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Spain's Endesa cuts 2019 hydro power forecast after 28% Q1 decline

Barcelona — Spanish utility Endesa has revised down its expectations for full-year hydro power production after output fell 28% in the first quarter.

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The company told analysts on a conference call Tuesday it expected its 2019 hydro output in Spain to total around 6 TWh, down from a previous forecast of 7.2 TWh, after first-quarter generation fell to 1.4 TWh amid scarce water resources.

Overall, Q1 generation fell 8% year on year as the company's coal-fired generation fell 23%, ousted by natural gas amid a greater CO2 impact.

Endesa CEO Jose Bogas said the CO2 impact was equivalent to about Eur0.40/MWh (45 cents/MWh) on the wholesale price of gas and around Eur0.90/MWh on the wholesale price of coal.

Going forward, the company was expecting to reduce its coal footprint, replacing it with new renewable capacity of around 1 GW to come online in 2019 and a further 1 GW across 2020 and 2021.

Endesa expected that shift to renewables to reduce coal output to 13 TWh in 2020 from 16 TWh in 2019, while full year renewable (non hydro) output was seen rising to 7 TWh from 4 TWh.

The shift was also expected to impact the company's market prices.

It said it saw its 2020 hedge resulting in a figure of Eur72/MWh following the bringing online of the new renewable capacity and reducing coal-fired output, particularly as it was due to close around 2.1 GW of coal fired capacity fed by domestic coal mines by 2020.

That compared with 94% of its 2019 output, which has already been hedged at Eur73/MWh, a rise from its 2018 outcome of Eur67/MWh due principally to the effect of CO2 prices.

Endesa has hedged 46% of its 2020 output at Eur78/MWh, but the figure is likely to fall as volume is fixed with larger customers.

The company said its unitary power margin increased 16% in the first quarter to Eur28.40/MWh, aided by over-the-counter prices and the temporary suspension of generation tax.

Going forward, Endesa said it was unlikely the 7% generating tax that was suspended across Q4 2018 and Q1 2018 will be completely eliminated, however.

Indeed, it expected the bump in the margin to flatten out over the year to conclude 2019 at a level of Eur26/MWh, which would be Eur1/MWh above the forecast in its business plan.

For the long term, Endesa said it wanted to continue building renewables, with a target of 8 GW by 2030 and around 10%-15% of Spanish capacity, with a general shift to solar capacity which would cover around two thirds of its pipeline.

More immediately, the company said it has bid for around 200 MW of renewables that is to be awarded on the Canary Islands, with the process pending adjudication, and that it will also bid for around 100 MW set to be auctioned for the Balearic islands in July.

Bogas said he did not expect any material changes to the long-term regulatory outlook following an election in Spain at the end of last month.

All of the main parties have confirmed their support to the country's 2030 National Energy and Climate Plan, which proposes a near full closure of coal plants and a closure of around half the nuclear fleet by that date.

In the gas business, the company reported a 10% decline in first-quarter sales volume to 26 TWh amid a milder winter, which reduced retail sales by around 5% year on year to 21 TWh.

Additional, the unitary margin fell 21% year on year to Eur1.7/MWh, amid a reduction in opportunities on the international LNG market due largely to oversupply in the Asian market and weaker volumes for the company in France.

-- Gianluca Baratti, newsdesk@spglobal.com

-- Edited by Dan Lalor, daniel.lalor@spglobal.com