European utilities ‘may go broke’, warns OIES

A senior energy academic has warned that European utilities face possible bankruptcy, and may rely on government bailouts to survive.

Professor Jonathan Stern from the influential Oxford Institute of Energy Studies (OIES) said the debate over government intervention in the energy sector should not rule out the chance that bankrupt utilities may need to be bought out by government in order to continue to provide a service.

“I don’t want to sound too dramatic but these utilities are facing an existential threat,” Stern told delegates of a London conference.

“Rather than having an ideological debate over private vs state ownership a number of these companies have said it is entirely possible that it may need to be bought,” Stern said.

Traditional utility companies with legacy assets in upstream E&P and fossil fuel power generation have struggled in recent years. Subsidised renewable deployment has crushed power market prices while the plummeting price of Brent has further eroded profits for vertically integrated suppliers.

In Germany in particular this trend has been exacerbated by the state-mandated nuclear retreat, the cost of which is shouldered by companies including Eon and RWE.

Companies have already outlined billion pound strategy shifts to protect their balance sheets from an increasingly hostile market environment. But difficulties persist, notably in the recent efforts of Eon to spin off its nuclear assets which have been foiled by new government legislature which continue to hold them liable for their costs.

Speaking at the same conference, the former architect of the UK’s electricity market reform Jonathan Brearley said vertically integrated utilities may no longer be fit for purpose.

“Integrated model for utility was designed for a different time, and different economics,” Brearley said. He added that both vertical integration and a centralised generation model may need to be rethought in a market which is moving towards increasingly decentralised energy generation.

“These companies may go broke unless something dramatic happens,” Stern said.