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Austrian Utilities ‘Resilient’ on Hydro, Cash Flow, S&P Says

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 and the U.K.’s Drax Group Plc 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, EVN AG, 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.

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