By Vera Eckert
FRANKFURT (Reuters) - Europe's utilities will continue to suffer from low wholesale power prices eroding their revenues until the end of the decade as rising renewable output and low demand combine, rating agency Moody's said on Wednesday.
Europe's power generators have been squeezed by the expansion of renewable energy, which is creating overcapacity and eroding prices, while profitable coal-fired power stations are forced to close under European climate protection policies.
Benchmark German wholesale power prices have fallen over 40 percent since spring 2011, when Japan's Fukushima nuclear reactor meltdown pushed up global energy prices.
At the same time, demand has been contracting during the euro zone crisis and because of improving energy efficiency.
Rating agency Moody's said that it expected this trend to continue to negatively affect Europe's utilities.
"In our view, there will be further policies and reforms, which will negatively affect the European utility sector," the agency said.
The amount of installed renewable capacity, mainly solar and onshore wind, in Britain, France, Germany, Spain, Italy and the Nordic region increased to 290 gigawatt (GW) at the end of 2013, the equivalent of almost 300 standard European nuclear power stations, and up from 205 GW in 2009.
Moody's said that Spain's Iberdrola (MC:IBE), Britain's SSE (L:SSE), Germany's EWE [LANDWE.UL] as well as France's EDF (PA:EDF) and GDF Suez (PA:GSZ) were the best placed utilities in the region.
German sector leaders E.ON (DE:EONGn) and RWE (DE:RWEG) were put in the midfield in terms of negative impact.
REGIONAL DIFFERENCES
For Germany, Moody's said that the commissioning of new generation capacity would continue to keep power prices low, between 30-34 euros per megawatt-hour (MWh), despite the retirement of its remaining nuclear power stations by 2022.
"The government's energy policy currently gives little protection to unprofitable plants. Changes to the market framework may only kick in from 2017 while the government is reluctant to intervene too heavily," Moody's said.
For Italy, Moody's said that weaker gas prices and low power demand would drive wholesale power prices lower through to 2020, hurting utility earnings, forecasting a price decline from 52-54 euros per MWh today to 47-52 euros a MWh by 2020.
For Britain, the rating agency said that while power prices of around 50 pounds ($85.08) per MWh would remain higher than in continental Europe, utilities would face regulatory and political risk, with the main threats coming from a debate around energy bills ahead of a general election next year.
Moody's said that French state-controlled utility EDF (PA:EDF), which operates the world's biggest nuclear power plant fleet, would also be hit by weak wholesale prices, especially as regulated tariffs disappear and remove its protection from weak wholesale prices.
Moody's said that Spanish utilities could hope wholesale power prices could rise from 47-50 euros a MWh today to 49-52 euros per MWh by 2020 as coal-fired plant closures and a slight increase in demand lifts prices.
Moody's expected Nordic power prices, which include non-EU member Norway but exclude Finland, to remain amongst the lowest in Europe, ranging from 26-31 euros/MWh through to 2020 as new capacity will add to an already existing abundance of hydro, wind and conventional power plant capacity.
($1 = 0.7331 Euros)
($1 = 0.5877 British Pounds)
(Reporting by Vera Eckert, editing by Henning Gloystein)