Discussions about ETS do not deter utility companies; Hera and A2A lead the gains

(Il Sole 24 Ore Radiocor) – The utilities sector is trading in positive territory across Europe, with the benchmark Euro Stoxx index on the rise. It’s the same story on the Milan Stock Exchange, with Hera and A2a are leading the sector’s gains; the sector therefore appears to be unaffected by the ongoing negotiations in Brussels regarding the ETS.

Specifically, Italia, France, Germany, Poland, Hungary, the Czech Republic and Slovakia are calling on the European Commission to make energy and climate policy more flexible in order to limit the impact of price rises on households and businesses. In particular, the member states are proposing a further postponement of ETS2 (the system that will extend the cost of emissions to the buildings and transport sectors) until 2030. It was due to start in 2027, with full implementation from 2028; the introduction of measures to reduce certain fuel quality requirements and to encourage greater use of biofuels (particularly in France). Finally, there is a review of the ETS rules and the extension of state aid for businesses most exposed to rising energy costs. In particular, Italia is pushing for the suspension of the system. On the other hand, Germany, France and the Scandinavian countries are defending the ETS and the energy transition process.

As the analysts at Equita point out, the European Union has already approved changes to the ETS criteria, defending the system and regarding it as central to the system for the foreseeable future. The postponement of ETS2 is already being considered as one of the possible courses of action, alongside other flexibility measures aimed at keeping CO₂ prices in check on the markets. “In our view, it is unlikely that there will be a substantial change to the CO₂ mechanisms; instead, it is more probable that further flexibility measures will be granted to member states (such as the approval of a price cap on gas prices for power generation),” write the experts, noting that CO₂ currently accounts for around 30 euros/MWh of the electricity price (which stands at 220 euros/MWh)”.

According to experts, ‘the companies most exposed to possible measures to suspend or cancel this component (albeit unlikely) are the power generators (Enel, A2A, Iren, Erg , Alerion ). However, the level of forward sales is already very high for 2027 (between 60% and 80%) and the assumptions underlying the business plan already imply prices of between 85 and 105 euro/MWh. We therefore believe that changes to CO₂ pricing (although negative in terms of regulatory risk) would not have any immediate significant impact on power generation companies. The potential impact is, however, more negative on pure-play renewables (Erg, Alerion), in terms of reduced support for RES development.”

Banca Akros points out that ‘no specific regulatory changes have been agreed. However, the conclusions reinforce the focus on the competitiveness of European industry and the impact of electricity costs. Pending an agreement on concrete measures, we see no reason to revise our estimates for companies in the utilities sector”.