Concessions competition model “not economically viable” says EDP boss

EDP CEO Miguel Stilwell de Andrade has been voted in for a second three-year term at the helm of Portugal’s electricity and renewable energy giant.

In 2023, EDP registered record profits of almost €1Bn on the back of high interest rates and high energy prices.

However, this year energy prices are in free fall and are currently bottoming along at €50 MWh. In an interview with the business daily Negócios, Miguel Stilwell de Andrade said that in recent years there had been huge market volatility.

“Now we are entering a more complex phase where we still have very high interest rates while energy prices have fallen a lot. Last year was a good year for EDP with net results of €952 million, with 2024 expected to be along the same lines with a forecast of €1.3Bn of recurrent results”, he said.

The EDP and EDP Renovaveis CEO predicted that 2025 and 2026 would be more difficult and complex years as the company is faced with lower revenues and higher costs in a sector that is capital intense.

“We invest a lot which is why we suffer when the cost of capital goes up, which it has done dramatically over the past 18-24 months”, he said.

Miguel Stilwell de Andrade said that although energy prices had fallen 50% in six months, there was still a lot of geopolitical “volatility and uncertainty”.

“The fact is that energy prices have fallen from record highs in 2022 to the levels that they are now at almost below pre-crisis levels. (€50 MWh now from €200-€300MWh in 2022) with markets expected to remain reasonably low for the future, although there could be instability,” he said.

Concessions competition “unviable”

Miguel Stilwell de Andrade also pointed out that the competition for the concessions of the low voltage electricity grid network as it currently stood was “not financially viable”.

The CEO said that for 20 years EDP had held all of the low voltage electric grid concessions, but this was about to change if the Portuguese government did not change the rules of the competition.

The competition is for 278 municipal power supply concessions, but EDP says that the concessions model has to be rational, and that the current model on the table is not financially attractive because of extraordinary taxes, fees to municipalities, as well as having to present an investment plan with no offsets against tariffs — all making the competition not only unprofitable, but actually economically unviable.

He said that EDP had “experience” and a “proven track record” in low voltage grid networks (Representing 30% of its financial results), and could continue to provide a good quality service at a cost effective price. However, as the competition was currently designed, EDP might not bother to compete at all.

Incentives: Carrot versus stick

Miguel Stilwell de Andrade said that EDP would revise its strategic plan in megawatts and investment saying the big difference between the US and EU was that in the US the government preferred the carrot (i.e tax incentives), whereas in the EU they preferred using the stick approach (meaning regulations).

He pointed out that in the US there were more fiscal and other incentives to attract companies like EDP, whereas in the EU there were many laws that made life difficult and costly for energy companies. However, despite that, EDP has divided its investments in the two markets into two parcels of 40% each.

In order to make sure electricity supply remains secure and affordable, several thousand kilometres of new power lines are required. This is the only way to ensure that electricity from renewable energy sources actually reaches household in Spain and Portugal. The electricity grid is therefore the backbone of a successful energy transition.

Over the past year the importance of the grid has come into focus as critical infrastructure for Iberian energy needs, however reform and investment are needed to achieve the EU’s net zero targets with electric vehicles (EVs), photovoltaic panels, and heat pumps driving consumer electricity demands.

Falling electricity sales

EDP closed the first quarter of 2024 with a 14% fall in electricity sales on the Iberian Peninsula to 7261 GWh according to information sent to Portugal’s securities market regulator, CMVM.

Electricity sales on the open Portugal fell 6% to 4429 GWh while sales on the regulated market fell 16% to 798 GWh.

In Spain, the fall was even sharper with EDP electricity sales plummeting 29% to 2034 GWh.

The falls reflect a loss of clients in the Portuguese market, with the number of clients in the open market falling 5% and the regulated market falling 7% to 902,000. The company will formerly present its Q1 results on May 9.