Distributed generation, renewables, development of energy efficiency, customer-centricity are no longer a threat but represent an opportunity for Italian and European utilities. Companies have metabolized the changes underway and are adopting successful strategies to attack a market that is certainly different from the past but clearly recovering.
These are the main indications that emerge from the Agici studies on the leading utilities in Italy and in Europe, studies carried out within the Observatory on Alliances and Strategies in the Pan-European Market of Utilities now in its XVI edition.
In particular, the Agici reports show that in Italy, after a post-global financial crisis that has led many companies to record heavy losses, finally in 2015 almost all the players returned to profit. The prospects for 2016 and 2017 are positive.
Here is a summary of the salient elements resulting from the analysis of the economic and financial strategies and performances of the ten major Italian players in the electricity, gas, water and waste sectors as well as of 40 European groups.
The market and business strategies
Efficiency in management. More than 75% of companies analyzed are becoming "business efficient" by cutting costs. This path, taken by most of the gas and electricity companies, is now also followed by the Oil & Gas companies, due to the collapse in oil prices.
Organizational restructuring. Approximately 50% of companies are undergoing radical organizational restructuring to be able to face future market changes. (e.g. E.ON and RWE).
Investments. Overall investments of €658 billion are expected by 2019. The priorities are renewables and investments in regulated activities (electricity and gas networks).
International growth. The geographical expansion of the companies is mainly taking place in North America (43%), due to the decline of the European market.
Marketing strategies. The marketing strategies of the companies considered are focusing on the extension of the offer: plumbing services, repairs, energy efficiency.
Market consolidation continues. In 2015 deals were recorded for a value of €82 billion at European level and €6 billion in Italy.
Venture capital. Corporate Venture Capital (CVC) activity is becoming more and more important, so much so that some companies have developed their own internal units that deal with investments in new technologies. The companies analyzed have allocated funds for the CVC amounting to €1,5 billion.
The economic-financial prospects
Italian multiutilities. After a decline in aggregate profits for two consecutive years (2013 and 2014), multi-utility profits are expected to grow again in 2015 (+€350 million). From the two-year period 2016-2017, further upward results are expected, up to exceeding the pre-crisis values (750 million Euros).
Italian energy groups. After a difficult 2014, the profits of ENI and Enel returned to growth in 2015 (+ €3 billion) and, according to analysts' estimates, this trend seems to be confirmed in 2017 (+ €2 billion compared to 2015). The “minor” energy groups, after a dramatic 2013 (-€700 million overall loss) and a difficult but improving 2014, finally returned to profit in 2015 (€131 million overall profit).
Italian water companies. The role of the AEEGSI is confirmed as crucial for companies in the sector. In 2013, all companies in the sector recorded a very strong increase in profits, which more than tripled (from €38 million to €169 million); in 2014 and 2015 there was a slight decrease but the performances are still much higher than the pre-regulatory period of the AEEGSI: over 100 million in total profit against a pre-AEEGSI average of less than 50 million €.
Italian companies active in the waste sector. The waste sector confirms the negative results also in 2014 (- € 7 million), recording the fourth consecutive year of loss. The prospects for the years to come are not positive
Large European energy groups. Even for the large European groups, 2015 seems to be a positive year. The profits of the large Gas & Power companies went from a total of €17 billion in 2014 to €31 billion in 2015. The Oil & Gas players beat the drop in oil prices: in 2015 total profits amounted to €70 billion against €58 billion in 2014.
“The crisis of Italian and European utilities now seems to be behind us. A new awareness of market changes on the part of managers is making these companies finally exploit enormous but hitherto largely ignored business opportunities”, comments prof. Andrea Gilardoni, President of AGICI and founder of the Observatory. “Energy efficiency, digitization of supply, development of local and smart grids, electrification of developing countries and energy storage are just some of the services utilities are finally launching into, often with success. In this sense, the new global perspective designed by the COP21 agreements is a further, powerful, driving force – continues Gilardoni. – Managing these new businesses requires innovative skills, financial resources and, necessarily, an adequate size. It is therefore imperative, in order to seize even more and better business opportunities, a renewed push towards aggregations of Italian utilities.
