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Spanish utility cuts value of gas-fired generation as renewable transition gains speed

February 05, 2021

S&P Global Market Intelligence ($):

Naturgy Energy Group SA has written down the value of its Spanish gas-fired power plants by €1.15 billion, illustrating how the policy-driven shift to renewable energy continues to put pressure on carbon-intensive businesses.

The company, one of Spain’s largest utilities, said Feb. 4 that the impairment was driven both by the drawn-out effects of the coronavirus pandemic on energy prices and the EU’s ramped-up target for emissions reductions by 2030. EU leaders decided in 2020 to raise the targeted cut in greenhouse gas emissions by the end of the decade from 40% to at least 55%, which Naturgy said led it to reassess its portfolio. That target will bring higher renewable energy ambitions and a host of other measures that are likely to drive up the prices polluters pay for their emissions in the EU.

“That changes the perspectives that we have in the long term,” Jon Ganuza, global head of controlling, said on the utility’s full-year 2020 earnings call.

Naturgy, which is shifting investment toward renewables, still owns about 7 GW of gas plants in Spain, where the government has also announced aggressive green energy targets.

The company’s accounting change is only the latest sign that large utilities are adapting to a shifting landscape for fossil fuels beyond coal. A top executive at Italian utility Enel SpA said in January that the company would no longer operate any gas plants by 2050, the date by when most power companies have pledged to lower their emissions to net-zero. Groups such as Enel have already written off billions in coal plant assets over the past few years as economics have worsened for the fuel and public and investor focus has increasingly turned toward sustainability.

The write-down, together with another impairment of €198 million on its gas business in Argentina, meant Naturgy swung to a full-year net loss of €347 million, compared to reported net income of €1.40 billion in 2019. Throughout the year, earnings were also dragged down by lower demand for gas and power, currency effects and negative LNG margins due to the depressed global gas market.

[Yannic Rack]

More ($): Naturgy writes off gas plants as higher EU climate target ‘changes perspectives’

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