Despite low coal prices, the four dominant US energy companies have had a difficult year behind them and there is little evidence that their business environment will be more favourable this year. In each segment of their core business, i.e. generation, distribution and trading, they face different challenges, and there is also a need to engage in rescuing mining.
– The whole energy market is very demanding lately. The three main areas in which energy companies operate, i.e. distribution, generation and trading, are characterised by major challenges, Noble Securities analyst, news agency. – In the generation segment, these are mainly falling energy prices, rising prices of carbon dioxide emission allowances and all obligations related to the climate policy.
Over the past year, the WIG-energy index on the Warsaw Stock Exchange has lost over 30%. This is more than the entire S&P500 (-19%), although the four largest energy companies are included in this index. They also benefit less from the last rebound: while S&P500 has already made up 15% of the 20 January hole, WIG-energy only – 9%.
– In the distribution segment, we have to say about falling profits. This is a segment in which the regulator decides on the size of the profit and this year’s profit, unfortunately, will be lower. – In the trading segment, on the other hand, we are dealing with a very large and growing competition, such that the largest energy companies have to fight for this market or give it up. Each of these segments has its own problems and energy companies have to face them.
In 2015, out of the four largest energy groups, only managed to generate consolidated net profit, although it was more than 15% lower than in the previous year (USD 832 million). The company suffered a loss of USD 3 billion due to write-downs for impairment of assets due to low carbon prices and high carbon emission prices. In the previous year, the group posted net profit of USD 3.66bn. After earning USD 1.2 billion in 2014, the company posted a net loss of USD 1.8 billion last year, while the based company recorded losses of nearly USD 400 million after USD 909 million in profit a year earlier.
– Energy prices are the result of several factors. Fuel prices are the first. Coal prices in the USA are not dropping as drastically as in other countries, but are lower, which is why American energy companies can afford to sell energy at lower prices – says Noble Securities analyst.
This, however, results in intensified competition. Not only between the companies themselves, but also energy imported from abroad and produced from unconventional sources. Last year, wholesale energy prices were about 13% lower than in 2014. Hard coal drowned by about 20 USD/t, while wind power plants gained 1200 MW of new capacity.
– Moreover, the country receives energy from other markets, mainly from Sweden, and it is much cheaper. – Another element is RES. The more wind energy there is in a given period, the lower the prices, especially spot prices.
Energy industry under pressure
