Utility Week

UTILITY Week 16 05 14

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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UTILITY WEEK | 16Th - 22nd MaY 2014 | 19 Finance & Investment This week First-quarter profits hit by mild winter Energy sector financial results suffer as mild weather affects consumption of gas for heating Mild weather last winter hit first- quarter profits across the energy sector, financial results pub- lished in the past week show. Gas demand fell as house- holds used less to heat their homes, with British Gas reporting a 25 per cent drop in consumption compared with the same period in 2013. The sup- plier said it expects to hold prices for the rest of the year amid a "competitive" market, which will see its post-tax profit margin shrink to around 4 per cent. Eon posted earnings before interest, tax, depreciation and amortisation (Ebitda) of £177 million in its UK supply business, a 17 per cent decline on 2013. Across the German utility group, Ebitda fell 12 per cent to €3.2 billion (£2.6 billion). The drop was attributed to "a continued difficult business and regulatory environment" and divestments. Analysts forecast a similar pattern for RWE, which was set to publish interim results on Wednesday, aer Utility Week went to press. A bearish wholesale gas market in turn dampened wholesale power prices, triggering a profit warning from Drax. The generator's biomass earnings were also affected by strong wind power output, which eroded the value of Renewables Obligation Certificates. EDF bucked the trend with a 7 per cent rise in UK rev- enue to €2.9 billion, credited to steady B2B sales, although across the French group, revenue was down 4.2 per cent. Financial reports from gas producer Gazprom are expected at the end of the week, while SSE's preliminary financial results are scheduled for Wednesday 21 May. MD EnErgY Government urged to invest in storage The government should invest in energy storage to deal with the "significant technical chal- lenges" posed by intermittent renewable generation, according to the Institute of Mechanical Engineers (IMechE). In a report, IMechE said the "issue of wrong-time generation" from renewables could be dealt with by energy storage. It said storage "provides a potential solution" and would help match supply and demand across peak and off-peak periods. The report added that con- straint payments to windfarm operators could be reduced because the energy generated could be stored, rather than the generators receiving compensa- tion when the grid was unable to accept their output. ELEcTrIcITY Offshore wind needs new finance model New ways of financing could significantly cut the cost of off- shore wind power, according to analysts at FTI Consulting. Finance fees and interest make up 28 per cent of overall expenditure on offshore wind projects, the consultancy said in a report. Analysts found that a change of 1 percentage point to the cost of debt resulted in an average 3.4 per cent change to the level- ised cost of energy. Aris Karcanias, managing director at FTI Consulting, said: "Offshore wind energy econom- ics are strongly governed by life-cycle financial costs, and the potential to reduce these is considerable." The sector is increasingly seen as a "safe harbour" by investors, on a par with airports and highways, which the con- sultancy said was creating more competition among lenders and pushing down finance costs. "Corporate and institutional investors looking for low-risk, long-term and predictable yield investments are signing on pen- sion, insurance and sovereign wealth funds, to name a few," said Athanasia Arapogianni, consultant and member of the FTI-CL Energy practice. gas Watt Power to invest £200m in gas plants Watt Power has applied for planning permission to build two gas-fired peaking plants at a cost of £200 million. The two 300MW projects are located at Hirwaun, in south Wales, and Eye in Suffolk. The Planning Inspectorate will give its verdict on the plants in the next 12 months, and if all consents are received, they should be operational by 2019. Eon: Ebitda down 17 per cent year on year Shares in United Utilities have steadily climbed 11.46 per cent over the past month amid takeover speculation. The water company's shares peaked at 839p on Tuesday, an increase of 86.38p since 14 April. The Financial Times reported trader speculation that LongRiver Partners, the Borealis-led consortium that last year tried and failed to buy Severn Trent, may have an interest in the company. United Utilities declined to comment. 845 835 825 815 805 840 820 800 780 760 740 Stock watch United Utilities share price, 7-13 May United Utilities share price, 14 april - 13 May 14 Apr 7 May 8 May 9 May 12 May 13 May 21 Apr 28 Apr 3 May 13 May

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