European utilities are poised for stronger Q3 results as record pumping spreads in Iberia lift hydroelectric earnings, while proposed data center rules in Spain risk diverting a growing share of electricity demand to neighboring Portugal, RBC Capital Markets strategists said on Wednesday.
RBC analysts said that pumping spreads in Iberia averaged about 202 euros ($234) per megawatt-hour in Q3 through August, 54% above a year earlier. The analysts said that hydro-achieved prices rose 58% to 151 euros/MWh, pointing to stronger earnings for the region's hydro-heavy utilities.
Portugal is showing better generation volumes than Spain, while reservoir levels remain comfortably above average at Iberdrola. RBC said that EDP and Endesa are around average, while Naturgy's reservoirs are well below normal levels.
August power prices also strengthened year-over-year. Solar averaged 49 euros/MWh, up 53%, while wind prices climbed 86% to 133 euros/MWh and hydro rose 65% to 158 euros/MWh. Ten-hour weekly pumping spreads averaged 212 euros/MWh, while four-hour daily spreads reached 178 euros /MWh.
The stronger hydro environment could boost Q3 earnings for Iberian utilities, with RBC highlighting EDP as a preferred name given its exposure to Portugal and the country's potential growth in electricity demand from data centers.
Spain's ambitions to become a major European data-center hub are facing a potential setback from draft rules requiring facilities with at least 1 megawatt of grid access to demonstrate hourly renewable electricity consumption.
RBC said that the proposal has alarmed the country's data-center industry, which says the requirements could make new projects harder to develop and encourage investors to look elsewhere in Europe.
SpainDC, an industry group, estimates the measures could put 53.6 billion euros to 60.3 billion euros of projected investment at risk between 2026 and 2030.
Portugal is emerging as the most attractive alternative, helped by competitive power prices, strong telecommunications infrastructure and what the industry considers a more favorable regulatory framework.
Italy, France and Poland could also benefit from projects redirected away from Spain.
Germany, meanwhile, is moving closer to approving a major expansion of gas-fired generation to provide reliable backup power for its growing fleet of intermittent renewable assets.
The European Commission is projected to approve Germany's power-plant strategy without launching an in-depth investigation, clearing the way for initial tenders for 9 gigawatts of gas-fired capacity.
The first auctions are scheduled for Sept. 8 and Dec. 29. Germany could require between 22 GW and 36 GW of additional generation capacity by 2035, RBC said, citing estimates from the Federal Network Agency.
Portugal is also moving toward a greater state presence in its electricity transmission operator, Redes Energeticas Nacionais.
Energy Minister Maria da Graca Carvalho said the Commission had accepted the government's decision to acquire a 13.7% stake in REN from Pontegadea, the investment vehicle of Amancio Ortega, for about 380 million euros.
The purchase would reverse the complete privatization of REN carried out in 2014 during Portugal's financial crisis.