Energy transition may leave Europe’s network operators at risk- report

Europe’s network operators face a number of challenges as they work towards creating tomorrow’s energy future.
Published: Tue 20 Jun 2017

Europe’s renewable energy drive could pose long-term risks to the region's regulated electricity and gas network operators, according to a new report from credit and risk company Moody's Investors Service.

The report indicates that Europe’s transition to integrating renewable energy, especially wind and solar, is instigating new business models, developing technology and evolving regulation that could “potentially undermine the credit quality over time” of network operators.

"The shift to renewables in Europe has thrown up different challenges for the region's energy network operators, with the huge uptake in renewables-related investment into electricity networks posing execution risks, while the move to decarbonisation casts doubt over the long-term use of natural gas and the networks that distribute it," said Stefanie Voelz, vice-president Senior Credit Officer at Moody's.

<h2>Network operators slow to change</h2>

<p>The report also states that large-scale energy network operators could be “slow to adapt to the changing generation and consumption landscape, with electricity users becoming partially independent from the grid as they increasingly operate their own renewable generation and/or&nbsp;storage&nbsp;units. Furthermore, the growing electrification of transport or heating could significantly change network requirements.”</p>

<p>It is&nbsp;possible, according to the research, that decarbonisation developments could open the door to sector fragmentation which could see existing network operators under threat. However, it states that their role as system operators – whereby they coordinate the efficient use of power generated by widely-distributed, independent sources and ensure supply security on a wider level – may become more important.</p>

<p>Voelz said that the regulatory response to the renewables shift “will be key to the future&nbsp;evolution of the energy network sector, as the change in scope of activities in an environment of significant technological shift, may <a href="">necessitate changes</a> in the way European networks are remunerated and customers’ tariffs are set, if credit quality is to be maintained.”</p>

<h2>Affordability still ‘key’ for utilities</h2>

<p>Moody’s&nbsp;says that affordability will continue to be a priority for network operators as cost pressures increase on consumers. It also finds that with investment requirements remaining high, leading to growth in companies' asset base beyond 2020, pressure on customer bills will rise.</p>

<p>“As<a href=""> renewable subsidies</a> continue to weigh on bills, affordability concerns could lead to deferral of cost and investment recovery for networks, a credit negative,” said Voelz.</p>