Profits at Endesa surge by 30%, yet the company expresses concerns about Spain's grid scheme offering insufficient incentives.
In the aftermath of a recent blackout affecting Spain and Portugal, discussions about the investment needs for Spain's power networks have intensified. One of the key players in this debate is Endesa, a Spanish power utility majority-owned by Italy's Enel.
Endesa's main concerns about the proposed remuneration framework for power grid investments in Spain focus on the lack of adequate incentives. While the regulatory body CNMC suggests raising the guaranteed return on grid investments to 6.46%, Endesa argues this level of return is not sufficient to support the necessary scale of investments for Spain’s electricity grid.
The company's CEO, Jose Bogas, has emphasized that this proposal "seriously jeopardizes" the investment levels Spain needs to meet ambitious goals for decarbonisation, increasing electricity demand, and expanded grid capacity outlined in the country’s climate and energy plan. He suggests that a higher blended remuneration of around 7.5% to 7.7% would better reflect actual investment costs and risks, encouraging more substantial network upgrades and expansions.
Endesa's concerns extend beyond the proposed return on investment. The company argues that the current framework, with an expected return around 6.5%, would likely lead to conservative investment behavior intended only to maintain existing grid functioning rather than enable growth or modernization.
Moreover, Endesa sees the CNMC’s proposal as falling short of European Commission guidelines, which support anticipatory grid investments and call for removing investment caps and delays in recognition of investments. The company believes that these guidelines are aimed at making grid investments more attractive and efficient to ensure reliability and resilience in the face of rising electricity demand and the energy transition.
In the second quarter, Endesa reported lower, albeit still high, gas unit margins. However, the company's net profit of 1.04 billion euros ($1.20 billion) in the period is higher than the 800 million euros reported a year earlier, with the difference likely due to a windfall tax on energy companies in the previous year.
With soaring electricity demand and connection requests, Endesa's focus has shifted towards expanding and upgrading power networks. The company expects to meet its targets for the year, but the proposed remuneration framework for grid investments remains a significant concern.
[1] Climate and Energy Plan for Spain: https://www.miteco.gob.es/es/clima-y-energia/planes-nacionales/planes-nacionales-de-energia/plan-nacional-de-energia-2021-2030.aspx [2] European Commission Guidelines on Regulatory Support for Grid Investments: https://ec.europa.eu/energy/en/topics/electricity/grid-investment-platform [3] RBC Analyst Fernando Garcia's Expectations: No new self-contained facts were extracted from this paragraph as they are all related to the analysis and expectations of RBC analyst Fernando Garcia. [4] Endesa's Earnings Call: https://www.endesa.com/es/inversores/resultados/presentaciones-a-inversores
- Endesa, a major player in Spain's business sector and electricity provision, expresses concerns about the proposed remuneration framework for power grid investments, arguing that the suggested 6.46% return is not sufficient to meet the necessary scale of investments for Spain’s electricity grid, especially in relation to the ambitious goals outlined in Spain’s Climate and Energy Plan.
- Beyond the proposed return on investment, Endesa argues that the current framework's conservative investment behavior would hinder the growth and modernization of power networks, and it sees the CNMC’s proposal as falling short of European Commission guidelines, which support anticipatory grid investments and aim at making grid investments more attractive and efficient for ensuring reliability and resilience in the face of rising electricity demand and the energy transition.
