Midrog: There may be damage to the ranking of green energy companies from Israel

The energy crisis affecting Europe, which arose with the outbreak of the war in Ukraine and the reduction of the flow of natural gas from Russia to Europe, may also reach the credit ratings of the green energy companies from Israel.

The gas games: this winter here and in Europe they are trying to subsidize energy with hundreds of billions
● The gas price crisis in Europe permeates a number of green energy stocks in Israel

In a special report prepared by the credit rating company Midrog, they warn of damage to the revenues of the renewable energy companies operating in Europe, in view of the establishment of an energy price ceiling promoted by the European Union and the tightening of regulation in the field.

The shares of green energy companies took the stock market by storm in the year of Corona, and in the second half of 2020 several large companies such as Doral Energy and Nofer Energy were issued. But the following year, as the world began to emerge from the epidemic, the local stocks also faded and the “hype” around them subsided.

From the beginning of 2022, renewable energy shares in Tel Aviv recorded a mixed trend. stock Anlight which operates in Europe mainly in the Scandinavian countries, andEnergics – whose main European activity is in Poland – decreased by 1.2% and 3% respectively. stock Nofer Energy with operations in a variety of countries on the continent, increased in this time period by 14%, while Doral whose main activity is in the US but which also has operations in Poland, fell by 28%. The decline there comes on the background of a financing agreement for its activities in the US, and is less related to the European crisis.

Another stock that has fallen sharply since the beginning of the year is Econergy , which operates primarily across Europe, has lost 33% of its value so far this year. stock Alumi Capital which also operates in Europe, plunged by 37%, and shares Sunflower which operates in Poland, among others, fell by 26.7%.

The companies initially benefited from the shortage in Europe

Initially, the lack of energy sources in Europe benefited the companies operating on the continent. In Midrog, the analysts Yaniv Gafni, Elad Sarosi and Tomer Dar describe the effects of the crisis that has plagued the energy industry since the beginning of the year, noting that since Russia’s invasion of Ukraine in February, sharp increases in global energy prices have begun. In response to the invasion, Western countries imposed sanctions on Russia, including various restrictions on the purchase of fossil fuels from the country. At the same time, Russia greatly reduced the flow of natural gas to Europe.

In this state of affairs, the European Union decided on a series of measures to reduce dependence on fuel and gas imports from Russia, including accelerated investment in the renewable energy industry, the analysts point out.

The immediate result was a considerable increase in the revenues of the green energy companies, and this compared to a moderate increase in their expenses. Against this background, Midrog noted that “a significant number of companies increased their profit forecasts significantly”.

However, the reduction in the flow of Russian gas to Europe worsened the trend in energy prices. Moody’s rating agency estimated in August that the reduction in gas supply could harm economic growth, increase inflationary pressures and increase the likelihood of a complete cutoff of the supply to Europe.

The Union, in an attempt to prepare for the cold winter and deal with the rising energy prices on the continent, began in September to recommend a series of measures to reduce electricity bills for its residents. “Among them, setting a ceiling price for the tariffs of renewable energy companies, so that it will be at most 180 euros per megawatt hour, until the end of June 2023,” Midrog’s report states.

“In addition, in relation to companies operating in the fields of fossil fuels, the union recommended the allocation of all profits that exceed 20% compared to the average profits of the last three years.”

Poland is one of the main victims of the crisis

Midrog mentions Poland as one of the main victims of the recent crisis. As mentioned, quite a few renewable energy companies from Israel operate in this country. “Electricity production in Poland relies about 72% on coal, and its price has risen sharply, when at its peak the price of an electricity contract reflected an increase of about 400% compared to the price in 2021.”

As part of the regulatory changes in the Union, at the beginning of November, the Polish legislator set a price ceiling for electricity that will come into effect in December and until the end of 2023. Even then, a negative reaction was felt by investors in the shares of Israeli companies operating in the country.

Midrog notes that the damage to the income of the green energy companies from Israel that operate in Europe depends to a large extent on the nature of the active countries.

According to them, “it is possible that companies operating in countries where price restrictions exist even before the Union’s recommendations (such as Spain), have already begun adjusting their activities and forecasts to the restrictions, so that the adoption of the recommendations, if it occurs, will have a more moderate effect on their forecasts.”

However, “the damage to the companies’ activity is expected to be higher in countries where electricity production is essentially based on fossil fuels, because the lack of their supply has contributed to relatively high electricity prices in the country.

“On the other hand, in countries where electricity production relies mainly on renewable energies (such as the Scandinavian countries), the increase in energy prices had a reduced effect on electricity prices and the impact on companies will also be moderate.”

Midrog adds that the damage to the income of some Israeli companies also depends on the way they operate. That is, the types of contracts according to which they sell the electricity. Some of them can also carry out hedging operations to protect themselves, therefore they estimate that “some of the players in the market have options to reduce the damage by amending the various agreements”.

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