Thursday, September 15, 2011

Europe's Five Largest Utility Companies & Changes To Their Generation Capacity by fuel, Revenue, Profit (2009-2011) (EDF, EON, RWE, GDF Suez, Iberdrola), Profits Down Due to Low Electricity Prices

For the largest utility company in Europe (2nd largest in the world) (CNBC) Électricité de France (EDF), 55.5% of 2010 sales came from France compared to 57.7% the year before. EDF leads the electricity market in both France and the UK (33.2 million customers between them). Though large EDF's generating capacity relies more heavily on one fuel type (nuclear) than any of its competitors; It gets 75% of its generating capacity from nuclear energy (90% of its nuclear capacity is in France (France is the world's largest net exporter of electricity). Also of note, EDF is the world's leading operator of nuclear power and Europe's leading hydro electricity producer.

European utility stocks have been hammered lately, a direct result of earnings losses (hindering profits in Europe are low electricity prices which are expected to decrease even further in the near future (down to as low as €50 by 2015); Europe has contemplated electricity price fixing, in terms of industrial demand European countries already keep prices low so as to help their companies stay competitive, for households though it's a relatively new thing (Europe could be concerned that households can't afford further increases). Also affecting results: a warmer winter in France (GDF Suez said in its 2011 2Q report that the winter was 30.5% warmer than it was in 2010 and that was the main reason sales there dropped 8.5%/demand for gas 24% lower to 131 TWh, electricity 3% lower to 18.3 TWh). EON's stock fell 35% between January 1 and September 1, 2011 while the stock price of RWE AG (second largest German utility) fell 49%. However, revenue stream continues to be strong for most utilities but that's mostly because a number of them including GDF Suez (International Power) and Iberdrola (Elektro in Brazil (distributor) for $2.4 billion) have made significant acquisitions (also, a greater focus on renewables will benefit the companies in the long run as it makes them less dependent on natural gas imports while also removing them from carbon penalties). GDF Suez's organic ebitda growth in the first half of 2011 was -1.1% but new addition International Power was up 27% (business in America) and that boosted GDF's overall ebitda by over 8% (671m euro). According to broker data, in Germany baseload power for 2012 is at €58.95 ($84.16) per megawatt-hour. (RWE, EON May Be Long-Term Underperformers, Barclays Says)

EDF and GDF Suez also differ in terms of their international business. Most of EDF's generation capacity comes from domestic operations within France while GDF Suez receives less than 10% from France (the rest comes from places abroad like Africa/Asia and America (Canada is a significant source of wind power; about 182 MW worth in the first half of 2011). On August 9, 2011 it was announced that China Investment Corp paid €2.3 billion for a 30% interest in GDF Suez's exploration and production business. GDF Suez also produces oil, over 50M barrels in 2010. GDF Suez recently acquired 70% of International Power giving French companies a lot of control over power production in Great Britain (the other French company EDF has close to 8 million customers in the UK).
Iberdrola, Spain's largest utility company increased its generating capacity up to 45.3 GW in July 2011 (0.69% higher than December 2010, 2.4% growth in UK capacity to 7.015 GW) with more than half of its 74,591 kWh electricity production CO2 emission free (operations in Brazil helped the company immensely (operating earnings there up 28.6%). In July 2011, 56.36% of Iberdrola's installed capacity originated in Spain, 12.74% in the United States. RWE assets declined 9.1% qoq (to about €89B) as reported on August 27, 2011 due at least partly to two plant divestments (sold a controlling stake, 74.9% of Amprion for €700M and half of Zandvliet Power) and a smaller than anticipated acquisitions deal with Netherlands authorities for 30% of the Borselle, Delta nuclear power plant (30% valued at 540M euro); according to a prior arrangement the deal should've involved a 50% share.

For EON AG, Russia generated 8.6X (22.7% of company total, up from 20.2%) more of the company's owned generation than Germany in the first half of 2011, renewables contributed 11.6% of owned generation. In contrast domestic competitor RWE AG received 73.3% of generated electricity from Germany (for rwe the UK was the largest source of owned generation internationally at 15.2% in 2010 up from 14.3% in 2009). RWE: Total generation from nuclear fuel (all in Germany) increased by 33.3% while renewables increased 36.9% owing to increased production by divisions Netherlands/Belgium (up from 0.8 to 1.8 kWh) and Renewables (4.1 to 5.6 kWh). Iberdrola: 2010 earnings were 3.4X greater than they were in 2000 (2871 vs 852M euros) while the number of customers was 9X greater (28M vs 15.1M), 40% of energy production was in Spain. Subsidiary Renovables is the second largest wind operator in the USA. Only 40% of Iberdrola's 29,631 employees are in Spain, nearly all of the rest are in the UK/USA (45%) while 7.4% are in Brazil. EDF scored worst among utilities in terms of consumer complaints in the 2nd quarter of 2010 (could be its new billing system). (Consumer Focus Data, Reuters UK: EDF Energy worst for consumer complaints in Q2) It has 158,842 employees (2011, down from 169,139 in 2009)) and 37M customers (27.7M in France alone). Electricity generated increased by 3.74% (11.9 TWh) in 2010. Per KWh it generated 117.1 g in 2009, that decreased about 9% in 2010; in 2007 and 2008 CO2 emissions from power generation per kWh was 120 grams and 133.1 grams respectively.

In 2009, households in 26 key nations paid on average 50% more for electricity (per kWh) than industry. ( Electricity Price Differences between countries) Industry was charged substantially less tax on electricity than households (for example, in Denmark tax on household electricity amounted to about 20c/kWh compared to 17c/kWh baseline price that compares to less than 2c/kWh charged to industry). The highest electricity prices were in countries that are highly dependent on natural gas for production (especially ones that don't produce gas and thus rely on imports). Lowest prices were in countries with a smaller ranged fuel mix composed of coal, hydro and nuclear. Renewables seem to have a negative impact on prices but that's because the infrastructure in most countries is still at an early stage of development (23 cents per kWh to produce compared to coal which is 4 cents per kWh).

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