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 unfavorable 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.

In 2Q21, the KPMG P&U 20 reported a q-o-q decline in revenue and EBITDA, similar to the second quarters of the two previous years. In 3Q21, the KPMG P&U 20 reported revenue growth supported by higher power and gas prices along with higher volumes of trade. Further, during the quarter, KPMG P&U 20 reported steady EBITDA growth driven by improved operational performance.

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.

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.

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.

European utilities witnessing sustained growth in power demand

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Key Findings

Green transition and emission reduction continues to be the primary focal point within the European P&U regulatory space. It has also been observed that Hydrogen is a key priority area for the countries to achieve their net zero targets.

  • The UK government set its Sixth Carbon Budget into law in April 2021 and through this the country plans to reduce emissions by 78 percent by 2035 compared to the 1990 levels. In August 2021, the UK Hydrogen Strategy was released by the Department for Business, Energy & Industrial Strategy (BEIS), outlining the government's approach to developing the UK hydrogen sector. The Strategy sets out requirements to enable the production, distribution, storage and use of low carbon hydrogen.
  • France has already committed EUR70 billion of the EUR100 billion recovery plan to support economic activity and job creation. Of this a major proportion is focused on green transition which includes, EUR6.7 billion for the thermal retrofitting of public (EUR4 billion for schools and administrative buildings, EUR500 million for social housing) and private (EUR2 billion for housing, EUR200 million for SMEs/VSEs) buildings.
  • The Netherlands Authority for Consumers and Markets (ACM) in its publication, `Development and regulation of hydrogen infrastructure', argues in favor of a gradual development of infrastructure for the transmission of hydrogen, as it will play a major role in the future supply of energy and in achieving the climate goals in 2050.
  • Russia's Ministry of Economic Development has revised the draft road map to improve energy efficiency of the Russian economy. The core emphasis now is on reducing greenhouse gas (GHG) emissions. By 2024, the country is also planning to enter large-scale production of hydrogen and begin exporting up to 200,000 tons of hydrogen per year. Uzbekistan too has adopted 'the Resolution of the President of Uzbekistan' on measures to develop renewable and hydrogen energy in the country. The Resolution would focus on building hydrogen energy infrastructure to promote economic energy efficiency and improve the country's energy security.

  

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