European Governments Rescue Utilities Amid Gas Crisis
As Russian natural gas company Gazprom slashed its gas exports to Europe amid the Ukraine war, some of the largest European utilities have requested government support to offset losses from buying supplies at much higher prices. Power generators experiencing severe unplanned outages and those that must sell energy below cost face a similar problem. Power and gas suppliers also face sizeable collateral requirements to participate in energy commodity exchanges: Some utilities hedge supply with futures contracts requiring margin deposits to the contract's exchange. What's more, these futures contracts are rebalanced daily, which has tested these utilities' access to liquid funds. Many utilities have significantly drawn down existing credit facilities to fund margin calls and have turned to their governments for additional liquidity.
Governments provided a needed jolt
In response, European governments have set aside EUR 238 billion in emergency support for utilities struggling with the crisis. As of Sept. 26, 2022, they have committed EUR 43 billion to support Uniper SE, Électricité de France SA, Bulb Energy PLC, VNG AG and Securing Energy for Europe GmbH.1 Additionally, European government support allocated to exchange collateral requirements stood at EUR 26 billion as of Oct. 18, 2022, and could balloon to EUR 195 billion if pledged funds are fully drawn. The exhibit below identifies the top 10 utilities constituents of the MSCI Europe Investable Market Index (IMI) by energy consumption, suggesting high potential exposure to soaring energy prices, and highlights those that have received emergency government funds so far.
Potential exposure to energy-market prices based on energy consumption
This analysis includes the top 10 utilities constituents of the MSCI Europe IMI by energy consumption, based on data from FY2018. Constituents highlighted for government support are based on our analysis of company and government disclosures. Source: MSCI ESG Research LLC. Data as of Oct. 18, 2022.
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1 Amounts for VNG and Securing Energy for Europe GmbH have not been disclosed, as of Oct. 25, 2022. Source: MSCI ESG Research LLC, Sgaravatti, Giovanni, Tagliapietra, Simone, and Zachmann, Georg. “National fiscal policy responses to the energy crisis.” Bruegel, Sept. 21, 2022.
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