Europe’s electricity and gas grids face threats from renewables, a leading credit rating agency has found.

By Anders Lorenzen

New damning research from Moody’s, the leading credits rating agency, has found that the rapid move towards decarbonisation in Europe brings significant risks to the continent`s gas and electricity networks.

This is of course due to the shift in renewables. According to Moody´s, our national grids are unprepared to deal with this shift.

Stefanie Voelz, Vice President and Senior Credit Officer at Moody’s comments: “The shift to renewables in Europe has thrown up different challenges for the region’s energy network operators, with the huge uptick in renewables-related investment into electricity networks posing execution risks, while the move to decarbonisation casts doubt over the long-term use of natural gas and the networks that distribute it”.

Clean energy enthusiasts would welcome this research. It clearly shows that renewables are in fact disrupting both the fossil fuel industry and the conventional model of the electricity market, just as campaigners for years have predicted.

In the report, which was published in June, Moody’s found that the move could undermine the credit quality of electricity and gas networks over time, due to changing business models and technology innovations.

Disruption of the sector is at the heart of the challenge, as the report found that large scale energy network operators may be slow to adapt to the changing generation and consumption landscape. Electricity users are becoming (partially) independent of the grid, as they increasingly operate their own renewable generation and/or storage units. On top of that, the growing electrification of transport or heating could significantly change network requirements.

These ongoing developments could lead to sector fragmentation and they could potentially threaten existing network operators. However, their role as system operators — whereby they coordinate the efficient use of power generated by widely distributed, independent sources and ensure supply security on a wider level — may become more important, the report set out.

The regulatory response to the renewables shift will be a key to the future evolution of the energy network sector. The change in scope of activities, in an environment of the significant technological shifts, could necessitate changes in the way European networks are remunerated and customers tariffs are set, in order that credit quality is maintained.

The report states that affordability will remain a key focus for network operators, as cost pressures increase on consumers. With the investment requirements remaining high, leading to growth in companies’ assets base beyond 2020, pressure on customer bills will rise. Even though a marginal issue, the report surprisingly states that renewable subsidies continue to weigh on bills. And the report stresses that affordability concerns could lead to deferral of cost and investment recovery for networks, a credit negative.

It appears that the financial world is gradually waking up to the huge impact of renewables, good and bad, and the energy business models as we know them will for sure change, with consumer behaviour driving this.