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Price and margins overview

Electricy Prices

Electricity prices in Germany and Spain continued to increase till the last week of October, primarily due to higher than expected colder weather and low wind generation, however, prices declined in the first week of November on account of higher renewable energy generation. Electricity prices for the UK, France, Germany and Spain peaked to 10 month high in the second and third week of November due to unstable renewable energy production and lower temperatures forecast. Prices declined in December resulting from high renewable output and low demand.

Oil prices

The spot price of Brent crude oil averaged US$66 per barrel in December 2019, up US$4 per barrel from the average in November and US$10 per barrel higher than in December 2018. Price increases in December partly reflect market expectations of better global economic conditions in 2020 than anticipated, and positive impact of announced first phase of a trade deal between the United States and China to be signed in January. Brent and WTI crude prices continued to rise throughout the quarter, reaching nearly US$66 and US$60 per barrel in December, partly driven by OPEC’s announcement to increase production cuts.

Gas Prices

The average prices of EU border, Henry Hub and NBP continued to increased in October and November due to bullish movement of oil prices, strong demand from power sector, rise in coal and carbon prices, forecast of cooler weather and lack of wind generation. EU border, Henry hub and NBP prices declined in December due to high storage level and low demand. Average price for Henry hub and Eu border increased by 1 percent and 28 percent respectively compared to 3Q19.

Coal Prices

South African and Coal API 2 prices increased by 13 percent during the quarter reaching US$76/T and US$67/T in December, driven by reduction in European coal storage and boost in seasonal demand. Australian coal prices declined by 4 percent during the quarter due to high level of stocks driven by strong supply, abundant gas availability and weak generator demand, falling freight rates and bearish signals from Asia pacific region.

Carbon prices

Carbon prices peaked to EUR29.8/t in June–July 2019 and then declined till October first week reaching 6 month lowest of EUR22.5/t. Average Carbon price in 4Q19 decreased by 7 percent q-o-q, reaching EUR24.9/T in December last week. Carbon prices recovered in the second week of October driven by market expectation for a Brexit agreement between UK and EU, on account of announcement of elections in the UK, and also due to the deadline being extended till 31st January. Carbon Prices declined in December first week, mainly by the announcement that Germany plan to close 4GW of coal fired generation in 2020.

Dark spark/spreads

Continuing the 3Q19 trend Spark spread surpassed the dark spread for most of the 4Q19. Abnormally mild winter weather in December and abundant fuel storage and supplies across Europe resulted in reduced demand. Higher costs for carbon-emissions allowances has tilted the economics of generating electricity away from coal and toward using more gas. The premium is the widest ever, and underlines the growing economic viability of coal-to-gas switching across Europe. The CDS in France, Germany, Spain and the UK improved in 4Q19 due to low gas prices.

Regulatory news overview

European Union

The EU has been witnessing several initiatives taken by its member countries to reduce emissions and promote renewable energy sources. The initiatives include investments in renewable energy production and setting up action plans for achieving future zero emissions target. Countries are also collaborating to initiate energy transition and increase renewable production.


UK’s re-elected government announced to present a white paper detailing the UK’s path toward zero carbon emission by 2050.

The Gas and Electricity Markets Authority of the country opened an investigation into a power outage in August 2019, to determine the circumstances and causes of the outage and take steps to improve the resilience of Great Britain’s energy network.

The UK’s ‘Big 6’ energy retail companies are continuously losing their market share over the last decade (from 100 percent to 58 percent) due to the growing customer base of new suppliers such as Shell Energy and Octopus Energy.

In October 2019, the EU Commission reapproved the GB Capacity Market (CM), which the ensures security of electricity supply.


By 2030, Germany aims to reduce carbon emissions by 55 percent through stricter regulations (GEG and KSG), which were recently passed. The Gebäudeenergiegesetz (GEG) Act aims to reduce bureaucracy and simplify regulations related to the construction and renovation of buildings. The Act also focuses on energy efficiency in buildings and the use of renewable energy for heating and cooling supply. In 2019, Germany witnessed a significant expansion in electricity grids primarily driven by simplification in the Grid Expansion Acceleration Act 2.

According to the Energy Monitoring Report 2019, currently, the electricity generation market is not dominated by any individual player. The report also talks about the decreasing conventional energy generation capacity and increasing prices of wholesale electricity.


The planned ATRD tariff for gas transport in France during July 2020–24 is expected to remain stable, with an expected 0.3 percent decrease annually.

On 1 January 2020, ENGIE’s regulated tax free prices fell by 0.9 percent resulting from the application of the tariffs defined in the 27 June 2019 decree.

In a bid to promote offshore wind capacity, the French government has presented an energy roadmap update, which was open to public consultation until 19 February 2020. It focusses on increasing offshore wind capacity and decreasing onshore capacity. In line with this, EDF, the country’s electric utility company, launched the construction of the 480MW Saint-Nazaire offshore wind project, along with its Canadian partner Enbridge.

Also, France has proposed a reform in the Regulated Access to Historic Nuclear Electricity (ARENH), related to the price mechanism on the nuclear electricity, which is open to public debate until 17 March 2020.


During 4Q19, the Spanish National Commission on Markets and Competition (CNMC) approved eight regulations (Circulars 2/2019-9/2019) related to transmission and distribution activities in both electricity and gas sectors.

On 20 November 2019, the Spanish National Commission on Markets and Competition (CNMC) approved the Circular 2/2019, which defines a new methodology for the energy sector’s financial remuneration rates and decided upon a rate of 5.58 percent for the transmission and distribution of electricity for the period 2020–25.

The country is focusing on increasing the use of renewable energy. According to REE, 6,456MW of renewable energy was installed in the country in 2019, 6,126MW higher compared with 2018.

In December 2019, the United Nations Climate Conference (COP25) was organized in Madrid. It was primarily focused on the absence of cooperation with regard to Article 6 of the Paris Agreement, dealing with the creation of a carbon market and the lack of commitment toward increasing the ambition of the Nationally Determined Contributions.


The Netherlands is taking several initiatives to reduce emissions. It is expected to close its 4.8GW of coal-fired capacity by 2030, in line with its initiatives to reduce emissions. Also, the government has announced that it would invest money to mitigate nitrogen emissions in the country. On 17 December 2019, the Dutch Senate backed proposals seeking a tax of EUR31 per ton on the import of waste for incineration, starting 1 January 2020.

The Dutch High Court has directed the government to cut CO2 emissions by at least 25 percent by 2020 compared with the 1990 levels. Also, the country is expected to start the funding program for its green bond in 2020; through a Dutch Direct Auction (DDA).

In November 2019, the Dutch Climate minister announced an additional round of applications for renewable energy subsidies under the Netherlands’ SDE+ scheme, which is being planned in the spring of 2020. The Netherlands Environmental Assessment Agency expects that the country’s solar generation capacity would increase by another 5GW by the end of 2020, from around 4.4GW at the end of 2018.

The Netherlands signed a joint declaration of intent with Germany, laying out a common energy transition plan and pledging for a closer cooperation in the areas of defense and asylum policy.


The Regulatory Entity for Energy Services in Portugal established and approved the tariffs and regulated prices in the country, including in the Autonomous Regions of the Azores and Madeira. The Regulatory Entity for Energy Services also approved a new regulation for electric mobility to boost the transition process.

The Secretary of State for Energy has announced a discount of 33.8 percent in electricity tariffs to economically vulnerable families, applicable from 1 January 2020.


The Italian Regulatory Authority for Energy, Networks and Environment (ARERA), has updated the service quality regulation for the gas distribution and measurement business for the 2020–25 period. The ARERA also updated the tariff system for the distribution and measurement service in the gas sector for the 2020–25 period to encourage the aggregation of different players and shift to a different cost recognition system to improve the efficiency of the distributors.

The Italian authority has updated the output-based regulation for the distribution and measurement of electricity for the period 2020–23, to improve the quality of the service, especially in poorly served regions, so that there is a balance in the overall quality on a national basis. It has also established a new criteria for recognizing efficient operating and investment costs for the 2018–21 period, through adoption of the tariff method for the Integrated Waste Management Service.


Hungary closed its previous feed-in tariff support scheme and switched to a new market-based premium system. The first pilot tender of the new system, which was issued on 29 October 2019 by the Hungarian energy regulator (MEKH), received bids, totaling 322MW, from 155 participants.

The DE-AT-PL-4M MC Project (Interim Coupling), which aims to couple the 4M Market Coupling, Poland and the Multi-Regional Coupling (MRC), has entered into its implementation phase after completing the design phase. During the NRA-TSO-NEMO meeting held on 6 November 2019 in Budapest, the relevant national regulatory authorities have reconfirmed their support for the continuation of the project.

During the quarter, the Hungarian Power Exchange (HUPX) and the Hungarian electricity Transmission System Operator (MAVIR) joined the common European market coupling solution (XBID), taking a step toward the integrated European electricity intra day market.
In September 2019, E.ON SE acquired majority shares in Innogy SE. Innogy operates in Hungary through ELMand ÉMÁSZ.

Russia and CIS

Russia: The country has allowed amendments to the Federal Law (#35-FZ dated 26 March 2003) on the Electric Power Industry, allowing owners of small solar and wind generators to sell surplus electricity to guaranteed suppliers.

Kazakhstan: The country intends to attract investors to the waste processing sector, especially to the thermal waste treatment, offering subsequent scope for electricity generation. Electricity generated from burning waste will be supplied to the central electric grid.

Ukraine: By 2023, Ukraine intends to connect its power system to the European power system by joining it with the digital single market, which is a proposed economic zone of the EU member states focused on telecoms and digital economy.

Uzbekistan: The Ministry of Energy and the International Financial Corporation (IFC) discussed the second stage of tenders as part of the Scaling Solar II project for constructing photoelectric (solar) power stations.

Georgia: In December 2019, the Georgian Energy Exchange was incorporated. It will be responsible for arranging and coordinating activities for the creation of a competitive electricity market and compilation of bilateral contracts. JSC Georgian State Electrosystem (GSE) and JSC Electricity System Commercial Operator (ESCO) equally served as the exchange founders for the Energy Exchange.

Capital markets overview

Eurostoxx utilities

The Eurostoxx Utilities index cumulated 19.0 percent gains in the last 12 months.

Best Performance

EnBW Energie Baden, National Grid plc, SSE Plc, EDP, Enel SpA, RWE AG, ENGIE SA (GDF Suez S.A.), EDP Renováveis, registered the best performance (more than 5 percent share price increase quarter on quarter) in Q4 2019, in terms of share pricing. During this period, 20 of the top 25 European players experience positive price evolution.

Valuation levels

Valuation levels in the sector averaged at 9.5 EV/EBITDA in Q4 2019, 2,2 percent above the previous quarter (9.3 EV/EBITDA in 3Q19). Wide differences persist in EBITDA multiples, with Innogy SE (XTRA:IGY), Ørsted A/S (CPSE:ORSTED), VERBUND AG (WBAG:VER), RWE Aktiengesellschaft (XTRA:RWE), E.ON SE (XTRA:EOAN), Snam S.p.A. (BIT:SRG), EnBW Energie Baden-Württemberg AG (XTRA:EBK), National Grid plc (LSE:NG.), Terna-Rete Elettrica Nazionale Società per Azioni (BIT:TRN), Elia Group SA/NV (ENXTBR:ELI), EDP-Energias de Portugal, S.A. (ENXTLS:EDP), Iberdrola, S.A. (BME:IBE), Fortum Oyj (HLSE:FORTUM), EDP Renováveis, S.A. (ENXTLS:EDPR), SSE plc (LSE:SSE), trading at 10x TEV/EBITDA and above (as of 31 December 2019).

Net debt ratios

Net debt ratios for Q4 2019 averaged at 3.9x EBITDA, 11.4 percent above the figure registered in Q3 2019 (3.5XEBITDA).

Credit ratings

In January 2020, VERBUND AG (WBAG:VER) observed an upgrade in its Moody’s rating to ‘A3’.

M&A overview

Key trends

Total value of the top 15 deals amounted to EUR31.5 billion.

The top deals, primarily constituting power generation, distribution and renewable companies, focused on geographical expansion, internal growth, energy transition and expansion of current portfolio. The M&A deals were also driven by other factors such as repayment of debts, divestment in certain geographies, requirement of additional capital, strengthening of stakeholder relations and privatization of the companies.

Key tranactions

  • Canada Pension Plan Investment Board (CPPIB) entered into an agreement to acquire Pattern Energy Group Inc. Under the terms of agreement, CPPIB would acquire 98,489,599 Pattern Energy shares, representing 100 percent stake in the company. The financing for CPPIB would be done through a combination of equity contribution and debt funding from Bank of Montreal, BMO Capital Markets, Citigroup Global Markets, Royal Bank of Canada and RBC Capital Markets. The transaction, expected to close by the 2Q20, will drive Pattern Energy to grow further.
  • Mitsubishi Corporation and Chubu Electric Power Co., Inc. have agreed to acquire Eneco Group B.V. As per the deal, Mitsubishi would acquire 80 percent stake in Eneco while Chubu Electric would acquire rest of the 20 percent stake. Both the bidders are expected to finance the transaction through existing cash resources. Mitsubishi and Chubu Electric together intend to expand the Eneco Group internationally and aim to make Eneco the European center for all its activities related to energy.
  • Knight Vinke Asset Management and Elliott Management Corporation have agreed to sell 20.5 percent of its stake in Uniper SE to Fortum Oyj AB. Fortum will acquire 75,021,800 shares of Uniper, at an offer price of ~EUR29.93 per share. Fortum plans to finance the transaction through cash and credit facilities, underwritten by Barclays. The deal will increase Fortum’s share in Uniper to more than 70.5 percent and will help the company in synchronizing its strategies with Uniper’s Swedish and Russian portfolios. The deal will also allow Fortum to increase its footprint in Europe.
  • An investor group led by China Life Insurance Company Limited agreed to acquire a 34.97 percent stake in Qinghai Huanghe Upstream Hydropower. As per the terms of the deal, China Life Insurance will acquire 13.01 percent stake, followed by ICBC Financial Asset Investment, that will purchase 8.67 percent stake. The deal would enable Qinghai Huanghe Upstream Hydropower Development to develop clean energy related projects, promote transformation, supplement working capital and repay bank loan.
  • An investor group led by China Life Insurance Company Limited agreed to acquire a 34.97 percent stake in Qinghai Huanghe Upstream Hydropower. As per the terms of the deal, China Life Insurance will acquire 13.01 percent stake, followed by ICBC Financial Asset Investment, that will purchase 8.67 percent stake. The deal would enable Qinghai Huanghe Upstream Hydropower Development to develop clean energy related projects, promote transformation, supplement working capital and repay bank loan.

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