Spanish energy group posts profits hike

Spanish energy group Iberdrola reported a profit jump in the first quarter on Wednesday, saying that international activities, particularly in Brazil, had compensated for problems in Spain.

Spanish energy group posts profits hike
The Iberdrola Tower in Bilbao, Spain. Photo: Rafa Rivas/AFP

The group said it had suffered from changes to regulations in Spain, but expected to lift net profit from next year with heavy investment in countries where regulations were foreseeable.

Net profit for the quarter surged by 8.4 percent from the equivalent figure last year to €952.6 million euros ($1.32 billion).

But sales fell by 4.8 percent to €8.325 billion.

Earnings before interest, tax, depreciation and amortization (ebitda) was slightly down by 0.3 percent to €2.127 billion.

However, activities outside Spain had shown growth of 22.3 percent whereas in Spain they had fallen by 25.2 percent.

In Spain, regulatory changes including new taxes and cuts in subsidies for renewable energies, had crimped the gross profit margin by €260 million so that it rose by 1.0 percent to €3.386 billion.

In the whole of this year, these measures would have an impact totalling €380 million, it estimated.

But for activities in Brazil, ebitda earnings had jumped by 45.6 percent to €47.1 million.

This reflected an 8.9-percent rise in demand, increased tariffs and government compensation for drought paid to companies distributing energy.

The group stood by its forecasts for the year, expecting net profit to fall further to €2.3 billion and the ebitda figure to €6.6 billion.

But it then expected net profit to rise by 4.0 percent in 2015 and in 2016, boosted by diversification with investment of €9.6 billion from 2014 to 2016 in countries with stable regulatory environments.

Of this amount, 41 percent would be invested in Britain, 23 percent in Latin America but mainly in Mexico, and 17.0 percent in the United States.

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KEY POINTS: How will Spain tackle rising electricity prices?

On Tuesday, the Spanish government approved a raft of measures to help reduce the ever-increasing electricity bills that those in Spain have been facing in recent months. Here's how they plan to do it and what measures will be in place going forward.

KEY POINTS: How will Spain tackle rising electricity prices?
How the Spanish government plans on reducing electricity bills. Photo: Michael Schwarzenberger / Pixabay

Electricity prices have been rising to record levels recently, with one of the highest prices yet at €172.78 /MWh, expected on Wednesday, according to electricity market operator OMIE. 

Here’s how the government plan on lowering the price of electricity in Spain. 

Prohibiting companies from cutting off electricity for low-income families

The government has approved a new rule which states that vulnerable consumers (families with low incomes) will be able to benefit from 3.5kW of power – sufficient for an average household for six months – in the event that they are unable to pay. This means that the limit at which companies can now cut off the electricity supply of the most vulnerable has been extended from four to ten months.  

Tax cuts

Special tax on electric power has also been dropped from 5.1 percent to 0.5 percent, as promised by Prime Minister Pedro Sánchez during his interview on TVE on Monday. The suspension of the tax on electricity production has also been extended.  

Electricity auctions

One of the most innovative decisions among these new measures is that the government will call auctions in which the large electricity companies such as Endesa, Iberdrola, Edp, and Naturgy will be obliged to sell a percentage of the energy they generate.  

These auctions, which will have a minimum price to guarantee production costs, will be attended by small trading companies and large industries. These companies will then be able to purchase energy cheaper than in the current wholesale pool. Mainly nuclear and hydroelectric plants will participate in this plan.

The government announced that the first auction will be called before the end of the year. 

Putting a cap on gas prices

During the next two quarters, the price of gas consumed by households will not be updated in accordance with market prices.

Third deputy Prime Minister Teresa Ribera explained that a price hike of more than 28 percent for gas in the wholesale market is expected, while on average the regulated rate will rise below five percent.

In addition, until March 31st 2022, the government will tax the profits of the electricity companies, due to the rise in gas prices. They have established a cap of €20 euros per megawatt hour for gas, and when it rises above that price, the extra profits obtained by the companies will be charged a tax that will be used directly to reduce electricity bills.

Maximum and minimum reservoir levels

After the controversial drainage of reservoirs by the electricity companies coinciding with the maximum prices in the wholesale market, the government has decided to set maximum flow levels that can be discharged each month, and minimum levels that must be maintained in the reservoirs.

This prevents an excessive amount of water from being drained. It will be the hydrographic confederations that will set these amounts.