Ambitious climate targets leading to new record levels of investment and higher financing needs in the energy and utilities sectors - UniCredit's 11th European Energy &[...]

UniCredit's 11th European Energy & Utilities Conference took place on 17 November, bringing together a great line-up of 17 attending issuers and 100 institutional investors.

More ambitious climate targets in Europe and worldwide will lead to new record levels of investment and higher financing needs in the energy and utilities sectors. Their central role in the important and urgent topic of energy transition, their dynamic process of change and their huge demand for suitable financing solutions are arousing great interest in both sectors.

With the presenting companies being positioned in different areas of the oil, gas and power value chains, conference participants gained a good insight into the opportunities and challenges of the ongoing transformation in the sectors:

• Following a record supply in 2020, the primary market remained strong also in 2021, with volumes year to date sitting at a strong level of north of EUR 400 bn. And yet again, the Energy and Utility sectors were among leading actors.
• The major outcome of the COP26 is an agreement of the participating countries intended to uphold climate targets agreed in Paris in 2015. In line with the EU's Green Deal the agreement commits countries to phasing down unabated coal-based power generation, supports a just transition for developing countries and includes national commitments with regard to emission reductions. A successful energy transition is and will remain one of the most important challenges. With regard to the required renewable capacity and infrastructure expansion, energy and utility companies will play the key role and investments in the sector will show new record levels.
• The Energy & Utility sectors dominate the corporate green, social and sustainability bond market. More than 50% of issuances were accompanied by an ESG feature year to date, way above the 30% in 2020 and many companies even opt for a fully Green/SLB funding strategy.

All these topics and many more set the scene for a lively dialogue between the participating issuers and investors. And in fact, more than ever, it is important to have issuers sharing their strategies and targets, the challenges and the enablers needed to take to balance corporate performance with CO2 reduction paths and continue the close dialogue with the buy-side.

Alongside company presentations and One-on-One Meetings hosted throughout the conference day, S&P Global Ratings presented the most recent trends in the utilities sector and discussed the impact of an accelerating energy transition on the credit quality of utility companies.

"The road to climate change resilience" was passionately discussed in alively, high calibre panel discussion with, amongst others, the following take-aways:

• The recently concluded COP26 made clear that corporates and capital markets will play a critical role in the global energy transition. In the panel, the panellists explored the different views on how this unprecedented focus on climate will create challenges and opportunities for renewable energies going forward.
• The aggressive build out of traditional renewable energy technologies alone is not enough to deliver Europe's net zero targets. Additional solutions ranging from energy storage, green hydrogen, hydropower as well as hybrid technologies (e.g. floating solar) are needed to support the energy transition.
  • The sustainable finance market is one of the catalysts of the transition by bringing investors and issuers together under a common goal.
• The increase in renewable energy sources may pose challenges on the grid and security of supply. New innovative solutions, careful planning at EU level and government support are required to address the challenges ahead.
• Investors expect and welcome further increase in ESG disclosures from issuers. ESG risks are being factored in their analysis, but the lack of data availability is a hurdle that should be swiftly addressed.

The Energy & Utility sectors are expected to become even more dynamic and growth-oriented than in the past.

We at UniCredit are proud to be one of the key contributors to this sector, acting as a strategic partner to our clients, with a vast experience build over many years.

We'd like to thank all our clients for their trust and daily cooperation and are looking forward to continuing our dialogue and support.

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