Smart Energy Finances: Germany’s €200bn shield amid explosive market turmoil
This week’s edition of Smart Energy Finances looks at the latest happenings in the Russian-induced market crisis, where explosions of the Nordstream 1 and 2 pipelines have urged Germany to action with a €200 billion ($196.2 billion) package.
Other stories that make this week’s radar include: the International Energy Agency’s (IEA’s) Cost of Capital Observatory, which aims to help alleviate investment risks for energy projects; the sale of a Brazilian electric utility from Enel (99.9% stake); a call of TAURON to company’s to invest in and coordinate energy efficiency, which they argue is the logical choice for good business.
€200 billion in response to Russia’s energy war
Europe as a whole is struggling with high electricity prices. And the latest to cause this to escalate? The Nordstream 1 and 2 gas pipeline explosions.
“In terms of the attack – or the damage to the pipeline, at this point I think there’s a lot of speculation. But quite frankly, until a complete investigation is done, no one will be able to really determine for certain what happened,” US defense secretary Lloyd Austin said on Thursday during a news conference in Hawaii.
According to the New York Times, while there is still no official explanation for the explosions, the escalation caused natural gas prices to jump once again in Europe. Fearing further energy disruptions, investors sold off European stocks and the euro fell to a multi-decade low against the dollar.
The latest response from the industry to the volatile market has been from Germany.
Two days after the explosion – during a joint press conference with German chancellor Olaf Scholz, finance minister Christian Lindner and economic minister Robert Habeck on Thursday afternoon – it was announced that Germany will invest €200 billion to reduce energy prices.
“Prices have to come down. That is our conviction,” said Scholz, adding: “For them to come down, we will need a big defence shield.”
According to the Guardian, at the heart of the package is a temporary cap on electricity and gas prices, which the government says it wants to bring down “to a level where private households and companies are protected from being overloaded”.
The difference between the cap and the prices paid by gas importers on the world market would be made up by the state.
Additionally, according to Reuters, with dwindling gas supplies from Russia it’s not only electricity prices that have increased.
Inflation in the country has correspondingly surged to highs not seen for the last 25 years, with the massive loss in consumer purchasing power adding to the likelihood that a recession is on the way. Specifically, consumer prices increased by 10.9% over the year, the federal statistics office said.
Cost of Capital Observatory: energy audits for consumption management
A Cost of Capital Observatory – launched by the IEA and partners, will allow tracking of financing costs for energy projects around the world, aiming to identify and address risks that impede vital investment flows to emerging and developing economies.
The Cost of Capital Observatory was developed by the IEA together with the World Economic Forum, ETH Zurich and Imperial College London.
It will be hosted on the IEA’s website and regularly updated with new data, analysis and features. The IEA website will also host an interactive Cost of Capital Dashboard to dig into data for selected countries.
The IEA cites the lack of transparency regarding the cost of capital, making it harder for investors to price risk and for policy makers to act. The new Observatory has been established to fill this gap.
“A high cost of capital is a roadblock for investors, and the data provided by our Observatory is essential to understand how this roadblock can be dismantled,’’ said IEA executive director Fatih Birol. “This will allow more capital to flow to clean energy, where it is urgently needed to tackle today’s energy crisis and reach sustainable development goals.”
Bringing down cost of capital would make a significant difference to overall costs of energy transitions.
According to new IEA estimates, reducing financing costs by 2% would bring down the investment needed to reach net zero emissions in emerging and developing economies by a cumulative $16 trillion over the period to 2050.
Also of interest:
Uniper proceeds with nationalisation
More green energy to Germany as TenneT completes DolWin6 transmission platform
Enel Group sells Brazilian electricity distributor
Enel Brasil has signed an agreement with Equatorial to sell its stake of approx. 99.9% in CELG Distribuição S.A. – CELG D for R$7.3 billion ($1.4 billion), subject to adjustment.
Enel Goiás is a Brazilian electricity distributor located in the State of Goiás, with a concession area of 337 thousand km2, with 3.3 million customers in 237 municipalities.
According to the Italy-based electricity and gas giant, the transaction is in line with Group’s current strategic plan as it will improve their risk-return profile and asset base, which focuses on priority businesses.
Equatorial will pay, for the equity portion, approximately R$ 1.6 billion ($300 million) on closing, which is expected by year end. Enel Goiás will repay the intercompany loans, in the amount of approximately R$5.7 billion ($1.1 billion) within 12 months from the closing.
With the purchase, according to Reuters, Equatorial shares surged by as much as 7%, where analysts praise the price but cite the lack of funding information.
The agreement further encompasses Enel Goiás’s current cash position, third party debt and contingencies.
Additionally, the parties have agreed to an earn-out payment mechanism based on the outcome of current and possible contingencies.
The overall transaction is expected to generate a positive effect on Enel Group’s consolidated net debt of about €1.4 billion ($1.4 billion).
And, according to JP Morgan, it will have significant benefits for Equatorial: “We believe the deal will not only be accretive for Equatorial but also rebuild [their] capital allocation prestige,” JPMorgan said.
Equatorial is the third largest distribution group in Brazil in terms of number of customers. The company operates six concessionaires in the states of Maranhão, Pará, Piauí, Alagoas, Rio Grande do Sul and Amapá, serving approximately 10 million customers in these regions.
Energy Transitions Podcast: Reforming Europe’s energy market
The cheapest energy is the saved energy – argues the Polish TSO.
A company that implements solutions that optimise their consumption can reduce energy bills by up to 30%, they state in a new e-book for business.
The energy audit and the pro-efficiency solutions introduced as a result can generate a significant reduction in energy consumption for the company.
With the release, TAURON is encouraging companies to implement solutions ensuring higher energy efficiency, with the current state of the European energy crisis and accompanying market in mind.
One of the optimisations they cite is the intelligent management of vital systems in large facilities, which adjusts energy and heat consumption to the variable load of the facility. This solution allows for more effective management of heating, ventilation and air conditioning systems in large-scale buildings, such as shopping centres, office buildings, sports and entertainment halls.
For this and other latest news in European energy finances, make sure to follow Smart Energy Finances Weekly, which covers the evolving energy finance and investment market.
Cheers,
Yusuf Latief
Content Producer, Smart Energy International
