Europe's energy sector is facing a mix of political uncertainty, regulatory changes, infrastructure delays and rising costs, with developments in France, the UK, Spain and Germany highlighting the challenges and opportunities for utilities and renewable-energy investors, RBC Capital Markets analysts said in a note on Wednesday.
French utilities face heightened political uncertainty as Prime Minister Lecornu prepares to present an initial draft of the 2027 budget next month. RBC Capital Markets said Veolia has historically underperformed during budget negotiations but tended to rebound afterward. Shares of large utility and energy company Engie, by contrast, have shown little correlation with the budget cycle. Over the longer term, RBC sees regulatory and political risks as more significant for Engie, noting proposals by the leading right-wing National Rally party to reduce the independence of France's energy regulator and restrict new renewable projects. RBC estimates such measures could affect more than 25% of Engie's earnings before interest and taxes.
In the UK, the Sizewell C nuclear project has suffered a setback after Galliford Try was replaced as contractor for two key access roads. The company could not agree on costs with Sizewell C after design changes added about 30 million British pounds ($40.8 million) to the project. UK-based construction firm Kier and local contractor Breheny will take over the work, which is expected to delay completion of the roads by six months to a year.
Meanwhile, UK households face higher energy bills from October after Ofgem raised its price cap by 4%. The typical annual bill will increase by 60 British pounds to 1,723 British pounds, reflecting higher wholesale gas prices. The government's removal of VAT from domestic electricity bills has limited the increase; without it, the typical bill would have been about 45 British pounds higher.
Spain is considering rules requiring new data centers to source at least 80% of their hourly electricity consumption from new renewable capacity. Under a draft decree, each additional megawatt consumed would need to be matched by a megawatt of renewable capacity installed within the previous 18 months, either through on-site generation or power purchase agreements. The proposal could boost renewable development, power purchase agreement demand, and energy storage investment.
In Germany, industry groups are urging grid planners to give battery storage a larger role in plans for expanding the power network through 2037 and 2045. They argue that greater use of storage and other flexible technologies will be needed as renewable generation expands, although rapidly rising battery capacity could eventually pressure returns in the market.