How Will Recent Changes in US and EU Energy Policies Affect the European Utility Sector
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How Will Recent Changes in US and EU Energy Policies Affect the European Utility Sector

The ongoing impact of the EU energy crisis has decreased demand for natural gas and doubled LNG imports. The electricity sector will need to increase renewable generation, as it remains a source of funds/taxes for governments to subsidize consumers' energy bills. While the US is expected to see an acceleration of its renewable spending from Q2 2023, Europe's roadmap should become more explicit in H2 2023.

Meanwhile, the US has introduced the Inflation Reduction Act (IRA), which heavily benefits European utilities. Half of the European utilities' wind and solar capex is in the US. The EU's Inland Revenue Service interpretations, due Q2/Q3, are expected to help significantly bring regulatory clarity so that further investment decisions can be underpinned.

The permitting process is a crucial obstacle, restricting the conversion of wind and solar pipelines into energy-generating assets. More EU policy clarity would be a positive, even if new specificity does not lead to immediate spending.

Of course, electrifying transport, industrial processes, and spatial heating will require significant spending. Electricity networks (transmission and distribution) could benefit from shorter permitting times and increased connections.

EU proposals for power market design could be available by the end of March 2023, which may result in the re-regulation of the sector and potential near-term risks. The recent rise in rates may require moves back to equity from debt for the sector. Public markets could see prominent players purchasing pipelines and assets. Large players may also find themselves with excess capital and potentially seek acquisitions.

@Mark Freshney