Energy, an important investment market
The year 2018 can be considered as atypical for European energy companies.
It was marked by a 9% decrease in the sector’s turnover which must be put into perspective even if it seems impressive. The top 25 European operators generated nearly €19 billion in 2018.
This profit is partly due to a beneficial environment (wholesale price, CO2 price, etc.) for many operators although there may be a possible trend reversal for the most exposed operators.
Networks and renewable energies are thus at the heart of many operators’ strategies. A strategy that pays off but can sometimes lead to high debt.
The transformation of the sector continues to progress at varying rates depending on the operators. It is often synonymous with very significant investments: a total of €60 billion in industrial investments, plus nearly €10 billion in external growth investments.
The hierarchy of the top 10 European players disrupted
Uniper took the lead in the ranking over Enel. In particular, the German group benefited fully from the increase in wholesale prices. The French group EDF keeps the 3rd place in the ranking although each of these 3 actors has already occupied the first place in the ranking in recent years.
The cumulative turnover of the 25 European energy companies fell by 9% in 2018 to 548 billion euros….
However, most operators have still experienced growth in their business. The increase in wholesale prices has been beneficial to most of them (Uniper and Vattenfall for example) and the development in renewable energies explains the sales jump of several players (Ørsted in particular).
The transformation of European energy operators
The 25 energy companies invested 60 billion euros in 2018, a slight decrease compared to 2017. Operators are selective because many of them act under financial constraint. 13 energy companies reduced their investments in 2018.
Investment priorities are well defined: renewable energies and networks account for most investments.
EDF is by far the largest investor in the sector. Its investments in renewable energies (more than €1 billion in 2018) and networks (around €4 billion in 2018) are comparable to its competitors, but it is nuclear power that makes the difference.
In 2018, EDF invested nearly €7 billion in nuclear power, both in the existing fleet and in the construction of new units.
The 25 energy companies’ external growth investments amounted to €9.5 billion in 2018, an amount comparable to 2017. External growth is an accelerator of the transformation of European energy operators.
Development in New Business
The energy context in Europe should continue to be challenging in 2019 and in the years to come.
Competition is intensifying throughout Europe, taking market share from energy companies already known in the sector. New entrants represent challenges due to their diverse backgrounds.
The facility offered to startups to become suppliers pushes them to take their chances and they are therefore more and more numerous.
In France in 2018 there were 16 new authorised electricity suppliers and 16 new authorised natural gas suppliers.
Until recently, the energy companies’ strategies were close, but this strategic mimicry is no longer appropriate. The first line of fracture concerns the production mix.
The 2nd fracture line is the rethinking of the vertically integrated model. This model is no longer the norm for some groups.
Development in new businesses (storage, electric mobility, IoT, etc.) should also gradually introduce dividing lines between operators.
These diverging strategic options are expected to continue in the coming years. The financial pressure on some operators could lead them to take radical measures by implementing strategic shifts such as these fractures.