The war questions the plans of the energy companies naturgy, iberdrola, Repsol

The crisis of energy prices linked to the war in ukraine has reconsidered the path to follow in the process of energy transition fueled by the pandemic. And the plans of the energy companies linked to the necessary decarbonization of the system have been affected by this situation, with the dilemma between speeding up or slowing down its course.

The biggest unknown arises around natural gas and Europe’s dependence on its import from Russia. “An interruption of this supply cannot be ruled out”, says the Government in the update of the 2022-2025 Stability Plan, and although Spain does not depend on Russian gas, it is affected by the rise in prices.

The first problem has been the cost of electricity, solved by the Government with a temporary solution With Portugal, on which there is already an agreement with the European Union: put an average cap of 50 megawatts per hour (MWh) on the price of gas used to produce electricity for one year. But this situation shows no signs of improvement. The Government does not foresee that the price of natural gas will recover the pre-escalation levels –20 euros MWh on average– in the next five years –The update of the Stability Plan includes prices of 46.7 euros MWh in 2021; €93.9 MWh in 2022; €81.9 MWh in 2023; 66 euros MWh in 2024 and 50 euros in 2025–.

In addition, the electricity sector has welcomed the measure with critics, the big electric companies insist in which all the responsibility lies with gas and in which 85% or 90% of the generation is already sold at lower prices through long-term, fixed-price contracts.

At the same time, other questions arise that seemed closed long ago, such as the Coal which, after being practically inactive in the electricity mix, has returned to being profitable at certain times due to the rise in prices or, even, with the debate on the closure of nuclear power plants (expected between 2027 and 2035), revived in Europe.

“The current situation is hostile due to the situation in Ukraine and its impact on the markets, but that should not get out of the way that leads Spain to a decarbonisation process in the medium term thanks to our wealth in renewable sources”, highlights Antonio Hernandez, partner responsible for Regulation at EY. And it is that the green transition is something beneficial for the country since it will allow reduce energy dependency and develop value chains, he says. For all this to be carried out, there is a very important starting motor, which is the Government’s recovery plan, of which 40% is allocated to the green transition.

Companies in the sector have known this for a long time and the difference between electricity, gas and oil companies is becoming more and more blurred due to the decarbonisation of the economy by 2050. In Spain, the most important are essentially Iberdrola, Endesa, Naturgy, EDP, Repsol, Cepsa and Acciona. Each one has its own growth strategy to move towards a model without smoke or with the minimum of these.

naturgy, lagging behind in renewable generation in Spain compared to its main rivals, has a great need to increase this type of projects. Once the partial purchase operation (takeover bid) launched by the Australian fund IFM was completed -which, although it initially obtained only 10.83% of the capital, has since been buying up to 13.385% on the market-, the company announced its split into two companies (‘Géminis’ project), one dedicated to the regulated business and the other to the liberalized one, but it had to freeze the calendar after the invasion of Ukraine.

“We have a calendar that can be adapted, that must be adapted and that will have to be adapted depending on the uncertainties,” explained its president at the general shareholders’ meeting, Francisco Reynes. The goal is for the two companies to have the same shareholders. One of them, the main current partner is Criteria, the investee company of La Caixa. In principle, their objective is to remain as shareholders in both businesses, but sources in the sector do not rule out that, later, a sale will take place so that new partners can enter, such as funds.

At some point the possibility of a alliance of Naturgy with Repsol, who was a shareholder in the company when Naturgy was Gas Natural and who had plans to take his renewables subsidiary public. The oil company was given in November 2020 18 months to decide the future of this subsidiary (the decision will be announced in the presentation of results for the second quarter), although this week its CEO, Joshua Jon Imazrecognized that they are not in a hurry and that the process is developing “calmer, smoother if you like”, thanks to the “support” of a cash generation higher than expected due to the rise in crude oil prices. “We will only make this decision if we find the ideal partner,” Imaz said during the presentation of first quarter results.

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The company is looking for a financial partner, more than industrial, but “not to divest, but to grow”, that “adds value” and that “is completely aligned” with its strategy of having a renewable capacity of 6 gigawatts (GW) in 2025 and 20GW in 2030.

Before her, Acciona and EDP already practiced the renewable ‘spin-off’, with the aim of gaining financial muscle in that segment. Iberdrolathe company with the most renewables in Spain and with an investment focus on international business (more than two thirds of its profits in the first quarter), announced last fall the possibility of separating its business from offshore wind and, since then, he has not stopped promoting it. The case of Endesa is not comparable due to the size of the operation, but the company that it directs Joseph Bogas In February, it approved the segregation of its mobility business and created a company called Endesa Electric Mobility and this same Friday it sold 51% (renamed Endesa X Way) to Enel X Way (a company wholly owned by Enel, owner of 70% of Endesa) for 122.4 million euros. For its part, Cepsa recently transferred its hydrocarbons business to a subsidiary to boost its growth.

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