primarily towards Green transition. For example, the new EEG came into force in Germany on 1 Jan 2021, which addresses long term aim for greenhouse gas neutrality by 2050.

  • Germany has enacted a CO2 tax on gasoline, diesel, heating oil, and natural gas, with the goal of reducing greenhouse gas emissions and achieving the German government's climate goals.
  • UK announced a GBP1 billion fund for advancing low-carbon technology commercialization through the Net Zero Innovation Portfolio
  • France has released EUR100 billion recovery plan to support economic activity and job creation. Among other things, the recovery plan prepares the path for the greener French economy with the allocation of EUR30 billion to the green transition
  • The Netherlands has vowed to investment EUR338 million to expand the country’s green hydrogen sector. Further, to meet the target emissions set by the Paris agreement, the Dutch court has ordered oil Major Royal Dutch Shell to cut its carbon emissions by 45% by 2030 which is much higher than the company’s existing target to cut emissions by 20%
  • Russia has ordered the thermal power plants to reduce greenhouse gas emissions by 10% by 2024. Further, the country will start providing low carbon certificates to the industries that will serve as a verification that producers are using sustainable energy. Azerbaijan ministry and Masdar have announced investment of USD200 million in construction of 230MW SPP that will save 200,000 tonnes of carbon gas emissions.