European utilities climbed on reports that officials are considering emergency measures to control spiking power prices. Analysts said the price-cap proposals are higher than expected and will lift a regulatory cloud on the industry.
(Bloomberg) — European utilities climbed on reports that officials are considering emergency measures to control spiking power prices. Analysts said the price-cap proposals are higher than expected and will lift a regulatory cloud on the industry.
The Stoxx 600 Utilities Index climbed 2.4%, making it the only sector gaining ground on Wednesday, while the broad Stoxx 600 was down 1%. RWE AG, SSE Plc and Energias de Portugal SA added more than 4%. Green-energy stocks including Verbund AG, EDP Renovaveis SA and Orsted AS also advanced.
The EU’s executive arm plans to propose a raft of measures that include a levy on fossil-fuel producers, a price cap on Russian gas imports, measures to increase liquidity for energy companies if needed and a mandatory target reduction of electricity use.
The EU’s action “might remove uncertainty for the sector and make it sustainable for consumers again,” said Fernando Garcia, director for European utilities equity research at RBC Capital Markets. The price cap “is quite high, and clearly above levelized cost of electricity.”
EU to Consider Emergency Power-Use Cuts, Price Caps, Profit Grab
According to a draft regulation seen by Bloomberg News, the planned power price cap could be set at 200 euros ($198.07) per megawatt hours and would apply to revenues obtained by production of electricity from wind, solar and geothermal energy, hydropower, biomass, landfill gas, sewage treatment plan gas, biogas, nuclear, lignite and crude oilshale oil.
For context, the average one-year forward German power price was 38 euros per megawatt hours between 2016 and 2020.
The price cap proposed would particularly benefit renewables, said Jens Zimmermann, an equity analyst at Credit Suisse Wealth Management. It’s “high enough so as not to discourage future investment in non-gas producing technologies,” he added.
The EU plan will be discussed with member states at an emergency meeting of energy ministers on Friday. Once it gets the political nod from governments, the commission will put forward legislative proposals that will include more details.
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