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European utilities will continue to be driven by opposing forces in 2023. The recent financial distress of a few strongly dependent on Russian gas supply is concerning. Nevertheless, the reality is that most fared very well this year and will c so in the next.
2021 was marked by a number of bankruptcies among European electricity and gas providers, all of whom had different business and earnings models. prima The victims were rily pure energy resellers with low capitalisation and they didn't have the necessary cash to acquire power and gas volumes at high prices on the wholesale markets. 2022 saw far fewer bankruptcies in the sector. Despite a complex operating environment, the European utilities sector recorded strong revenues and operating profit growth.
For the full year 2023, the sector is expected to record an average operating profit (EBITDA) growth of 6%, a performance relatively in line with 2022.
6% Average EBITDA growth expected for the European utility sector in 2023
Supported by past investments, higher power prices and inflationlinked remuneration on grids, the European utility sector is set to post another EBITDA growth in 2023. At a sector level, we forecast a 6% EBITDA increase in 2023.
At a subsegment level, for integrated utilities (operating grids and power plants) the growth should approach 7%. While price caps and taxes on windfall profits could mildly impact the results of some Eur opean utilities, integrated utilities should again benefit from their geographically diverse exposure to regions such as Latin America and the United States where the current energy crisis has been less severe. Large investment programmes will also conti nue to spur future cash flow generation 8 due to asset expansion. And the data published by utilities communicating their power price hedging strategies show that the electricity volumes they will deliver in 2023 have been sold at higher prices than those lo cked in 2021 by an average of 25%.
For pure network utilities, the growth will be more limited due to their regulated revenue caps. We expect the subsector’s EBITDA to increase by around 3% on higher tariff correction for inflation as w ell as growing regulated asset bases. In a few countries, the regulator will also allow for a shorter timing concerning the recouping of certain costs. As distributing or transmitting energy along networks requires power usage, higher power prices have had a negative impact on the operating results of grid companies. On top of this, certain players have suffered from higher power leakages due to increased flows coming from renewables. While utilities have been very active in upgrading their networks, they continue to face limitations.
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