New nuclear, grid regulation key focuses of Q2 earnings for European utilities

Analysts expect investments in new nuclear and regulated networks to be among the key agenda items in the upcoming earnings season as European utilities prepare to announce second-quarter results.

CreditSights analysts noted increased interest in nuclear, highlighting France — Europe's largest nuclear generator — where the government is expected to clarify its funding model for up to 14 new reactors in late 2025 or early 2026.

State-owned utility Electricité de France SA is targeting a final investment decision (FID) by the end of 2026 on an initial six reactors, with the company's second-quarter earnings call July 24 being the first opportunity for analysts to quiz new CEO Bernard Fontana.

EDF is also building new nuclear capacity in the UK, having recently confirmed its intention to take a 12.5% equity stake in the 3,340-MW Sizewell C plant in Suffolk.

The plant, expected to reach FID in the summer, is also likely to be a focus for analysts on British utility Centrica PLC's second-quarter earnings call.

Centrica is widely expected to be involved in the Sizewell C equity consortium. The Financial Times reported July 9 that Centrica will take a 15% stake alongside the UK government, which will hold 47.5%, with Canada's Brookfield Corp. owning 25%, and EDF.

Morgan Stanley analysts noted July 7 that Centrica's shares have rallied almost 10% since mid-May on the "growing expectations of Centrica securing an attractive nuclear deal."

Beyond France and the UK, new nuclear is becoming a key topic in other European markets, according to CreditSights.

In the Czech Republic, the government "seems ready to proceed" with two new reactors at utility CEZ a.s.'s Dukovany plant after finalizing a construction contract with South Korea's Korea Hydro & Nuclear Power Co. Ltd.

Meanwhile, Sweden and Finland are in the early stages of exploring new nuclear — with Vattenfall AB and Fortum Oyj among the interested developers — and "even nuclear-free Italy is discussing small modular reactors," CreditSights said.

Nuclear is also a discussion topic in Spain, where utilities Iberdrola SA, Endesa SA and Naturgy Energy Group SA are in talks with the government over the potential extension of the country's existing fleet.

Grid regulation

Grid investments are likely to be a major focus for executives and analysts on second-quarter calls, given that regulatory reviews are underway in several key European markets.

In the UK, energy regulator Ofgem in early July issued draft proposals for investment in the country's transmission network over the next five-year regulatory period.

Utilities National Grid PLC, SSE PLC and Iberdrola, which between them control Britain's transmission grid, responded to the draft with a mix of strong criticism and cautious optimism.

Reviews are also ongoing in Germany, where regulator BNetzA has made "positive noises" on the post-2029 regulatory framework and allowed returns for grids, according to CreditSights. Analysts see that as a key talking point for German utility E.ON SE in particular.

Meanwhile, the Spanish regulator proposed a rate of return for electricity transmission and distribution over the next six-year regulatory period that was below what grid operators such as Iberdrola and Endesa had been calling for.

In general, recent indications by regulators on returns and spending have been "neutral at best, and underwhelming in some cases vs expectations," according to Morgan Stanley analysts.

"We do not expect these indications to derail the electricity network equity stories, as regulatory returns are still increasing vs previous periods, network investment is accelerating and regulatory packages usually improve from draft to final form," the analysts added.

Iberdrola interest

During the second quarter, Iberdrola became the first European utility to surpass a market capitalization of €100 billion.

The Spanish power giant also appointed a new CEO in Pedro Azagra, who previously led the company's US subsidiary, Avangrid Inc., and has been with Iberdrola for 25 years.

Analysts will be listening to Iberdrola's second-quarter call for commentary on Azagra's role, given that Executive Chairman Ignacio Galán, who has been at the helm since the early 2000s, relinquished the CEO position in 2022 but continues to drive strategy.

The April 28 blackout in Iberia, investigations into which are ongoing, will also be high on the agenda for analysts when it comes to questioning executives at Iberdrola and other Iberian utilities.

Other topics on the agenda include US renewables, with President Donald Trump in early July signing a sweeping budget reconciliation bill that unwinds key federal tax credits for wind and solar projects.

The news brought clarity after several weeks of back and forth and is expected to lead to a development frenzy as companies rush to meet new tax credit deadlines.

Analysts at Jefferies described the bill's passing as "largely positive" for those European renewables developers with US exposure — such as EDP Renováveis SA, Ørsted A/S, Engie SA and RWE AG — and added that it is "probably the first step forward that may chart the path for a broader recovery in these names."

Stable expectations

Several European utilities are expected to post lower earnings in the second quarter, according to an S&P Global Commodity Insights analysis of S&P Capital IQ consensus estimates for a select group of companies.

In general, however, analysts are bullish on the sector.

"Despite lower power prices in [the first quarter] the results of most utilities were supported by hedging strategies and stable performance in their regulated businesses," analysts at CreditSights said. "We expect [the second quarter] to follow a similar pattern, with the focus increasingly shifting toward the impact of rising [capital expenditure] on leverage metrics."

Morgan Stanley analysts are similarly expecting a "solid operational quarter."

"The sector remains largely insulated from trade tariff outcomes, currency fluctuations and geopolitical tensions," the analysts said. "In addition, energy policies remain largely supportive of long-dated capital allocation choices and the headwinds of previous years have mostly dissipated."