What are the impacts of the health emergency on the utilities market in the short and medium term? Are the investments continuing? Were the operational activities affected? What government interventions are considered priorities by the operators?
To give an answer, albeit a preliminary one, to these questions, we submitted a short questionnaire to around 60 Agici partners - many market leader companies - obtaining indications of interest. The 30 respondents have a total turnover of around 35 billion euros and a workforce of around 100.000 employees.
As regards the market context, the final data for Q1 2020 indicate progressive drops in electricity consumption (up to -24% in the first weeks after the national lockdown), and gas (-29% for industrial and -26% for thermoelectric, with residential constant ). The price dynamics also present serious problems, with a drop in the average PUN to 32 €/MWh in March, down to 20 €/MWh during the week in mid-April.
For waste, there are critical issues regarding the slowdown in demand for secondary raw materials and the consequent accumulation of stocks, difficulties in exporting waste, and operational difficulties deriving from the special management of potentially infected waste. As far as water is concerned, possible increases in domestic consumption are envisaged, on the strength of significant drops in industrial consumption. Given the availability of data, for both activities at present it is not possible to quantify the entity of the phenomena.
Starting from these objective data, we asked the companies in the sample which were the impacts on production in waste, water, electricity, and gas in Q1 2020, one year (March 2021) and 24 months (March 2022). The values summarized in Figure 3 are largely indicative but representative of the operators' expectations.
The declines in electricity and gas in Q1 2020 concern both consumption and prices and largely depend on the considerable reduction in industrial activity. With regard to electricity generation, the reduction in consumption mainly impacted thermoelectric from fossil sources. In waste and water, the reduction is minor, as these are less impacted by the closure of industrial plants. For waste, it can be seen that the sector is negatively impacted by the reduction in the production of industrial waste, and by the difficulty of finding outlet markets for secondary raw materials due to the closure of many plants and by the blocking of exports. As regards water, the expectation is that the moderate increases in domestic consumption will not be sufficient to compensate for the considerable reduction in industrial uses.
Still observing Figure 3, the 12-month forecasts show positive signs for water, and a less important reduction for electricity, gas and other sectors. Waste is the only one not to benefit from improvements but rather to worsen its position, probably due to the uncertainties about the recovery of the secondary markets during the year. In 24 months, respondents expect the slowdown to end, with a return to growth for waste and electricity, and a stationary situation for gas and other activities.
There are heterogeneous expectations on the part of companies energy transition developments, renewables and energy efficiency (Figure 4).
A majority share believes that the trends will continue albeit with a few months of delay, as they are on a path to economic sustainability capable of regardless of public support. On the other hand, around a third believe that developments will slow down, determined by the focus of resources on core activities and a possible drop in public investment. Finally, one in five companies is betting on an acceleration of these trends as a possible driving force for recovery. In the immediate future, while the projects under construction continue, even if slowed down by the closure of construction sites and difficulties in the supply chain, uncertainties are expected for investments not supported by incentives, under pressure from the reduction in energy prices.
Which factors Will they determine the pace of the recovery? Public support choices will have great importance. A third of respondents indicated a risk of liquidity crisis and difficulty in accessing credit. Also relevant are the critical issues for the blocks to the international transit of goods and the protectionist tendencies.
Finally, among others, we point out two responses that have on the subject of social stability and public trust in institutions.
Which immediate responses Have they been put in place by companies? The majority of respondents indicated safety measures for employees, operational adjustments for remote working, and reorganization of processes in the field. This is followed by the need to remodulate investments and personnel, and considerations related to the reduction of liquidity. In this context, immediate initiatives to strengthen IT and activate new digital services are triggered. In two cases, the production of sanitary devices was activated.
About the investments, while the majority of companies indicate a slowdown of less than 20% or between 20 and 40% of their investments, three companies reported that there will be no reduction, and four indicated a reduction greater than 80%. The fundamental reason is the operational and logistical difficulty for safety protocols and adherence to government prescriptions. With construction sites closed and activities limited to the essentials, a delay in the execution of a large part of the investments in progress is expected. More worrying is the possible cut in new investments due to the numerous uncertainties, in particular regarding the dynamics of demand and supply.
Finally, we investigated the priorities of government intervention to address the emergency and, above all, to facilitate recovery. The answers are illustrated in Figure 5.
The partners provided highly articulated suggestions regarding the initiatives they hope will be implemented by the public sector, a sign of the great importance that European, national and regional government activity has in this juncture. Without going into details here, the main points that emerged are indicated below:
a. The role of national and European institutions is considered fundamental in supporting businesses and consumers, in particular as regards support for demand, liquidity, access to credit and support for employment with social safety nets;
b. It is requested to relaunch the policies already accepted relating to the energy transition, the circular economy and energy efficiency. These developments, with adequate public support such as maintaining or increasing the resources of the green new deal, can be a driving force for recovery;
c. These initiatives can be effectively implemented if they become part of a well-defined strategic framework, which provides for a resource orientation, even with an increase in public spending and priority for infrastructural interventions;
d. The interventions of bureaucratization are also fundamental. The theme is certainly not new but in this crisis situation it is vital to accelerate the investment processes prodromal to an overall revival of the economy;
e. The sectors in question have already developed a series of initiatives in energy, water infrastructure and waste which could be activated quickly if there were the right conditions, including authorizations.
