2015-03-10-KPMG-European_Power_Utilities_Report_–_Q3_2014_22页_1mb

European Power & Utilities Report - Q3 2014 Summary

Core Content Overview

This report provides an analysis of the European power and utilities sector during the third quarter of 2014, focusing on price trends, regulatory developments, capital market performance, and M&A activity.

Key Price and Margin Trends

• Electricity Baseload Prices:

  • In Central Europe (France, Germany), prices rose from ~20€/MWh to ~40€/MWh.
  • In Spain, prices surged to ~60€/MWh, showing high volatility.
  • In the UK, prices increased but at a slower pace compared to Continental Europe, leading to the lowest differentials since 2012.

• Fuel Prices:

  • Oil prices began a downward trend at the end of Q3 due to weaker demand and high US LTO production.
  • Gas border prices in Europe fell to ~9 USD/MMBTU, still above Henry Hub levels (~4 USD/MMBTU).
  • European spot prices started to recover, with NBP reaching ~50 GBP/MWh.
  • Coal prices continued their slow decline to ~70 USD/t.

• Generation Margins:

  • Gas-based generation margins (spark spreads) are slowly recovering to slightly positive values.
  • Coal-based generation margins (dark spreads) are also improving across Europe.

Capital Market Highlights

• The Eurostoxx Utilities index rose by 1.3% in Q3 2014.
• Share price performance varied significantly, with 4 out of 5 best performers being Iberian-based companies (Enagas, Gas Natural, EDP Renewables, Iberdrola) and Fortum.
• Worst performers included French companies (EDF, GDF Suez), UK merchants (SSE, Centrica), and the Italian incumbent (Enel, EGP).
• Valuation levels (EV/EBITDA) ranged from 5-7 for merchant players to 10-12 for grid and renewable companies.
• Net debt levels remained stable at ~3.0x EBITDA for large players, with unchanged credit ratings.

Regulatory Developments

• EU Policy Framework:
  • On 23 October 2014, EU leaders agreed on the main building blocks of the 2030 climate and energy policy framework.
• Germany:
  • Lawmakers voted to reduce renewable energy subsidies, leading to a revision of the EEG clean-energy law.
  • E.ON claimed €380 million in damages for the three-month nuclear moratorium.
• UK:
  • Ofgem opened an investigation into British Gas, E.ON, and Npower over advanced meter roll-out performance.
  • Draft determinations for 'slow-tracked' electricity distribution companies were published.
  • Ofgem proposed new transparency rules for company profits.
• Spain:
  • CNMC published provisional settlements (Settlements 8/2014), showing deficits in both electricity and gas sectors.
  • Royal Decree-Law 8/2014 was released for urgent energy measures.
  • New demand response auctions for industrial consumers were announced for 2015.
• Italy:
  • New regulations were enacted on commercial quality in gas distribution, unbalance management in power, invoice transparency, and peak shaving in gas for Winter 2014-2015.
• Portugal:
  • Published Decree-law 153/2014 on self-consumption, including net balance and changes in feed-in-tariffs.
• FERC:
  • Approved the Cameron LNG Export project.
  • Delivered the Third Settlement in the 2011 Southwest Blackout Case.
  • Reviewed actions to improve cold-weather grid performance.

M&A Activity

• M&A activity in the Energy sector was strong in Q2-Q3 2014, driven by deals in the Americas and Asia, as well as internal portfolio rearrangements by large groups.
• Major Deals:
  • Kinder Morgan's minority buyouts: Kinder Morgan Energy Partners (44 €bn), Kinder Morgan Management LLC (7.7 €bn), El Paso Energy Partners (7.5 €bn).
  • Exelon's acquisition of Pepco Holdings (8.8 €bn).
  • Enel's acquisition of Endesa's Latam business, including Enersis (7.9 €bn).
  • Wisconsin Energy's purchase of Integrys Energy Group (6.6 €bn).
  • EnCana's acquisition of Athlon Energy (5.2 €bn).

M&A Activity in Q2 2014

M&A Activity in Q3 2014

Share Price Evolution (Q3 2014)

Leverage and Credit Ratings (as of Sep 30, 2014)

Summary

The European power and utilities sector in Q3 2014 showed recovery in electricity baseload prices, particularly in Central Europe and Spain, while the UK lagged behind. Fuel prices, especially oil, began a downward trend, and gas prices remained high relative to Henry Hub. Margins for gas-based generation improved slightly, while coal margins also showed improvement. Capital markets saw a modest rise in the Eurostoxx Utilities index, with significant share price divergence. Regulatory updates included EU climate and energy policy, Germany's EEG law revision, UK's Ofgem investigations, Spain's CNMC settlements, and Italy's new regulations. M&A activity was robust, with notable deals in the US and Europe, reflecting strategic moves and portfolio adjustments.