CONSULTING

apply across the whole European market and therefore raise concerns for the other construction
projects, in France, Slovakia and even Belarus, who plans to sell into the Baltic market.
ENEL, which is primarily an Italian company, but with other European assets including in Spain and
Slovakia, is one of the few European power companies deemed by the credit agencies to have a
stable outlook. This is primarily because despite falling power prices, “Enel's earnings exposed to
merchant generation in Europe is low relative to other European utilities”. Moody's estimates that
approximately 70 percent of group EBITDA comes from a combination of regulated/contracted
activities that support cash flow stability’. 214
In Central Europe, the large centralized utilities are also suffering. In April 2016, Moody’s
downgraded the Czech Utility, CEZ, as it said its generating fleet was “predominantly fixed-cost in
nature, with around 90 percent of output represented by lignite, nuclear and hydro, thus making it
particularly exposed to movements in wholesale power prices”. 215
The falling revenues and negative outlook from the rating agencies is mirrored in the stock market,
with European stock market prices for major utilities falling since the turn of the decade, as can be
seen in Figure 22. Of the five selected companies, only ENEL of Italy has retained most of its value,
still losing one third of its value a decade ago.
In Japan the power companies are financially suffering, which is not surprising given the immediate
impact that Fukushima had on the power companies with the closure of all of the country’s nuclear
power stations. However, what is now also clear is that the longer term political impacts with the
introduction of market liberalization may affect the longer term viability of the incumbent utilities.
This raises concerns over the longer term viability of the companies, as Moody’s notes on the
proposed reforms that, “the utilities' relatively high ratings have been underpinned by their
protected monopoly position, and a supportive and relatively predictable regulatory
framework”. 216
In April 2016, the next wave of Japanese electricity market liberalization entered into force, this
enabled non-commercial customers to choice their electricity supply for the first time. In response
to this some of the previously monopolistic regional power companies are proposing restructuring.
For example, Tokyo Electric Power Corporation (TEPCO), has adopted a new business slogan
“Energy for Every Challenge”, and established a holding company, which will continue to own the
nuclear, hydro and other renewables, with three additional subsidiaries; fuel and thermal power
generation, general power transmission and distribution and retail electricity. 217 Moody’s have
stated that the restructuring will have no impact on their ratings. 218 However, as the operator of
Fukushima, TEPCO’s credit rating and financial outlook in general has experienced massive
downward turn as a result of the accident.
The situation is very different in Korea, where the Korean Electric Power Corporation (KEPCO),
remains in a strong position due to its virtual monopoly of generation (85 percent), through its
214 Moody’s, “Moody's affirms Enel's Baa2 ratings; outlook stable”, 13 February 2016.
215 Moody’s, “Rating Action: Moody's downgrades CEZ's rating to Baa1; outlook stable”, 6 April 2016.
216 Moody’s, “Moody's: Proposed reforms for Japan's electric sector could weaken the utilities' credit
quality”, 30 September 2015.
217 Metering & Smart Energy International, “TEPCO readies itself for Japan’s electricity market deregulation”,
23 May 2016, see http://www.metering.com/magazine_articles/tepco-readies-japans-electricity-market-deregulation/,
accessed 1 July 2016.
218 Moody’s, “Moody's: No rating impact from TEPCO's corporate restructuring”, 1 April 2016.
Mycle Schneider, Antony Froggatt et al. 68 World Nuclear Industry Status Report 2016