Europe’s power and utilities sector set for more pain after $27bn asset writeoff
By Paul Homewood
Europe’s power and utilities sector wrote off €23bn ($27bn) in assets in 2016, according to new analysis.
Despite last year’s significant drop in asset impairments (the value of a fixed asset against the profit it generates) compared with 2015 levels, consultancy EY said in a report released this week that the writeoffs had been larger than expected and that stakeholders would be “left wondering whether an end is in sight”.
In answer to that question, EY predicted further impairments due to rapid sector transformation and the rise of converging technological trends including battery energy storage, electric vehicles and artificial intelligence.
Writeoffs by European utilities were down by 34 per cent on 2015’s record high of €34.7bn, the report said, noting that this figure excludes E.ON’s €7bn impairment against the value of its spinoff Uniper.
However, the writeoffs still equalled 8 per cent of the market capitalization of the companies sampled at the end of 2016.
Asset-related impairments made up the bulk of the total, at 92 per cent compared with 74 per cent in 2015. Power generation assets accounted for 62 per cent of overall impairments.
Continental western Europe and the Nordic countries remained the regions with the largest impairment writeoffs, making up 54 per cent of the total.
Drivers for the increased impairment included oversupply of capacity, the report said, which led to lower utilization rates for thermal power assets.
And the report predicted more disruption ahead due to the interaction of technological trends including battery energy storage, electric vehicles, solar PV, artificial intelligence and grid-edge technology.
According to EY, several ‘tipping points’ around these trends are set to “fundamentally alter the dynamics of the market forever”. These points include when non-utility scale solar+storage systems achieve cost parity with grid power and when their LCOE reaches parity with transmission and distribution costs; and when EVs achieve cost and performance parity with internal combustion engines.
“As these tipping points approach, potentially undermining asset values across the entire value chain,” the report warned, “European utilities will have to consider the likely implications for further impairments.”
This is destruction of asset values on a gigantic scale. Since 2010, €143.2bn has been written off.
And the reasons are abundantly clear, although you would not have guessed it from PEI’s mealy mouthed article.
Political interference in energy markets, notably subsidising renewables, has made it impossible for existing generators to operate at anywhere near economic loading, and consequently made them unprofitable.
As a result shareholder value has been destroyed, some private and some state owned, and perfectly good generating plant is either shut or forced to stand idle. Meanwhile hundreds of billions has been spent constructing renewable assets, subsidised at huge cost by tax and bill payers.
This truly is a scandal of our times.
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NOT A LOT OF PEOPLE KNOW THAT 
Against this background it appears that the £40 Billion price of getting out from under the EU dictats is probably a very good investment.
Except that the same environmental dictats could be included in the ‘deep and special’ trade deal that will be negotiated once we leave the EU in March 2019. The EU have already hinted at this. Of course had we followed the sensible route out of the EU by joining Efta to remain in the Single Market this would not be the case. Own goal by Theresa May and Nick Timothy.
I can not agree with you on that Gerry 😦
WRONG.
There will come a time shortly when coal fired plants will have to shut due to bankruptcy and legislation on directors’ duties. The sudden change of direction that follows will take a lot of greens by surprise as they keep reciting how renewables are cheap and rliable.
The government idiots are already talking of subsidies to fossil fuel generation to offset the effects of subsidies for wind and solar. Truly we are governed by complete morons.
All true, but the “greens” will not be paying the price, the poor and vulnerable will carry the cost, not the swine that caused the problem! But our “government” will be alright Jack as the main problem.
Electric vehicles increase demand, not reduce it.
Yes, I was confused by that bit!
The so called “tipping point” that they are trying to force will never happen because energy subsidies have already passed the point of diminishing returns and it will only get worse. The delusion that wind and solar can provide base load with the help of batteries is without logic. For years the US worked towards energy self sufficiency only to have Obama put a halt to it in the name of Globalization and Climate Change …. namely poverty for the world except a chosen few … and the American people reject being told they are to reduce their standard of living so others can catch up. Trump will succeed despite the MSM attempt to discredit him and other countries will follow his path as their economies crumble and people suffer with unaffordable energy, if they can get it at all.
The EUSSR, UN and IPCC are the supranational ecomarxist bodies driving this destruction of Western assets.
What is more, what passes for our governments, have been at best supine and more often actively complicit in this destruction.
Lampposts and piano wire are looking increasingly attractive options.
Scrapping the coal fired power stations that remain would be true wrecking in the name of the holy climate venture. The subsidies to make these available for future use would be money well spent and could really make a return once the green-blob has been destroyed (hope springs eternal), and coal becomes the dominant low cost fuel again.
Would note to the politicos above that the squandering of resources is not supported by real socialists, it is the field of the “gurniad socialites”, a totally different lot who are really Tories but don’t admit it. The majority of working people don’t give a stuff for global warming or saving the planet, they want real improvements in their living standards.
Expecting lucid thinking, even half witted energy policy from HMG is also – an insane wish I guess.
Shutting down coal plant will shut Britain but then the Marxists and in the vanguard are the gals…………….running the big jobs and departments and thus cognitive dissonance (green ≠ satisfactory and sufficient, efficient electricity supply – but theresa the appeaser and generation snowflake do]…………… rules.
Throw away another £billion on the bonfire of logic, or £50 billion off to the EU – who cares it’s not their fekkin money!
At:GerryEngland 1.53. I do agree Gerry.The Canadian Trade Treaty will cement in place the global warming scam by removing a Nation”s sovereignty.David Davis should read the small print.
At GerryEngland at 1.53.I do agree Gerry.The Canadian style trade deal will only cement in place the global warming nonsense,by removing the Nation”s sovereignty.It is in the small print Mr Davis.
Sorry.A Word Press whoopsee,or too much Shiraz perhaps.
Doesn’t anybody do the sums any more?