RPT-Fitch EMEA Utilities Outlook: Energy Affordability Drives Risks
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Dec 10 (Reuters) - (The following statement was released by the rating agency)
The risk of new taxes, levies or tariff controls on the European utilities sector will increase in 2014 as rising bills stretch affordability for end-users, Fitch Ratings says. This risk, together with low demand, high natural gas prices and weak wholesale electricity prices, drives our Negative Outlook for the EMEA utilities sector.
Growth in renewable energy production will continue to pressure wholesale electricity prices in 2014 because it has priority of despatch and a low marginal cost of production. But despite falling energy costs, end-user prices are likely to rise due to the subsidies paid for renewables and increasing network charges.
Economic growth will be fragile and unemployment will remain high, meaning customers in many countries will find affordability even more of an issue. This will make energy costs a major political issue across much of the region, with the most exposed utilities in Spain, Portugal, Italy, Germany and Central Europe.
The uncertainty that this creates for all utilities, including operators of renewables, is demonstrated by the Spanish government's decision to withdraw previously announced funding for the sector and the UK government's initiative to cut bills and change the strike prices for renewables. In turn this is likely to make utilities more cautious about long-term investment decisions and means new projects may need more outright government support than previously.
Electricity consumption in developed European markets is likely to be flat in 2014 and weather-adjusted gas use is likely to fall as the impact of new renewables production and cheap coal lead utilities to switch off gas-fired power plants. Coal demand will continue to benefit from low prices and the low cost of carbon credits, but this could change if an initiative to temporarily withdraw some emission rights has a greater impact than expected.
We believe that utilities with a diverse range of power generation sources are best placed to cope with risks, but the ability of firms to change their generation portfolio is normally limited.
For a detailed assessment of the outlook for utilities across the main EMEA markets, see "2014 Outlook: EMEA Utilities" published today at www.fitchratings.com
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