European utilities write-off €23b from assets, despite fall in impairments

New EY research finds that 2016 saw a significant fall in asset impairments reported by European utilities. But according to the report, at €23b it was larger than might have been anticipated given a recovery in energy commodity prices, and stakeholders will be asking if an end to the era of impairments is in sight.
While the findings reflect a 34% fall from record levels in 2015 (€34.7b), write-offs represent a significant loss in value, equivalent to 8% of companies’ market capitalization at the end of 2016. Similar to 2015 trends, Continental Western Europe and the Nordic countries saw the heaviest impairment write-downs – rising to 54% of the 2016 total – while generation assets accounted for the largest share (62%) of overall impairments.

Charles-Emmanuel Chosson, EY global power and utilities assurance leader said: “Almost 90% of Europe’s new installed capacity in 2016 was renewable — the highest annual proportion recorded in the modern era. It is little wonder that the impact is being felt in asset valuations and, consequently, in impairments.”
The report anticipates further impairments owing to rapid sector transformation and the rise of converging technological trends, including battery storage, electric vehicles, solar PV, AI and grid-edge technology. EY has identified three tipping points in the interaction of these technologies, when the dynamics of the market will fundamentally change.
These are:
  • Grid cost parity of non-utility solar plus storage systems (possibly in the next five years).
  • Electric vehicles (EVs) reach parity with internal combustion engines (ICEs) on both cost and performance (possibly in the next 10 years).
  • The levelized cost of electricity (LCOE) for non-utility solar, plus battery, reaches parity with the cost of transporting electricity (possibly in the next 20 years).

EY said these trigger points could prompt a surge in the adoption rate of distributed electricity or a sharp rise in the number of consumers — both residential and commercial — exiting the grid or, at least, reduce significantly their consumption from the grid.

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