European Utilities: 2026 Credit Outlook

The European utilities sector has generated a total return of about 3% in 2025-- some 45 bps ahead of the market-- but may struggle to repeat such outperformance in 2026 against the headwinds of lower power prices, higher leverage and renewable construction risks. A massive spending push in networks may offset weaker generation margins and see the sector return to earnings growth of 4%-5%, but this creates a funding challenge as leverage approaches the edge of the comfort zone for credit quality. This has forced companies to turn to non-debt sources of capital—primarily equity, hybrids and disposals—and more may be required in 2026 to sustain credit quality. Paul Vickars, senior credit analyst at Bloomberg Intelligence, discusses the outlook for credit fundamentals and spreads in this short video.