Certaines compagnies d’électricité européennes sont au bord du gouffre

R obert habeck , the telegenic economics minister in Germany’s new coalition government, has become the darling of the German media. He was called a « rock star » and proposed as the next chancellor. Now the media has blasted him for his plans to bail out some utilities with a natural gas surcharge that could cost an average four-person household an additional €480 ($480) a year (plus value-added tax). The measure is only part of a complex set of government interventions.

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Mr Habeck argues that the tax is necessary to save public services such as Uniper or the sefe Group (formerly Gazprom Germania). They face billions in losses following Russia’s decision to cut gas supplies in response to Western sanctions following its invasion of Ukraine in February. In order to meet their obligations to customers, utilities must cover the shortfall by purchasing fuel at an exorbitant cost on the spot market.

The problem is that, as designed, the proceeds of the levy could go to certain energy companies that seem to be doing quite well with the current ruckus. These include companies such as Gunvor, a Swiss-based energy trader whose net profit almost quadrupled in the first half of the year, and rwe a German company which reported adjusted gross operating profit of 2 .9 billion euros for the first six months of 2022, compared to 1.8 billion euros for the same period last year.

A humble Mr Habeck has vowed to seek ways to adjust the levy to avoid benefiting undeserving businesses. rwe has pledged not to take advantage of the scheme. Yet the episode illustrates the topsy-turvy state of European energy markets, with some companies demanding bailouts while others are accused of price gouging and threatened with windfall taxes on excess profits. Winners get “income they never calculated with; income they never dreamed of; and income that they cannot reinvest at this point,” fumed Ursula von der Leyen, the president of the European Commission, the EU ’s executive arm, on September 7.

The most troubled utilities are, unsurprisingly, those directly dependent on Russian gas. Germany’s Uniper, Europe’s largest importer of this material, worked smoothly with Gazprom for more than 40 years until June. Since then, the state-owned Russian giant has cut deliveries by 80%. In July, Uniper announced a loss of 12.3 billion euros for the first half of 2022. The government agreed to take a 30% stake and provided 15 billion euros in emergency aid. Even so, Uniper continues to lose 130 million euros a day, calculates Wanda Serwinowska of Credit Suisse, a bank. As a supplier of more than 25% of German gas, it is too big to fail. August 29,w a public bank, to increase its €9 billion credit line by €4 billion.

On August 31, Wien Energie, Austria’s largest regional utility, which also relies heavily on Russia, received a €2 billion credit line from the government to meet margin calls. The company is in talks with officials over a €6 billion bailout. And on September 4, Sweden and Finland announced they had made $33 billion available to Nordic utilities struggling to negotiate in extremely volatile electricity markets, where sky-high prices mean that companies must deposit much higher guarantees to secure transactions. Collateral requirements for Fortum, a Finnish utility, jumped by 1 billion euros, to 5 billion euros,

Utilities that do not rely on gas to generate electricity fare considerably better. But their latest results have little to do with the current turmoil. Because most companies hedge and sell futures contracts for power and gas, earnings today often reflect commodity prices a few years ago, says Alberto Gandolfi of Goldman Sachs, another bank. In total, Gandolfi predicts, European utilities will generate combined net profits of €17 billion this year, up from €30 billion in 2021 (see chart). If governments do not intervene, these combined profits could rebound to around the levels of the

Even if all this – some 150 billion euros between 2020 and 2024, according to Goldman Sachs – were confiscated by the state, it would be only a drop in the bucket compared to the 2 billion euros that Europeans will have to shell out in additional energy bills between 2021 and 2023 if prices do not fall. Sam Arie of ubs , another bank, warns against raiding utilities for money. A windfall tax would discourage them from making much-needed investments. It could, for example, induce rweto rethink its plan, announced in July, to invest 5 billion euros in renewable energies during this financial year, ie 30% more than initially planned. It would also leave companies with less money to build infrastructure to move liquefied natural gas from terminals in the west of the European continent to its private gas hub.

Investors in listed European utilities remained remarkably calm. The combined value of the biggest companies seems more boring than ever. The market may have concluded that excess profits will be taxed or simply will not materialize.

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