U.K. energy reforms impact on the ‘Big Six’; the focus of S&P’s September Infrastructure Outlook

Standard & Poor’s has released the September edition of Infrastructure Outlook, its monthly newsletter rounding up all the key ratings updates, news and commentaries relevant to infrastructure and project finance.

This issue explores how recent reforms in the U.K.’s energy sector – an outcome of heightened political risk since the May elections – have affected the country’s six largest energy suppliers, also known as the ‘Big Six’; Centrica, E.ON UK, EDF, RWE Npower PLC, Scottish Power and SSE.

Specifically, the feature article looks at findings from a recent review of the wholesale and retail energy markets, as requested by U.K. electricity regulator Ofgem. The investigation, conducted by the Competition and Market Authority, was designed to identify any features of the U.K energy market that prevent, limit or distort competition. Provisional findings indicate that the ‘Big Six’ could experience negative effects on their margins, if certain corrective initiatives were to be implemented. Centrica, for example, is already suffering. S&P recently downgraded the company due to its high exposure to current tough market conditions.

Other European utilities are facing similar problems. In Germany, utility company RWE AG (parent company of RWE Npower in the U.K.) was downgraded to ‘BBB’ from ‘BBB+’ – a result of challenging market conditions and, what is considered by S&P, an adverse political environment.

Further afield, in the transport sector, Spain-based toll road project Autovia del Noroeste was assigned a preliminary ‘BB+’ rating with a ‘negative’ outlook. The final rating, however, depends on the outcome of an ongoing cost dispute with the regional government of Murcia, considered an irreplaceable counterparty.

To view these articles and other key rating movements, please see the full version of S&P’s infrastructure newsletter here.

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