European utilities want to sell assets and the price they are prepared to sell for has fallen, according to a new report from EY.
EY’s annual benchmarking report on European utilities’ asset impairments said, “power and utilities companies will … be more willing to sell thermal generation assets, in particular, at a steep discount to their original purchase or development costs”.
The report found record levels of write-downs in European utilities in 2015, mostly against assets rather than goodwill. Of the €25 billion written down, two-thirds was in generation plant, with €12 billion write-downs against thermal generation.
Upstream assets were written down by €6 billion, by Engie, Centrica, E.On, EDF, Enel and SSE.
That reflected the continuing low price of energy commodities, EY said, which at the end of 2014 were expected to recover in value but instead continued to fall until early 2016. Meanwhile, low demand and the rising level of renewables on the system has kept power prices low, the report said, adding “Medium-term prospects for renewable generation still appear to be positive, despite rising short-term policy uncertainty in relation to subsidies.”
“Europe’s players, led by the French and Italian utilities, are looking to sell €30–€35 billion of assets by 2020,” EY said, and there is a “lengthy list of conventional generation assets already on the market”.
However the report suggested that the fall in the value of Sterling since the Brexit vote may ease pressure on UK generators. It said a fall in the value of sterling “will make generation technology acquisition and input fuel costs more expensive. Both factors will tend to put upward pressure on UK power prices, in turn enhancing the value of existing assets, and potentially avoiding the need for impairments that might otherwise have had to be recognised.”
Download the impairment report from EY
Further reading: European utilities’ credit ratings may fall, warns Moody’s
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