The measures adopted by the Government in the energy sector «They create a lot of uncertainty and legal insecurity, affect country risk and make investment more expensive at a time when there is a need for capital for technological transformation. Spain is a hub in renewable energy and a lot of uncertainty has been generated in a strategic sector, which puts at risk the opportunities offered by a sector in full transformation. The measures affect the financing of new projects. ‘ This was revealed in a virtual round table moderated by Deutsche Bank on ‘Latest developments and outlook for the Spanish electricity market’.
Heads of Bank of America, Morgan Stanley, Lazard and Barclays attended this event as participants, in addition to the moderator Deutsche Bank, by investment banks, while investment funds were represented by SDCL.
The moderator of the round table, Luis Armada, CEO of Deutsche Bank Origination & Advisory, pointed out that, in order to
the investors, the regulatory uncertainty that exists at this time implies certain legal uncertainty, as well as reduces the credibility of Spain compared to other destinations. He warned that short and long-term investment by international investors may also be affected. “This situation in a certain sense is somewhat contradictory, since you have a leading company like Iberdrola to which the Government repeatedly asks to continue investing heavily in Spain but at the same time imposes measures that affect it mostly.”
Frank Hermelink, CEO of Morgan Stanley and Head European Power & Utilities, emphasized that investor confidence, both existing and new in the Spanish electricity sector, is affected by the regulatory instability that the measures bring to the sector. And alerted that this doubt also affects credit rating agencies and in the amount of capital that can be invested in Spain. In this volatile environment, investor confidence must be regained.
The CEO and co-head of Bank of America’s EMEA Natural Resources, María Garijo, noted that the new measures imply a great paradox, which is the negative effect they are having on the most vulnerable consumers they are trying to protect, leading to the opposite result that the government was looking for. In addition, Spain is committed to investing in sustainable projects that can result in poorly deployed capital. “We look forward to the EU continuing to supply and facilitate the development of renewable energy,” he said.
Enrique Namey, CEO and Co-Head European Power & Energy Infrastructure of Lazard, stressed that this sector is strategic for Spain, so it is very important to generate new confidence in investors, that this measure has harmed, generating uncertainty in the market. “We hope that after March it will not have longer-term implications that could have any impact on the overall objectives,” he said.
The CEO of the investment fund SDCL, Jonathan Maxwell, indicated that the new measure affects profitability, and if there is more insecurity, it will lead to more expensive investments, so it will not translate into cheaper electricity for customers either, which does not make a lot of sense. Have you seen any impact so far? Yes, investors from the UK and Europe have already shown some doubts about new investments. In addition, there are some uncertainties and complexities about the impact of these measures that will delay investment decisions ”, he commented.
Barclays’ Jay Hawthorn commented that the new measure affects equity and it raises the cost of investment, which is why it is worrying both for the sector and for the country.
In addition, all participants agreed on the high risk that the profitability of the investments will be affected, and that the returns will generate less income and, therefore, make investments more expensive. For the purposes of banks and capital requirements, if Spain penalizes investments in the energy sector, the anticipated funds will end up being allocated to other places where they are considered to be more productive.
Investments can be delayed and now a wait and see process is opening, until the Government clarifies the situation for the future. This is a European issue and the solution must be European, we must accelerate investments in renewables to meet the deadlines set for the energy transition, because So far, everything is being too bureaucratic, and the current pace is not the best way to ensure the supply to consumers.