CdM | The Government cuts electricity companies’ “extraordinary” income by €2.6Bn: €1.221Bn for Iberdrola, €976Mn for Endesa, €188Mn for Naturgy, €144Mn for Acciona and €71Mn for EDP.
On Tuesday, the government approved through a Royal Decree-Law a shock plan to contain the escalation of electricity and gas prices. According to Morgan Stanley’s analysis team the measures – assuming they are effective in Q4’21 and Q1’22- will have a strong impact on the electricity firms’ accounts:
- Endesa: ~12% EBITDA , 20-21% net profit in 2021 and 2022 .
- Enel: 3% EBTIDA, 4-5% net profit in 2021 and 2022.
- Iberdrola: 5-6% EBITDA. 12-13% net profit in 2021 and 2022.
- Naturgy: 2-3% EBITDA,~6% net profit in 2021 and 2022
- Acciona Energía: 3-4% EBITDA, ~7% net profit in 2021 and 2022
- EDP: ~1% EBITDA, 2-3% net profit in 2021 and 2022
The measures announced by the government are:
(i) Temporary reduction of the excess remuneration electricity companies are receiving as a result of high gas prices. Electricity companies will have to return this extraordinary income, an amount that the government estimates at €2.6 billion. This rule will affect nuclear, hydro and renewable energy plants with an installed capacity of more than 10MW, as long as the price per megawatt hour on the Spanish gas market (MIBGAS) is greater than €20. This measure will apply until 31 March 2022, which is when the government estimates gas prices will start to fall. This measure would be in addition to the €650 million cut that the sector will already suffer as a result of another law being processed in Congress – this is due to the extra income they are receiving from the price increase in CO2 emission rights. In total, more than €3.2 billion in cuts for the sector;
In addition, the government agreed to:
(ii) Tax reduction. The Special Electricity Tax will be reduced from 5.11% to 0.5% until end-year. Meanwhile, the temporary suspension of the 7% Tax on Electricity Generation will be extended during the fourth quarter. These measures are in addition to the reduction of VAT on electricity from 21% to 10% until end-2021.
(iii) CO2 auctions. An additional €900Mn, up to a total of €2 Bn€, will be allocated from the proceeds collected by the State in CO2 auctions to reduce consumers’ bills.
(iv) Electricity auctions. Electricity companies will have to auction energy in proportion to their market share to independent retailers and large consumers. Electricity companies will be able to reject bids below a minimum price set by the CNMC.
(v) Limit gas price rises. The government will limit the rise in the regulated natural gas tariff to 4.6% in its next quarterly review in October, instead of the 29% that corresponds to it.
(vi) New minimum vital supply, extending the ban on supply cuts to vulnerable consumers from four to ten months;
(vii) More control over hydroelectric plants. A regime of monthly flows to be released in each river basin confederation at the beginning of the year will be established. This will prevent the bad practices of some companies which empty reservoirs when the price of electricity is high.
(viii) Reform of the regulated tariff or PVPC, to which almost 11 million consumers are subscribed, to incorporate the auction price reference with a maximum weighting of 10%.