For the winter you can hardly increase electricity production, but only reduce consumption and improve efficiency, says Alpiq boss Antje Kanngiesser. Apparently, many major customers are only now stocking up for 2023, which is having a price-driving effect.
In contrast to its competitor BKW, Alpiq boss Antje Kanngiesser is in favor of a state rescue package.
Prices on the electricity market have exploded since the beginning of July. If you want to buy Swiss electricity for the first quarter of 2023 on the exchange, it currently costs more than 1,200 euros per megawatt hour – that’s a price increase of around 2,000 percent compared to the time before the first turbulence in autumn 2021.
The head of the Swiss electricity group Alpiq, Antje Kanngiesser, doesn’t mince words when presenting the half-year figures: “The situation on the electricity market has deteriorated drastically,” she says. A liquidity crisis has turned into a supply crisis.
900 million francs in additional collateral
What does she mean by that? The electricity producers usually sell the electricity two to three years in advance. The electricity exchange requires collateral – i.e. money – to minimize the risk that a producer cannot keep his delivery promises. The higher the electricity prices, the higher these liquidity requirements.
As early as last December, and thus before Russia attacked Ukraine, Alpiq had already knocked on the door of the federal government for state aid when liquidity was running low. In the end, however, the company was able to raise additional money from the banks and owners.
In the first half of 2022, the collateral provided by Alpiq increased again by CHF 900 million. And Kanngiesser emphasizes that you can also get by with the current, much higher prices. This has to do with the fact that funds used as collateral also flow back when the electricity is delivered.
However, if the prices rose to 5,000 euros, it would “overstrain” an Alpiq, she admits. Such prices indicated an enormous shortage of gas and electricity and thus a system failure. In contrast to its competitor BKW, Alpiq is in favor of a state rescue package.
The manager explains that the current price level shows the fears in the market that things will be tight in the winter. And she has observed that many major customers have so far waited before purchasing for next year. After the already high prices last winter, these electricity consumers had probably hoped that the situation would calm down. Now they have to buy more, which drives up the price even more.
What can be done to prevent a shortage? For this winter, Kanngiesser sees only one way: Measures for more energy efficiency and reductions in consumption. Electricity production can hardly be increased in the short term. It is also important that the existing systems are running; Alpiq refers to the smooth revision of the Gösgen nuclear power plant. The fact that the three Swiss nuclear power plants – in contrast to the French ones – deliver reliably in winter is a key to Switzerland being spared a shortage.
Dark red figures in the half year
It is astonishing at first glance that Alpiq posted a loss of 592 million francs in the first half of the year despite the high electricity prices. This is mainly due to the fact that the hedging transactions entered into years ago for the electricity price are worth less. At that time, Alpiq had secured the price at EUR 70, for example, with production costs of EUR 50. With electricity prices of 500 euros, however, this protection is no longer of any use.
At the same time, the higher value of the current and future electricity produced is not reflected in the IFRS accounting standard, explains CFO Luca Baroni. This asymmetry will disappear over the years: as soon as the electricity is actually sold, the profit of 20 euros per megawatt hour can be made, to stay with the example, and the negative valuation effect on the balance sheet no longer applies. In the second half of the year alone, this “catch-up effect” will amount to CHF 558 million, Baroni predicts.
In operational terms, the company increased its half-year result from CHF 83 to 114 million. However, the net loss and the increased balance sheet mean that the equity ratio has eroded from 26.2 to 15.7 percent within six months. Aren’t the lending banks getting nervous? Baroni says no: The banks understand that this decline is not due to economic problems, he assures.