S&P Says Austrian Utilities Ratings ‘Resilient,’ Withstand Harsh Market

Austrian utilities are proving “resilient” to slowing growth in Europe because their hydropower assets avoid carbon costs, cash flows are constant and the local economy is stable, Standard & Poor’s said.

“A high share of environment-friendly hydropower assets, of regulated cash flows, and the bulk of activities in an economically strong region are helping Austria’s rated utilities withstand the harsher utility market environment,” S&P said today in a report.

European utilities including Electricite de France SA, Spain’s Iberdrola SA (IBE) and the U.K.’s Drax Group Plc (DRX) have had their ratings cut by S&P in the past four months as weakening economic growth erodes earnings. In contrast, Austrian utilities benefit from the country’s “stable economic environment” as well as a higher proportion of renewables assets, S&P said.

“We see the high share of hydropower assets in Austrian power generation as a clear competitive advantage for Austrian utilities over their European peers,” S&P analysts Tuomas Ekholm and Andreas Kindahl wrote in the report. “This type of generation is not affected by EU carbon-dioxide regulation.”

Austria, where 53 percent of power was generated at hydro plants last year, also doesn’t have nuclear capacity, meaning utilities covered by S&P -- Verbund AG (VER), EVN AG (EVN), Energie AG Oberoesterreich, Kaerntner Elektrizitaets AG and Energie Steiermark AG -- avoid the associated political risks, S&P said.

Utility ratings are buoyed by a lack of a competition in the Alpine republic’s liberalized market, as well as by a system of “vertical integration” that shields them from higher commodity costs, and majority state ownership, S&P said. Amid Europe’s “harsher” environment, they’re “largely immune” to the pressures faced by their regional peers, it said.

To contact the reporter on this story: Zoe Schneeweiss in Vienna at zschneeweiss@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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