Value of European utilities’ assets fall in 2014, says EY report

European utilities
Based on the annual reports of 16 major European utilities, the report finds that renewable energy is downgrading the value of conventional generation assets

European utilities companies are “grappling” with a changing energy landscape leading to “significant asset impairment”, according to business consultancy EY’s Global Power & Utilities sector.

From analysing the annual reports of 16 major European utilities, EY has found that the impairment on assets accounted for 19.4 billion euros or 85% of total impairment recorded in 2014.

Depressed energy prices and evolving regulation added to the complexity companies already face and resulted in another year of assets being written down to their recoverable amount, states the report ‘Benchmarking European power and utility asset impairments: Testing times ahead’.

Weak commodity prices has led to the impairment of generation and exploration and production assets while regulations focusing on the security of supply or reducing carbon emissions also drove impairments in many regions, said the analysts.

Generation assets represented the greatest share of impairments (75%) with 14.6 billion euros. Exploration and production assets were also hit following commodity price uncertainty with a total of 2.2 billion euros impaired in 2014.

European utilities and disruptive technology

Charles-Emmanuel Chosson, Global Assurance Power & Utilities Leader at EY, said: “Rapid transformation in the sector is creating big challenges for traditional European utilities.

“The continuing rise of renewables and improved energy efficiency keep adding pressure on conventional generation assets. Disruptive factors, such as the rise in distributed generation, and new developments in demand response and storage capacities could also have a resounding impact on asset impairment.

Mr Chosson added: “Adapting to the changing energy world requires companies to think thoughtfully about capital investment. That means assessing tomorrow’s value chain, identifying how they want to be positioned and planning how that translates into investments and asset rotation.”

The purpose of the publication is to help power and utility companies prepare for the 2015 round of impairment exercises by benchmarking the approach of different companies.

It summarises key factors affecting utility asset valuations today and in the future, as well as provides broad comparisons between major European utility reports and accounts.