A host of high-profile regulatory changes and new laws are set to sweep through Europe's biggest energy markets this year, impacting everything from coal retirements and new renewables development to grid planning and the M&A landscape.

New renewable energy auctions are on the horizon in Italy and, potentially, Spain, where investor sentiment is increasingly buoyant following years of stagnation in the wind and solar market. Key legislation is also on the cards in Germany, where the government is expected to seal a phase-out of coal power with big implications for utilities. In the U.K., the governing Conservatives will be under pressure to deliver election promises of energy efficiency investments and higher offshore wind targets. And France's national utility is set to be transformed during 2020, with its nuclear power fleet potentially moving into full state ownership.

S&P Global Market Intelligence spoke to lawyers and consultants tracking these issues to break down what's in store for 2020.

This is one of four outlooks on the European power market compiled by S&P Global Market Intelligence. The other three focus on the onshore wind, solar and battery storage sectors.

Investor confidence put to the test in Spain

New regulated return rates for renewables could spur a healthy market for asset M&A deals in Spain this year, while a new government is expected to pass landmark legislation that could usher in new capacity auctions for wind and solar plants.

The country extended return rates for renewable plant owners by up to 12 years in November 2019, removing the uncertainty that was previously putting a dampener on deal activity. Large investors could now be looking to flip their investments and smaller solar parks built before the current boom are prime targets for aggregation, according to industry lawyers.

"With the new rate of return, there is more certainty on the value of these assets," said David Diez, a partner at Watson Farley & Williams. Maintaining pretax rates at above 7% has also given more confidence to investors in the overall stability of the market, Diez said.

Once a permanent government is in place, Spain's energy regulator is expected to crack down on the speculative market for grid connections, which could speed up approvals of unsubsidized greenfield projects. Also in the policy pipeline: the country's ambitious climate law, which will increase renewables targets and could include a framework for the first wind and solar auctions since 2017.

Uncertainty still persists over the gigawatts of coal plants due to close by June, however. Jorge Toral, a managing associate at Linklaters, said developers are keenly watching for the outcome of a disagreement between the regulator and the energy ministry over whether to auction off the spare grid connections or leave them in the hands of the big utilities like Endesa SA, Naturgy Energy Group SA and Iberdrola SA.

Grid operators are meanwhile reckoning with a lower rate of return for power and gas networks, approved in mid-December 2019. Although the cuts were softer than originally proposed, some companies could decide to file claims against the regulator's decision, Toral said.

Germany awaits key legislation on coal exit, renewables

A key topic for Germany's energy sector in 2020 is the government's climate package, which the wind industry is watching closely for its implications on the distance requirements for onshore wind turbines. The bulk of the legislation, drafted in September, was passed in late December 2019, but elements relating to renewable energy are yet to be decided and expected to be wrapped into separate legislation in early 2020.

"I can imagine that there will be blanket distance requirements," said Daniel Breuer, an energy lawyer at Osborne Clarke. "But we need other solutions, this is a public acceptance issue."

Most auctions for onshore wind have been significantly undersubscribed in 2019, a trend Breuer expects to continue in 2020. "The entire industry is screaming out at lawmakers [to] do something" to reinvigorate the sector, Breuer said, adding that political interest will likely shift towards offshore wind, which the government plans to expand to 20 GW by 2030.

Germany will also lay out its plans for an exit from coal power generation in 2020, which it intends to complete by 2038. The plan is said to include closing 4 GW of hard coal power this year. The government has reportedly allocated only €1 billion as compensation for lignite capacity closures, much less than demanded by the industry.

In terms of power project finance, new large-scale solar projects will increasingly be underpinned by power purchase agreements, or PPAs, with private off-takers, Breuer said, while smaller developments will still focus on participating in auctions.

In the renewables supply chain, there may be more M&A developments. "Investors are seizing the chance to enter into existing ventures at good prices," Breuer said. The German market underwent some consolidation in 2019, with Senvion SA selling parts of its business to Siemens Gamesa Renewable Energy SA.

France to nationalize its nukes, transform EDF

In France, 2020 will see the restructuring of state-backed utility Electricité de France SA, or EDF, which is expected to fully nationalize its nuclear fleet and wrap its distribution networks, renewables and supply business into a separate listed entity.

"EDF will evolve from a utility to a company focusing on services, open to more international opportunities," said Stéphane Gasne, partner at Pinsent Masons. He also expects the company to make new investments in off-grid solar and electric vehicle charging infrastructure.

Two units at the Fessenheim nuclear power plant will be shut by June 2020, with operator EDF set to receive €400 million in compensation for closing down the country's oldest nuke. France will also close its last coal power plants by 2022.

The country's energy regulator, CRE, has announced several auctions for solar projects, with the winners decided in 2020. The government will also back two new floating wind projects, said Gasne, as well as vehicle-to-grid charging technology and battery storage projects.

France plans to complete a consultation on a 1-GW offshore wind farm off its northern coast in Normandy by May 2020, which it said would help the country achieve its goal of generating 33% of its power from renewables by 2030. President Emmanuel Macron said in November 2018 that four offshore wind tenders would take place by 2030, but the next will not take place until after 2020.

New subsidy regime in Italy revives wind market

Italy ended the decade with a new auction regime for renewables, with results from the first tender expected early this year and six more rounds scheduled for the next two years. Experts predict volumes will be dominated by onshore wind, since solar projects on agricultural land are excluded from the auctions.

"This will pave the way for a new wave of greenfield renewable projects," said Carloandrea Meacci, managing partner at Ashurst.

The industry hopes the tenders will lead to sustained growth in the market and revive activity among domestic developers, but that will depend on whether investors can secure regional planning permits for their projects in time, according to Pierpaolo Mastromarini, a partner at Bird & Bird. "The first two, maximum three auctions will be cornered by the projects that were already authorized," he said.

On the solar side, developers are continuing a surge in unsubsidized development. "I've seen an unprecedented level of appetite by international investors in unsubsidized Italian solar projects," Meacci said.

That also means that PPAs are "the big question for the next year," he added, as the route to market for project-financed parks, in particular. Although buyers and sellers have so far taken a "wait and see" approach, a steady stream of tender volumes could spur an uptick in contract negotiations.

Most of the PPAs are likely to be signed with utilities and traders, but Mastromarini said the regulator is expected to consider relaxing rules that currently prevent virtual PPAs so that a developer in Italy could deliver power to a data center or other corporate customer elsewhere in Europe.

UK energy policy shaped by new government

The U.K. will see its energy policy shaped by a new government, after the Conservative party won the country's general election on Dec. 12, 2019.

The Conservative manifesto includes "significant measures for energy efficiency, often overlooked but crucial to reach the decarbonization target," said Daniel Atzori, research partner at consultancy Cornwall Insight. Another core pillar for the next government's energy plan will be battery storage, Atzori said.

Offshore wind has been a success story in the U.K., which has created a "market friendly environment" for renewables, Atzori said. The latest round of auctions in September 2019 resulted in record low strike prices. During 2020, the tendering process for the fourth round of auctions will begin, with the winners announced in 2021. Prime Minister Boris Johnson also bumped up the country's offshore wind development target by 10 GW to 40 GW by 2040.

Atzori expects planning for the achievement of the U.K.'s net-zero target by 2050 to intensify this year. The COP26 climate change summit, taking place in Glasgow, Scotland, in November, "will be another driver of change," he said.

Electric mobility is also set to be on the agenda. "There will be a lot of discussion about smart charging," and about moving from "consumer to prosumer" with the increased adoption of demand-side technologies, said Atzori. The topic featured in the Conservatives' manifesto, albeit not nearly as much as the country's exit from the European Union, which is looming large.

"It's still very difficult to forecast what's going to happen after Brexit" in the U.K. power market, Atzori said. The exit itself, currently scheduled for Jan. 31, is not going to end that uncertainty, but the trade agreement the U.K. makes with the bloc will make things clearer. If a deal is reached, the government intends to stay in the EU Emissions Trading System until the end of the year, while a new carbon tax would be introduced in a no-deal outcome.