Energy transition and security of supply: double challenge for power generators
Against the backdrop of declining electricity consumption in Europe and growth in their sales as a result of the recovery following the Covid crisis, power producers are continuing to invest in renewable energies. The strong price volatility, due in particular to the geopolitical situation, has far-reaching consequences both for consumers and generators and for the financing of the energy transition.
The consulting firm Colombus Consulting has published the 7th edition of its annual study on the financial health of European electricity producers. This notes a decline in electricity consumption that continues to intensify in Europe (EU, UK and CH). At the beginning of 2023, the geopolitical context continues to cause tensions in energy supply, despite a decrease in electricity consumption at the beginning of winter. Against this backdrop, power producers continue to invest in renewables to diversify their supply sources.
Dramatic revenue growth for power generators in 2022
"The cumulative revenue of utilities has increased by 88 % between 2021 and 2022. This increase is almost ten times higher than that between 2020 and 2021. Profitability, on the other hand, does not follow the same trend," says Samy Belaiba, energy consultant at Colombus Consulting. In fact, the cumulative EBITDA of utilities (excluding Fortum) fell by 11 % in the first half of 2022.
This finding applies to all energy suppliers, even if this growth masks major differences. Nine energy suppliers nevertheless perform better on this indicator in 2021, which shows that the other five players studied have suffered significant losses in 2021. "Alpiq and BKW are seeing an increase in revenue thanks to higher prices on the energy markets," adds Samy Belaiba. Valuation adjustments on financial hedges have a strong impact on Alpiq's EBITDA (see chart).
Price fluctuations that benefit neither the producer nor the consumer
The very high volatility of electricity prices observed in recent years does not benefit consumers or generators. Stabilizing the market is a complex equation, and member states have considered several strategies to mitigate the impact of the sudden price spike: Capping the gas price, funding non-targeted price shields and/or targeted price schemes, opting for the single buyer system, taxing super profits.
Switzerland's security of supply depends on successfully linking the use of carbon-free production methods, the study also concludes. "The current pace of expansion of photovoltaics and especially wind energy is not sufficient to meet the ambitions described in the Energy Future 2050 plan. Electricity demand generated by replacing fossil fuels in transportation and heat generation will increase by at least 25%, Samy Belaiba adds.
Photovoltaic production, which has increased significantly compared to the previous year, now covers 6.3 % of Swiss demand, despite voices in favor of preserving green areas. For its part, the development of wind energy is slowing down. Some projects started 20 years ago are still waiting for federal or cantonal approval. The stakes are high, as this cumulatively represents an estimated annual production of 493 GWh, in addition to the 1.2 TWh that are in the early stages of the process or planning. "Geothermal also has a role to play. It could generate 2 TWh of electricity per year in 2050, but the exploration of suitable sites takes time," concludes Samy Belaiba.
Source: Colombus Consulting
