Prices in France, Germany and Spain continued to increase until September, following the Q2 trend, then fell sharply due to a fall in gas prices and the increase in wind power supply in Germany and nuclear-based power in France. Prices in the UK also significantly increased compared to the moderate growth in Q2, primarily due to significant increase in gas and coal prices, along with the impact of CO2 emission rights.
Both WTI and Brent Oil average prices maintained an upward trend during the end of Q3 2018, reaching US$70.21/b and US$78.86/b, respectively, after the reduction experienced until August. The volatility in prices largely reflect the tensions in the Middle East among other supply factors.
HH average prices remained stable during Q3 2018, closing at US$2.99/Mbtu by the end of the period, after a moderate increase in Q2. NBP prices continued to rise significantly during the quarter reaching 77.6 GBP/MWh at the end of September. This increase was mainly due to unplanned outages and annual maintenance of offshore gas networks.
Australian coal prices increased significantly in July, followed by a continuous decline, reaching US$114.16/Mt at the end of September, attributable to the heat wave across the northern hemisphere during summer and output cuts in China. Despite the reduction experienced in August, South African coal average quarterly prices increased by 4.7 percent in Q3 2018 to US$102.14/Mt, following the trend of previous months.
Carbon prices increased by 40 percent from July to mid-August 2018 reaching peak price of EUR24.11/T, then declined to EUR19.23/T at the end of September. The average quarterly carbon price increased by 30 percent.
Dark and spark spreads continued to experience strong volatility in continental Europe. The UK, Spain and France spreads recovered during this quarter — however, spark spreads in Germany remained negative during Q3.
The EU and China reaffirmed their commitment to advance the implementation of the Paris Agreement and intensify their cooperation on climate change and clean energy. At the China-EU Summit on 16 July 2018 in Beijing, the President of the European Commission Juncker, the President of the Council, Tusk, and the Chinese Prime Minister, Li Keqiang, adopted a ‘Leaders' Statement on Climate Change and Clean Energy. A Memorandum of Understanding was signed to enhance cooperation on emissions trading between China and the EU.
On 31 October 2018, the Federal Ministry for Economic Affairs and Energy submitted a draft bill for a law amending the Renewable Energy Sources Act (EEG), the Combined Heat and Power Act (KWKG), the Energy Act (short: EnWG), and other energy legislation in the so-called Energy Collection Law (ECL). Initially, special tenders will be carried out on the basis of the EEG 2017, whereby 4 gigawatt (GW) solar plants and wind turbines on land will be funded by 2021. Furthermore, the entire feed-in management and the hardship compensation of 14 and 15 EEG 2017 will be transferred to the EnWG.
The DIEU Department (ARERA) determined the values of the reference cost and the national fixed price, as well as other parameters necessary for the calculation of benefits for energy-intensive enterprises for 2017 (last year of the previous regime for the facilitation of energy users). This will also help in determining the reference price for the calculation of the same facilities for 2019.
The Regulatory Entity for Energy Services (ERSE) approved the amendments to two manuals (Manual of Procedures for Global System Management and Manual of Procedures for the Joint Management Mechanism of Portugal-Spain interconnection) to perform the changes in procedures for the implementation of the continuous intraday market.
Teresa Ribera Minister for Ecological Transition announced in the Spanish Parliament that with a EUR100 billion investment in renewable generation and increased storage capacity, Spain could obtain a saving on its electricity bill of approximately EUR400 billion and meet its 32 percent EU renewables target by 2030. To this end, the government intends to promote the use of bilateral contracts to shift a large percentage of energy contracting out of the wholesale electricity market, which in Spain, unlike in some other EU countries, has a dominant position.
The government has signalled that it wants to remain in the EU Emissions Trading System (EU ETS) to maintain the efficient flow of energy, along its interconnector links with the rest of Europe, post-Brexit. The move for continued participation in the ETS is outlined in the Brexit white paper, which was published on 12 July 2018. The white paper’s chapter on electricity and gas states that continued participation in the International Energy Market (IEM) would maintain the existing ‘efficient’ trading relationships along the interconnectors, which are projected to supply an increasing share of UK energy needs, as reliance on more intermittent sources of renewable supply grows. However, recent press suggests this may not be possible.
Significant French players have been announcing Hydrogen Plans during 2018, anticipating it could be key for energy transition in the future.
Capital markets overview
Eurostoxx utiltitiesThe Eurostoxx Utilities Index remained fairly constant during Q3 in comparison to Q2 (minus 0.15%).
The Eurostoxx Utilities Index remained fairly constant during Q3 in comparison to Q2 (minus 0.15%). [Subtitle - please bold in black:
EDF, Fortum Oyj and Naturgy Energy Group registered the best performance in Q3 2018, in terms of share prices behaviour. During this period, 13 out of the top 18 European players experienced a positive price evolution.
Valuation levels in the sector averaged at 7.5 EV/EBITDA in Q3 2018; 3.8 percent lower than that in the previous quarter.Wide differences persist in EBITDA multiples, with Fortum Oyj, Naturgy Energy Group S.A., Iberdrola S.A., Snam S.p.A. and EDP-Energias de Portugal, S.A. receiving the highest valuations, trading at 11x EV/EBITDA and above.
Net debt ratios
Net debt ratios averaged at 3.2x EBITDA; 3 percent above the figure registered in Q2 2018 (3.1x EBITDA).
In October 2018, Snam S.p.A. observed a downgrade in its Moody’s ratings. For all other companies, the ratings remain unchanged.
The last quarter continued to see a very active M&A market. The total value of the top 10 deals exceeded EUR108 billion, with a broad diversification of subsectors (oil, gas, infrastructure, renewables and water).
Reuters, Glencore, Tohoku Electric set coal contract price at US$109.77/T, 4 October 2018, accessed on 9 November 2018