Utility Week

UTILITY Week 10th June 2016

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UTILITY WEEK | 10TH - 16TH JUNE 2016 | 15 Finance & Investment This week Prices hasten change of focus for Centrica Centrica pivot to customer-facing activities sped up by fall in wholesale gas and power prices The fall in wholesale gas and power prices has accelerated Centrica's pivot towards its customer-facing activities, according to a report from ratings agency Moody's. Last July the British Gas owner announced a major strategic shi away from its loss- making upstream gas and power businesses and towards its more profitable downstream businesses – energy retail, services and technology. It said it would invest £1.5 billion in its customer-focused operations over the following five years. The Moody's report said falling commodity prices have quickened the pace of the transition and the company is "reducing investment in oil and gas production, selling generating assets, and investing organically and through small acquisitions in technology and services, which we expect to reduce Centrica's commodity exposure". It noted the sharp decline in wholesale gas prices, which fell by around 50 per cent between early 2014 and mid-January this year, in turn pushing down wholesale power prices by around 40 per cent. According to Moody's, Centrica was heavily exposed to the price falls through its generation businesses and exploration and production (E&P) operations. It said the decline in earnings from E&P was largely responsible for its 2015 operating profit coming in 11 per cent lower than the previous year, and 46 per cent lower than the year before that. "We estimate E&P will account for about 26 per cent of the company's Ebitda in 2016, down from 48 per cent in 2014," the report said. TG ELECTRICITY Financial close for NI wind portfolio Renewable energy group Gaelec- tric has reached financial close on a portfolio of five onshore windfarms in Northern Ireland. The windfarms will provide a total installed capacity of 51.5MW and are all expected to be completed by the end of 2016. One of the projects in Monnaboy is already operational. The portfolio represents a total capital investment of £74 million and the majority of the £64 million senior debt has been advanced on an 18-year term loan basis and confirmed through the London office of German Bank Nord/LB. Gaelectric chief operating officer Barry Gavin said: "These projects represent a significant milestone towards our near-term goal of achieving circa 400MW of generating wind assets on the island of Ireland by 2017." WATER Anglian blames profit fall on controls Anglian Water has blamed a 24.8 per cent fall in operating profit on the effect of the regulatory price reduction and increased operating costs, report- ing an underlying operating profit of £340.4 million for the year ended 31 March 2016, down from £452.6 million the previous year. Revenue for the year was £1,185.4 million – down £58.9 million – primarily reflect- ing the reduction in customer bills that came into effect on 1 April 2015, in line with the regulatory price setting review. This was partially offset by customer growth in the region. Operating costs for the year increased by £36.7 million (7 per cent) to £560.6 million. Anglian said almost half of this rise is due to a hike in minor repair costs that used to be capi- talised under the old infrastruc- ture renewals accounting rules, and has consequently increased volatility in operating costs. WATER Portsmouth profits up 'significantly' Portsmouth Water has reported a "significant" increase of 22 per cent in operating profit to £8.2 million for the year ended 31 March 2016. The company said this was largely driven by a £1 million increase in turnover and a £1.9 million reduction in infrastructure renewals expendi- ture. The £1 million increase in turnover was largely driven by average tariff increases of 2 per cent, and 2,300 new properties. Aer "extensive" customer research, and "overwhelming support" from customers, Ports- mouth announced it will launch a social tariff next month. Centrica: turning to customer-facing activities Stock watch EDF shares fell briefly on Monday following reports in the national media that the supplier is planning to sell a 50 per cent stake in French transmission company RTE to help finance Hinkley Point C. Having closed on Friday at €11.80, the shares dropped to €11.14 in the opening hours of trading, before returning to €11.46 as UW went to press on Tuesday. EDF shares have fallen significantly over the past 12 months. A year ago they were selling for more than €20. EDF SHARE PRICE, FIVE DAYS 2 Jun EDF SHARE PRICE, ONE YEAR 25 20 15 10 5 Sep 15 Jul 15 euros euros 12.5 12.0 11.5 11.0 3 Jun 6 Jun 7 Jun Nov 15 Jan 16 Mar 16 May 16

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