Utilities under the microscope: brokers face a rising risk of extra taxation on profits

(Il Sole 24 Ore Radiocor) - Utility shares are under scrutiny on the Milan Stock Exchange after the European Union ruled that any taxation of windfall profits by energy companies falls within the remit of member states, which may act in accordance with national legislation. The decision follows a joint letter sent in recent days by the finance ministers of Germany, Italia, Austria, Poland, Portugal and Spain to the Irish finance minister, calling for the introduction of a tax on oil companies’ windfall profits at EU level.

“We believe that the absence of a European ‘framework’ increases regulatory risk in Italia regarding possible measures that also include the utilities sector”, write the analysts at Equita, who point to ‘the history of the last decade, which has seen the Italian government approve measures’ such as ‘taxation of VAT balances; the Robin tax; taxation on profits exceeding the 2018–21 average; the price cap on renewable energy production; and the increase in IRAP’. At present, utility shares on the Milan Stock Exchange are trading cautiously: A2A , Enel , Hera and Eni .

Intermonte points out that, according to Brussels, should EU countries act on the basis of national legislation, ‘such measures must be in compliance with European law. The Commission will respect the decisions of Member States and provide assistance and best practice guidance on national measures, whilst also assessing their impact on the single market’.

Equita’s analysis shows that recent geopolitical uncertainties have pushed European gas prices to 60–70 euros/MWh, with the price of electricity in Italia reaching 193 euros/MWh on the spot market and is now trading at around 180 euros/MWh until the end of the year (with a 2026 average of 151 euros/MWh) and at an average of around 130–135 euros/MWh for 2027. “The rise in electricity prices is having a positive impact on renewable energy producers”, such as Enel, Iren, A2A and Erg, the experts point out, with impacts ranging from 1 per cent to 3 per cent of EBITDA for every 10 euro/MWh increase in price. “Currently, 2026 is almost entirely covered, with residual benefits amounting to 10–15 per cent of renewable production, but the impact is greater for 2027, where coverage is lower,” Equita adds, noting that “the (residual) benefit for 2026 and 2027 therefore risks being captured by any extraordinary taxation measures”.

According to analysts, regulatory risk “remains high”, even “taking into account the government’s indications at the start of the year, which envisaged measures to intervene in electricity prices of up to 25 euros/MWh in the event of the cancellation of CO₂ costs (a measure which was, however, withdrawn following EU intervention confirming the framework of the ETS mechanism)’. “We believe that any potential government intervention (having already taken action since the start of the year with the IRAP increase and the excise duty refund) would be detrimental to the system in terms of increasing the perceived risk in the sector and raising the cost of capital (with a possible slowdown in planned investments)”, warn the experts, who emphasise that ‘the trend in the energy market has not affected the performance of the relevant shares (which have fallen by between -5% and -10% over the last six months, with the exception of Enel), reflecting, in our view, the risk of possible sector-specific interventions’.