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TTF one-year forward

price was 16 €/MWh

on Jan. 7, 2020

TTF one-year forward

price hit 281 €/MWh

on Aug. 25, 2022

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors

should be aware that the ﬁrm may have a conﬂict of interest that could affect the objectivity of this report. Investors

should consider this report as only a single factor in making their investment decision. For Reg AC certiﬁcation and other

important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by

non-US afﬁliates are not registered/qualiﬁed as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

EQUITY RESEARCH | September 04, 2022 | 11:00 PM EDT

Ajay Patel

+44 20 7552-1168

ajay.patel@gs.com

Goldman Sachs International

Mathieu Pidoux

+44 20 7051-4752

mathieu.pidoux@gs.com

Goldman Sachs International

Following the spike in gas and power prices since mid-June, we believe that the

Energy Crisis, and in particular affordability, has reached a tipping point, likely

requiring signiﬁcant policy intervention. In our view, the market continues to

underestimate the depth, the breadth and the structural repercussions of

the crisis – we believe these will be even deeper than the 1970s oil crisis. At current

forward prices, we estimate that energy bills will peak early next year at

c.€500/month for a typical European family, implying a c.200% increase vs. 2021.

For Europe as a whole, this implies a c.€2 tn surge in bills, or c.15% of GDP, we

estimate.

We believe the market is overly negative on regulatory risk and believe that

near-term solutions could be a major clearing event. We see scope for the

introduction of price caps in power generation, which we estimate could save

Europe c.€650 bn pa. Yet, price caps would not fully solve the affordability issue: this

is why the introduction of a “tariff deﬁcit” might eventually be needed, to spread

the spike in bills over 10-20 years and allowing Utilities to securitize these future

payments.

Towards a new market design and full electriﬁcation. We present structural

solutions, including a new market design in power generation – to decouple gas

prices from the remuneration of ﬁxed-cost generation sources (hydro, nuclear, wind,

solar) – and an acceleration in the electriﬁcation of the economy. The deﬂationary

effect of RES sources could lower energy bills by c.75% vs. current levels and

make future energy costs more stable.

Sector implications. We believe the market is exaggerating regulatory concerns in

power generation, the more so given indications reported in QE and Reuters

(September 1), which suggest that the EU is planning to recommend the

introduction of price caps, and the elimination of windfall taxes. This would be a

positive development, we believe.

The Energy Aordability Crisis:

Quantication, Solutions, Implications

Simon Bergmann

+44 20 7552-8588

simon.bergmann@gs.com

Goldman Sachs International

Alberto Gandolﬁ

+39 02 8022-0157

alberto.gandolﬁ@gs.com

Goldman Sachs Bank Europe SE -

Milan branch

Mafalda Pombeiro

+44 20 7552-9425

mafalda.pombeiro@gs.com

Goldman Sachs International

Note: The following is a redacted version of the original report published September 4, 2022 [49 pgs].

Executive Summary 4

Quantifying the affordability issue: Consumers are being squeezed

Windfall taxes debate is misplaced 16

Likely solutions and why the market appears overly-negative

Tariff deﬁcit would minimize the impact on consumers

RES are part of the solution to the affordability problem

Electriﬁcation could cut household energy bills by c.75%

Stock negatives may be meaningful, but temporary

The positives are structural

Disclosure Appendix 38

4 September 2022 2

Goldman Sachs European Utilities

Table of Contents

4 September 2022 3

Goldman Sachs European Utilities

Following the spike in gas and power prices since mid-June, we believe that the Energy

Crisis, and in particular affordability, has reached a tipping point, likely requiring

signiﬁcant policy intervention. In our view, the market continues to underestimate the

depth, the breadth and the structural repercussions of the crisis – we believe these will

be even deeper than the 1970s oil crisis. At current forward prices, we estimate that

energy bills will peak early next year at c.€500/month for a typical European family,

implying a c.200% increase vs. 2021. For Europe as a whole, this implies a c.€2 tn

surge in bills, or c.15% of GDP.

We believe the market is overly negative on regulatory risk as currently Utilities do

not enjoy any windfall proﬁt: owing to hedges, 2022 earnings largely reﬂect the

commodity backdrop of one/two years ago. Thus, most ad hoc measures would limit

future increases in power generation proﬁts, as opposed to lowering current earnings.

Also, in the context of a +€2 tn increase in energy bills, even eliminating the bottom

line of the sector (c.€30 bn for 2022E) would only contribute to solving c.1% of the

problem, leaving 99% unresolved.

Near-term solutions could be a major clearing event: price caps and tariff deﬁcit.

We see scope for the introduction of price caps in power generation, which we

estimate could save Europe c.€650 bn pa. Yet, price caps would not fully solve the

affordability issue: the increase in energy bills would still be of +€1.3 tn, or c.10% of

GDP, we estimate. This is why the introduction of a “tariff deﬁcit” might eventually be

needed, to spread the spike in bills over 10-20 years and allowing Utilities to securitize

these future payments.

Towards a new market design and full electriﬁcation. We present structural

solutions, including a new market design in power generation – to decouple gas prices

from the remuneration of ﬁxed-cost generation sources (hydro, nuclear, wind, solar) –

and an acceleration in the electriﬁcation of the economy. The deﬂationary effect of RES

sources could lower energy bills by c.75% vs. current levels, while the ﬁxed-cost

nature of RES would make future energy costs more stable.

Sector implications. We believe the market is exaggerating regulatory concerns in

power generation, the more so given indications reported in QE and Reuters

(September 1), which suggest that the EU is planning to recommend the introduction of

price caps, and the elimination of windfall taxes. This would be a positive development,

we believe. At the same time, investors appear to be ignoring the structural positives,

such as the urgent need to accelerate electriﬁcation investments.

/42

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TTFone-yearforwardpricewas16€/MWhonJan.7,2020TTFone-yearforwardpricehit281€/MWhonAug.25,2022GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheﬁrmmayhaveaconﬂictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertiﬁcationandotherimportantdisclosures,seetheDisclosureAppendix,orgotowww.gs.com/research/hedge.html.Analystsemployedbynon-USafﬁliatesarenotregistered/qualiﬁedasresearchanalystswithFINRAintheU.S.TheGoldmanSachsGroup,Inc.EQUITYRESEARCHSeptember04,202211:00PMEDTAjayPatel+44207552-1168ajay.patel@gs.comGoldmanSachsInternationalMathieuPidoux+44207051-4752mathieu.pidoux@gs.comGoldmanSachsInternationalFollowingthespikeingasandpowerpricessincemid-June,webelievethattheEnergyCrisis,andinparticularaffordability,hasreachedatippingpoint,likelyrequiringsigniﬁcantpolicyintervention.Inourview,themarketcontinuestounderestimatethedepth,thebreadthandthestructuralrepercussionsofthecrisis–webelievethesewillbeevendeeperthanthe1970soilcrisis.Atcurrentforwardprices,weestimatethatenergybillswillpeakearlynextyearatc.€500/monthforatypicalEuropeanfamily,implyingac.200%increasevs.2021.ForEuropeasawhole,thisimpliesac.€2tnsurgeinbills,orc.15%ofGDP,weestimate.Webelievethemarketisoverlynegativeonregulatoryriskandbelievethatnear-termsolutionscouldbeamajorclearingevent.Weseescopefortheintroductionofpricecapsinpowergeneration,whichweestimatecouldsaveEuropec.€650bnpa.Yet,pricecapswouldnotfullysolvetheaffordabilityissue:thisiswhytheintroductionofa“tariffdeﬁcit”mighteventuallybeneeded,tospreadthespikeinbillsover10-20yearsandallowingUtilitiestosecuritizethesefuturepayments.Towardsanewmarketdesignandfullelectriﬁcation.Wepresentstructuralsolutions,includinganewmarketdesigninpowergeneration–todecouplegaspricesfromtheremunerationofﬁxed-costgenerationsources(hydro,nuclear,wind,solar)–andanaccelerationintheelectriﬁcationoftheeconomy.ThedeﬂationaryeffectofRESsourcescouldlowerenergybillsbyc.75%vs.currentlevelsandmakefutureenergycostsmorestable.Sectorimplications.Webelievethemarketisexaggeratingregulatoryconcernsinpowergeneration,themoresogivenindicationsreportedinQEandReuters(September1),whichsuggestthattheEUisplanningtorecommendtheintroductionofpricecaps,andtheeliminationofwindfalltaxes.Thiswouldbeapositivedevelopment,webelieve.TheEnergyAffordabilityCrisis:Quantification,Solutions,ImplicationsSimonBergmann+44207552-8588simon.bergmann@gs.comGoldmanSachsInternationalAlbertoGandolﬁ+39028022-0157alberto.gandolﬁ@gs.comGoldmanSachsBankEuropeSE-MilanbranchMafaldaPombeiro+44207552-9425mafalda.pombeiro@gs.comGoldmanSachsInternationalNote:ThefollowingisaredactedversionoftheoriginalreportpublishedSeptember4,2022[49pgs].ExecutiveSummary4Quantifyingtheaffordabilityissue:Consumersarebeingsqueezed11Windfalltaxesdebateismisplaced16Likelysolutionsandwhythemarketappearsoverly-negative19Tariffdeﬁcitwouldminimizetheimpactonconsumers23RESarepartofthesolutiontotheaffordabilityproblem25Electriﬁcationcouldcuthouseholdenergybillsbyc.75%28Stocknegativesmaybemeaningful,buttemporary31Thepositivesarestructural34DisclosureAppendix384September20222GoldmanSachsEuropeanUtilitiesTableofContents4September20223GoldmanSachsEuropeanUtilitiesFollowingthespikeingasandpowerpricessincemid-June,webelievethattheEnergyCrisis,andinparticularaffordability,hasreachedatippingpoint,likelyrequiringsigniﬁcantpolicyintervention.Inourview,themarketcontinuestounderestimatethedepth,thebreadthandthestructuralrepercussionsofthecrisis–webelievethesewillbeevendeeperthanthe1970soilcrisis.Atcurrentforwardprices,weestimatethatenergybillswillpeakearlynextyearatc.€500/monthforatypicalEuropeanfamily,implyingac.200%increasevs.2021.ForEuropeasawhole,thisimpliesac.€2tnsurgeinbills,orc.15%ofGDP.WebelievethemarketisoverlynegativeonregulatoryriskascurrentlyUtilitiesdonotenjoyanywindfallproﬁt:owingtohedges,2022earningslargelyreﬂectthecommoditybackdropofone/twoyearsago.Thus,mostadhocmeasureswouldlimitfutureincreasesinpowergenerationproﬁts,asopposedtoloweringcurrentearnings.Also,inthecontextofa+€2tnincreaseinenergybills,eveneliminatingthebottomlineofthesector(c.€30bnfor2022E)wouldonlycontributetosolvingc.1%oftheproblem,leaving99%unresolved.Near-termsolutionscouldbeamajorclearingevent:pricecapsandtariffdeﬁcit.Weseescopefortheintroductionofpricecapsinpowergeneration,whichweestimatecouldsaveEuropec.€650bnpa.Yet,pricecapswouldnotfullysolvetheaffordabilityissue:theincreaseinenergybillswouldstillbeof+€1.3tn,orc.10%ofGDP,weestimate.Thisiswhytheintroductionofa“tariffdeﬁcit”mighteventuallybeneeded,tospreadthespikeinbillsover10-20yearsandallowingUtilitiestosecuritizethesefuturepayments.Towardsanewmarketdesignandfullelectriﬁcation.Wepresentstructuralsolutions,includinganewmarketdesigninpowergeneration–todecouplegaspricesfromtheremunerationofﬁxed-costgenerationsources(hydro,nuclear,wind,solar)–andanaccelerationintheelectriﬁcationoftheeconomy.ThedeﬂationaryeffectofRESsourcescouldlowerenergybillsbyc.75%vs.currentlevels,whiletheﬁxed-costnatureofRESwouldmakefutureenergycostsmorestable.Sectorimplications.Webelievethemarketisexaggeratingregulatoryconcernsinpowergeneration,themoresogivenindicationsreportedinQEandReuters(September1),whichsuggestthattheEUisplanningtorecommendtheintroductionofpricecaps,andtheeliminationofwindfalltaxes.Thiswouldbeapositivedevelopment,webelieve.Atthesametime,investorsappeartobeignoringthestructuralpositives,suchastheurgentneedtoaccelerateelectriﬁcationinvestments.ExecutiveSummaryFollowingthespikeinEuropeangasandpowerpricessincemid-June,webelievethattheEnergyCrisis,andinparticularaffordability,hasreachedatippingpoint,likelyrequiringsigniﬁcantpolicyintervention.Inourview,themarketcontinuestounderestimatethedepth,thebreadthandthestructuralrepercussionsofthecrisis–webelievetherepercussionswillbeevendeeperthanthe1970soilcrisis.Atcurrentforwardprices,weestimatethatenergybillswillpeakearlynextyearatc.€500/monthforatypicalEuropeanfamily,implyingc.200%increasevs.2021.ForEuropeasawhole,thisimpliesac.€2tnsurgeinenergybills,orc.15%ofGDP.Webelievethemarketisexaggeratingregulatoryconcernsinpowergeneration,themoresogivenindicationsreportedinQEandReuters(September1),whichsuggestthattheEUisplanningtorecommendtheintroductionofpricecaps,andtheeliminationofwindfalltaxes.Thiswouldbeaverypositivedevelopment,webelieve.Atthesametime,investorsappeartobeignoringthestructuralpositives,suchastheurgentneedtoaccelerateelectriﬁcationinvestments.Consumerssoontospendc.€500/monthonpowerandgasFormostfamiliesandindustrialcustomers,energybillsarerenegotiatedeverytwelvemonths;onourestimates,energybillsformostconsumerswillpeakthiswinter.Weestimateac.€500/monthcostforpowerandgascurrently,implyingac.200%increasevs.2021whenaveragebillswerec.€160/month.Energybillscouldapproach€600/monthinazeroﬂows(fromRussia)scenariowebelieve.4September20224GoldmanSachsEuropeanUtilitiesForEuropeasawhole,assumingthesamemagnitudeofincrease,thiswouldbeequivalenttoanear+c.€2tnincreaseingasandpowerspending(equivalenttoc.15%ofGDP).ThefollowingExhibitshowsasensitivityanalysisinthesurgeinenergybillsforEurope,dependingonthedevelopmentofgasandpowerprices.Exhibit1:Basedoncurrentforwardcurves,householdenergybillsinItalycouldreachnearly€500/monthItalianpowerandgashouseholdbillsevolution(€/month)57601031461939798215333402154157318479596202020212022E2023EZeroflowsPowerGas+c.200%+c.250%Source:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit2:ForEuropeasawhole,theincreaseinenergycostsbetween2021and2023couldapproach€2tnEurope’sincreaseinenergycostscalculation(TWh,€/MWhand€bn)PowerGasEnergyConsumptionTWh3,3005,500-ConsumptionadjforCCGTsTWh3,3004,125-Energypricein2021€/MWh7527-Currentenergyprice€/MWh450200-Energybillsincrease2021-now€bn1,2387141,951Source:GoldmanSachsGlobalInvestmentResearch4September20225GoldmanSachsEuropeanUtilitiesExhibit3:Europe’senergybillscouldsurgebyc.€1-4trillionvs2021,dependingontheevolutionofgas/powerpricesSurgeinEurope’sgas/powerbillsvs2021(powerat€75/MWh,gasat€27/MWh)EUEnergybillsincreasevs2021(€bn)PowerGasEnergyGas€100/MWh,Power€250/MWh578301879Gas€150/MWh,Power€350/MWh9085071,415Gas€200/MWh,Power€450/MWh1,2387141,951Gas€250/MWh,Power€550/MWh1,5689202,487Gas€300/MWh,Power€650/MWh1,8981,1263,024Gas€350/MWh,Power€750/MWh2,2281,3323,560Gas€400/MWh,Power€850/MWh2,5581,5394,096Source:GoldmanSachsGlobalInvestmentResearchWindfalltaxes:focusappearsmisplacedAsdescribedabove,theincreaseinenergybillsforEuropeimpliedbycurrentforwardcurvesisc.€2tn;asareference,EuropeanUtilitiesgeneratec.€30bnofnetincomeperyear,globallyandacrossdivisions(includingregulatedactivities).Inthiscontext,eveneliminatingtheUtilities’bottomlinewouldmitigateonlyc.1%oftheincreaseinbillsweanticipate,whileharmingprivateinvestmentinenergysecurityandcompromisingtheREPowerEUplan.4September20226GoldmanSachsEuropeanUtilitiesNear-termsolutions:pricecapsandtariffdeﬁcitWeseescopefortheintroductionofpricecapsinpowergeneration,whichweestimatecouldsaveEuropec.€650bninpowerbillspa.ThesecouldfollowtheexamplesetinSpain,wheretherearetwoco-existingcaps:(1)acapongaspricesthatCCGTsarepermittedtotranslatetotheelectricityprice(c.€70/MWhg,whichcompareswithcurrentTTFlevelsofc.€200/MWhg);and(2)acaponthelevelofremunerationﬁxed-costtechnologies(hydro,nuclear,wind,solar)areallowedtoreceive(c.€75/MWh).Exhibit4:PotentialwindfallproﬁtsarecreatedinrisinggaspriceenvironmentsImpactfromrisinggaspricesonpowersupplycurve(€/MWh)Exhibit5:AtemporarypricecapongasledtoadecouplingoftheSpanishforwardcurvefromthoseoftherestofEuropeForward(1-year)powerpriceevolution,byregion(€/MWh)050100150200250300350400450SolarWindHydroNuclearGasTTF@30GasTTF@200PotentialwindfallprofitPowerpriceat€425/MWhPowerpriceat€90/MWh010020030040050060070003-Jan02-Feb04-Mar03-Apr03-May02-Jun02-Jul01-AugRestofEurope(ItalyandGermany)Spainc.€250c.€450Source:GoldmanSachsGlobalInvestmentResearchSource:Bloomberg,GoldmanSachsGlobalInvestmentResearch4September20227GoldmanSachsEuropeanUtilitiesHowever,pricecapswouldnotfullysolvetheaffordabilityissue:theincreaseingasandpowerbillswouldstillbe+€1.3tn,orc.10%ofGDP,weestimate.Thisiswhytheintroductionofa“tariffdeﬁcit”mighteventuallybeneeded,tospreadtherecentspikeinbillsover10-20years,andallowingtheUtilitiestosecuritizepromptlythesefuturepayments.Althoughthisschemewouldlimitdemanddestruction,webelieveitwouldsmooththeincreaseintariffs,limitthenear-termdeclineinindustrialproduction,andlargelydefuseregulatoryrisk.TowardsanewmarketdesignandfullelectriﬁcationWepresentstructuralsolutions,includinganewmarketdesigninpowergeneration–todecouplegaspricesfromtheremunerationofﬁxed-costgenerationsources(hydro,nuclear,wind,solar)–andanaccelerationintheelectriﬁcationoftheeconomy.Thedeﬂationaryeffect(andtheﬁxed-costnature)ofRESsourcescouldlowerenergybillsbyc.75%vs.currentlevels,whiletheﬁxed-costnatureofRESwouldmakefutureenergycostsmorestable.Exhibit6:Tariffdeﬁcitwouldspreadthesamecostforgasbills,overamuchlongerperiod,asseeninthisexampleforItalyItalymonthlygasbillsperhouseholdevolution,averagepermonth(€/month)050100150200250300350400450500202120222023202420252026202720282029203020312032203320342035203620372038203920402041CurrentschemeTariffDeficitSource:GoldmanSachsGlobalInvestmentResearch,Eurostat4September20228GoldmanSachsEuropeanUtilitiesExhibit7:Merchant,ﬁxed-costactivitiesbeneﬁtfromrisinggas/powerprices,withoutanyimpactonthecostbaseImpactfromrisinggaspricesonpowersupplycurve(€/MWh)0100200300400500600700SolarWindHydroNuclearGasTTF@30GasTTF@300PotentialwindfallprofitPowerpriceat€620/MWhPowerpriceat€90/MWhSource:GoldmanSachsGlobalInvestmentResearchIndustryimplications:near-termnegativesvs.structuralpositivesWebelievethemarketisexaggeratingregulatoryconcernsinpowergeneration,themoresogivenindicationsreportedinQEandReuters(September1),whichsuggestthattheEUisplanningtorecommendtheintroductionofpricecaps,andtheeliminationofwindfalltaxes.Thiswouldbeaverypositivedevelopment,webelieve.Additionally,weseemostofthenegativesfromtheperspectiveoftheutilities(regulatoryrisk,demanddestruction)astemporary,whilethepositives(agreenenergycapexsuper-cycleandhigher-for-longerenergyprices)appearmorestructural.Stockconclusions:wefavourRESandlookforregulatoryinﬂectionpointsInourview,pricecapsmightinfactproveanear-termrelief,especiallyifcoupledwitharecommendationfortheeliminationofallotherwindfalltaxes,asreportedintheReutersarticlementionedabove.Structurally,higher-for-longerenergypricesand(broadlyspeaking)thestrongneedtoaccelerateinvestmentsdriveourstrongpreferenceforcompanieswithaRESdeveloperfocus.Certainpowergeneratorsmaybeneﬁttoofromtheabove-mentionedclearingevent,whilstothersmoreexposedtospotsalescouldfacesometop-linepressure.Whileregulatoryinterventionremainsarisk(itmayeaseonceenergybillshavepeakedthiswinter),webelievetheintroductionofatariffdeﬁcitwouldbeamajorpositiveasitwouldmeaningfullyreducethisrisk.4September20229GoldmanSachsEuropeanUtilitiesWhat’spricedinnRenewablegenerators.TheREPowerEUplanidentiﬁesrenewablesasakeytooltoachieveenergysecurity.Thereformofpermittingcouldfast-tracktheconversionofpipelinesintorealmegawatts.Complyingwiththeplanwouldrequiremorethan€1tnofinvestmentinwindandsolar,by2030,weestimate.TheUSIRAplancouldseefurtherupsidetothisﬁgure.nSuppliers.Supplyactivitiesarecurrentlyseenasveryhighriskbythemarket,owingtoanumberofthreats(regulatoryintervention,risingbaddebts,thepotentialofincurringtradinglosses).AlthoughtheseactivitiesmayrepresentarelativelylimitedpartoftheportfoliosofcertainintegratedUtilities,Supplyactivitiesrepresentthelion’sshareofgrouprevenues.Assuch,webelievethatanyeventthatremovesregulatoryconcernscouldquicklydriveaturnaroundinperceptions.Wearguethat,givenongoingdemanddestructioningas(inGermanyaboveall),andthepotentialforrationing,someofthesesupplyportfolioscouldultimatelyproveover-hedged.Sellinganyexcessgas(orpower)inthemarketcouldleadtomeaningful(one-off)gains.4September202210GoldmanSachsEuropeanUtilitiesQuantifyingtheaffordabilityissue:ConsumersarebeingsqueezedFormostfamiliesandindustrialcustomersinEurope,energybillsarerenegotiatedeverytwelvemonths;onourestimates,energybillsformostconsumerswillpeakthiswinter:weestimateac.€500/monthforpowerandgas,implyingac.200%increasevs.2021(billswerec.€160/month).Energybillscouldapproach€600/monthinazeroﬂows(fromRussia)scenario.ForEuropeasawhole,thiswouldbeequivalenttoanear+c.€2tnincreaseingasandpowerspending(equivalenttoc.15%ofGDP,weestimate).Householdscouldseetheirmonthlyspendrisetoc.€500/monthSinceJanuary2020,1-yearforwardgasandpowerprices–usuallythereferencewhensigningnewenergysupplycontractsforfamiliesorindustrialcustomers–haveeachincreasedbymorethan13x.Thefollowingexhibitshowsthisevolution,rebasedto100.Thetwoexhibitsbelowshowtheevolutionofgasandpowerpricesinabsoluteterms.Ascanbeseen,theGerman1-yearforwardpriceiscurrentlyc.€600/MWh,fromjustover€40/MWhtwoyearsago.OthercountriesinEuropehaveseenasimilarevolution.Gas(TTF)isnowatc.€240/MWh,from€16/MWhinearly2020.Exhibit8Sinceearly2020,1-yearforwardgasandpowerpriceshaveincreasedbymorethan13xGermanypowerandTTF1-yearforwardpriceevolution(rebasedto100)02004006008001,0001,2001,4001,6001,8002,000Jan-20May-20Sep-20Jan-21May-21Sep-21Jan-22May-22Germany1YforwardpowerpriceTTF1YforwardpriceSinceJan2020,1YGermanypowerpriceandTTFhaveincreasedmeaningfully,by>13xAsofAugust31,2022Source:Bloomberg,GoldmanSachsGlobalInvestmentResearch4September202211GoldmanSachsEuropeanUtilitiesOnourestimates,in2021,theaverageItalianfamilyspentabout€160/monthonpowerandgasconsumption,orlessthan€2,000peryear.Thecurrentforwardcurvessuggestthatthemarginalrenegotiationisatacostofc.€500/month,ac.200%increasefromthe2021level.Energybillscouldapproach€600/monthinazeroﬂows(fromRussia)scenario,weestimate.Theexhibitbelowshowsthatgaswouldbethemaincontributortotheincreaseinhouseholdenergybills,representingmorethantwo-thirdsofit.Exhibit9:Currently,theGermanpowerpriceisc.€600/MWh,fromjustover€40/MWhinearly2020Germany1-yearforwardpowerpriceevolution(€/MWh)Exhibit10:ThegasTTFpriceisnowc.€240/MWh,fromc.€16/MWhinJan2020TTF1-yearforwardpriceevolution(€/MWh)01002003004005006007008009001000Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22c.€600/MWhc.€40/MWh050100150200250300Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22c.€240/MWhc.€16/MWhAsofAugust31,2022Source:BloombergSource:BloombergExhibit11:Basedoncurrentforwardcurves,householdenergybillsinItalycouldreachnearly€500/monthby2023Italianpowerandgashouseholdbillsevolution(€/month)57601031461939798215333402154157318479596202020212022E2023EZeroflowsPowerGas+c.200%+c.250%Source:Eurostat,GoldmanSachsGlobalInvestmentResearch4September202212GoldmanSachsEuropeanUtilitiesThefollowingexhibitshowstheevolutionofgas/powerbills,asapercentageofhouseholds’disposableincome,forEurope.Asareference,overthelastdecade(including2020),energybillshaverepresentedc.7%ofhouseholds’incomeintheregion.Atcurrentpowerandgaspriceshowever,thispercentagecouldsigniﬁcantlyincreaseoverthenextfewyears.Asperbelow,ifweassumeconstanthouseholdincomesto2023(at2020levels)andcurrentforwardcurves,energybillscouldrepresentmorethan20%ofhouseholds’disposableincomebythen,>3xthecurrentlevel.Exhibit12:Onourmark-to-marketestimates,gaswillaccountforabouttwo-thirdsoftheaveragemonthlyenergybillpaymentTypicalItalianhouseholdenergybillbreakdownbysource,2023E(percentage)Electricity30%Gas70%Householdenergybillc.€500/month(c.€6,000/year)Source:GoldmanSachsGlobalInvestmentResearchExhibit13:Atcurrentgas/powerprices,energybillscouldrepresent>20%ofhouseholds’disposableincomeby2023,weestimateEUhouseholds’energybillsovergrossdisposableincomeevolution(percentage)7%8%15%23%202020212022E2023EEUaveragecalculatedasanaverageofGermany,Spain,FranceandItalySource:Eurostat,GoldmanSachsGlobalInvestmentResearch4September202213GoldmanSachsEuropeanUtilitiesTheenergycrisiscouldcostEuropec.€2tninhigherenergybillsForEuropeasawhole,weestimatethattheincreaseinenergycoststhrough2021-23couldapproach€2tn,equivalenttoc.15%oftheregion’sGDP.ThefollowingExhibitshowsasensitivityanalysisinthesurgeinenergybillsforEurope,dependingonthedevelopmentofgasandpowerprices.Ifcurrent1-yearforwardpricesremainunchangedforthecomingsixmonths,weestimatethatsupplycontractrenegotiationswouldlifttheEU’spowerandgasunitarybillsbyc.200%,vs.2021.Asareference,theexhibitsbelowshow(usingItalyasanexample)theunitarycostofenergy(€/MWh)evolutionofgasandelectricity,forbothindustrialusersandhouseholds.Exhibit14:ForEuropeasawhole,theincreaseinenergycoststhrough2021-23couldapproach€2tn,weestimateEurope’sincreaseinenergycostscalculation(TWh,€/MWhand€bn)PowerGasEnergyConsumptionTWh3,3005,500-ConsumptionadjforCCGTsTWh3,3004,125-Energypricein2021€/MWh7527-Currentenergyprice€/MWh450200-Energybillsincrease2021-now€bn1,2387141,951Source:GoldmanSachsGlobalInvestmentResearchExhibit15:Europe’senergybillscouldsurgebyc.€1-4trillionvs2021,dependingontheevolutionofgas/powerpricesSurgeinEurope’sgas/powerbillsvs2021(powerat€75/MWh,gasat€27/MWh)EUEnergybillsincreasevs2021(€bn)PowerGasEnergyGas€100/MWh,Power€250/MWh578301879Gas€150/MWh,Power€350/MWh9085071,415Gas€200/MWh,Power€450/MWh1,2387141,951Gas€250/MWh,Power€550/MWh1,5689202,487Gas€300/MWh,Power€650/MWh1,8981,1263,024Gas€350/MWh,Power€750/MWh2,2281,3323,560Gas€400/MWh,Power€850/MWh2,5581,5394,096Source:GoldmanSachsGlobalInvestmentResearch4September202214GoldmanSachsEuropeanUtilitiesExhibit16:EUpowerbillscouldincreasebyc.70%in2022,andbyc.150%in2023,vs.2021Italianhouseholdandindustrialelectricitybills;evolution(€/MWh)Exhibit17:EUgasbillscouldincreasebyc.150%in2022,andbyc.350%in2023,vs.2021Italianhouseholdandindustrialgasbills;evolution(€/MWh)249260449637176202349497202020212022E2023EHouseholdsIndustrials+c.70%+c.150%80811782763342128213202020212022E2023EHouseholdsIndustrials+c.150%+c.350%Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch4September202215GoldmanSachsEuropeanUtilitiesWindfalltaxesdebateismisplacedAsdescribedabove,weestimatethattheincreaseinenergybillsforEuropeonamark-to-marketbasisiscurrentlyc.€2tn,vs.2021.EuropeanUtilitiesgeneratec.€30bnofnetincome,globally,acrosstheirdivisions.Inthiscontext,eveneliminatingtheUtilities’bottomlinewouldmitigateonlyc.1%oftheincreaseinbillsweanticipate,whileharmingprivateinvestmentinenergysecurityandcompromisingtheREPowerEUplan.EliminatingtheEuropeanUtilities’netincomewouldaddressonlyc.1%oftheproblemTheEuropeanUtilitiesgeneratec.€30bnnetincomeannually,globallyandacrossalldivisions(includingregulatedactivities).Assuch,eveneliminatingtheUtilities’bottomlinewouldsolvec.1%oftheproblem.Exhibit18:EuropeanUtilitiesgeneratec.€30bnnetincomepa:eliminatingthiswouldaddressonlyc.1%oftheproblemEuropeanUtilitiesannualnetincomeevolution,2021-25E(€bn)€30bn€17bn€30bn€37bn€37bn20212022E2023E2024E2025EOver2021-25E,weestimateUtilitiestogeneratec.€150bncumulativenetincome,globallyandacrossalldivisionsSource:GoldmanSachsGlobalInvestmentResearchSevereadhocmeasureswouldseriouslyimpairtheabilitytocarryouttheREPowerEUplanGiventheimpactthattheEnergyCrisisislikelytohaveonhouseholds’disposableincomesandoncorporatemargins,webelieveallexcessproﬁtswillbesubjecttomeasures.Webelievethereisonemajorareatoaddress:ﬁxed-costpowergeneration.Merchant,ﬁxed-costactivities(hydro,nuclear,merchantwind,merchantsolar)beneﬁtfromrisinggas/powerprices,withoutanyimpactonthecostbase.Thisisshowninthefollowingexhibit.4September202216GoldmanSachsEuropeanUtilitiesInthiscontext,investorscontinuetoaskusaboutthesensitivityofcompanyearningstoa€10/MWhwindfalltax(orpricecap)–weshowourestimateofthisinthefollowingexhibit.Critically,thebase-caseassumptionsarevitaltothisanalysis:ourcurrentestimatesassumea€75/MWhpricecaponunregulatedvolumessold.TheexhibitbelowprovidesExhibit19:Merchant,ﬁxed-costactivitiesbeneﬁtfromrisinggas/powerprices,withoutanyimpactonthecostbaseImpactfromrisinggaspricesonpowersupplycurve(€/MWh)050100150200250300350400450SolarWindHydroNuclearGasTTF@30GasTTF@200PotentialwindfallprofitPowerpriceat€425/MWhPowerpriceat€90/MWhSource:GoldmanSachsGlobalInvestmentResearchExhibit20:Fortum,UniperandEndesawouldbeparticularlysensitivetoawindfalltax,weestimateNetincomesensitivitytoa€10/MWhwindfalltaxbycompany,2023E(percentage)27%19%15%11%10%10%8%6%5%4%3%FortumUniperEndesaEDPIberdrolaEngieRWEEnelNaturgySSEOrstedSource:GoldmanSachsGlobalInvestmentResearch4September202217GoldmanSachsEuropeanUtilitiescontextforthis,showingthehistoricallong-termpowerpriceofc.€50/MWh,ourpricecapassumptionof€75/MWh(consistentwithmeasuresalreadyimplementedinSpainandItaly),andtheforwardcurvesinGermanyfor2023-25.Exhibit21:Ourestimatesassumea€75/MWhpricecaponunregulatedvolumessold,wellbelowcurrentforwardcurvesinGermanyGermanypowerpriceunderdifferentscenarios(€/MWh)€50/MWh€75/MWhc.€500/MWhc.€250/MWhc.€150/MWh10-yearaverage(uninflated)GSpricecapassumption2023PowerPriceGermany2024PowerPriceGermany2025PowerPriceGermanySource:Bloomberg,GoldmanSachsGlobalInvestmentResearch4September202218GoldmanSachsEuropeanUtilitiesLikelysolutionsandwhythemarketappearsoverly-negativeOnSeptember9,theEUwillmeettodiscusspotentialsolutionstothetriple-digitspikeinpowerprices:itscoreaimistocontainbillincreases,ortosupportconsumersthatareburdenedbyit.Aspartofthisprocess,webelievethattheEUislikelytointroducerulestolimitthefutureriseinproﬁtsforpowerandgascompanies.Assuch,thegoalisnottoaddresswindfallproﬁtsperse.Weanticipatetheintroductionofpricecapsinpowergeneration,whichweestimatecouldsaveEuropec.€650bninpowerbillspa.However,wedonotbelievethatpricecapswouldfullysolvetheaffordabilityissue:theincreaseingasandpowerbillswouldstillbeof+€1.3tn,orc.10%ofGDPweestimate.Thisiswhywebelievea“tariffdeﬁcit”mighteventuallybeneeded,tospreadtherecentspikeinbillsover10-20yearsandallowtheUtilitiestosecuritizepromptlythesefuturepayments.Althoughthisschemewouldlimitdemanddestruction,itwouldsmooththeincreaseintariffs,limitthenear-termdeclineinindustrialproduction,andlargelydefuseregulatoryrisk,inourview.Webelievethemarketisexaggeratingregulatoryconcernsaroundpowergeneration–themoresogivenindicationsreportedinQEandReuters(September1),whichsuggestthattheEUisplanningtorecommendtheintroductionofpricecaps,andtheeliminationofwindfalltaxes.WhyistheEUmeetingonenergy?Beforeweaddressthemeasuresthatmightbeannounced,weconsiderwhatspeciﬁcproblemtheEUistryingtoresolve:Theproblemisoneofaffordability,notexcessproﬁts.TheEUwillmeetwithitsnmainobjectivebeingtoﬁndasolutiontothetriple-digitspikeinenergybills:itscoreaimistocontainbillincreases,ortosupportconsumersthatareburdenedbyit.Aspartofthisprocess,webelievethattheEUislikelytointroducerulestolimitthefutureriseintheproﬁtsofpowerandgascompanies.Assuch,thegoalisnottoaddresswindfallproﬁtsperse.Currently,EuropeanUtilitiesgeneratec.€30bnofnetincome,globally,acrosstheirdivisions,whichreﬂectsthecommoditybackdropin2020-21,asUtilitiesforwardhedge/sellpowerandgas.Inthiscontext,eveneliminatingtheUtilities’bottomlinewouldmitigateonly1%oftheincreaseinbillsweanticipate,whileharmingprivateinvestmentinenergysecurityandcompromisingtheREPowerEUplan.Gasisevenmorerelevantthanpower.Onourmark-to-marketestimates,gaswillnaccountforabouttwo-thirdsoftheaverageItalianmonthlyenergybillpaymentin2023.Powerwillaccountforonlyone-third.Therefore,assumingthegoalistosolvetheaffordabilityproblem,solvingthegasissueisamorepressingconcernthanthecostofpower.Andingas,Utilitiesarethe“middleman”;inotherwords,Utilitieshavetoprocuregasatrisingcostandmustincreasebillstopassthesecoststhrough.Ingas,theupstreamproducersareinfactseeingrisingrevenuesandproﬁts.4September202219GoldmanSachsEuropeanUtilitiesWeseescopeforprice-capsand(potentially)atariff-deﬁcitGiventhesuccessofmeasuresalreadyintroducedincertaincountries(Spain,Italy,France),andourownanalysis,weseethreepotentialoutcomesofthemeeting.TemporarypricecapsTherearetwotypesofpricecapsthatwebelievemightbeintroduced:Powergenerationpricecapongas.AsseeninSpain,CCGTsarefully1.compensatedforgasprocured,whilethegaspricewhichCCGTscantranslateintohourlypowerpricesiscapped.InSpain,thegaspricewillbecappedat€70/MWhbytheendoftheyear,orabout25%ofthecurrentTTFprice.Essentially,thismeansthataCCGTwouldberemuneratedforitsgasprocurementcost(sayc.€200/MWhgcurrently),butonlybeabletotranslateacappedgasprice(c.€70/MWhinSpain)intothepowerhourlyauctions.Asaresult,althoughtheproﬁtabilityofCCGTsremainsunchangedunderthismechanism,itleadstoadecouplingoftheSpanishforwardcurvesfromthoseoftherestofEurope,asshownintheexhibitbelow.Powergenerationpricecaponﬁxed-costtechnologies.Powerpricesfor2.ﬁxed-costtechnologies(hydro,nuclear,merchantwind,merchantsolar)couldsimplybecapped:inItalyforinstance,thegovernmenthaschosentousethe10-yearaverage,revaluedbyinﬂation(upto€67/MWhifcertainconditionsaremet).InSpain,forwardsalesfromﬁxed-costtechnologiesarecappedat€75/MWh(adjustedfornetworklosses).Exhibit22:Onourmark-to-marketestimates,gaswillaccountforabouttwo-thirdsoftheaveragemonthlyenergybillpaymentTypicalItalianhouseholdenergybillbreakdownbysource,2023E(percentage)Electricity30%Gas70%Householdenergybillc.€500/month(c.€6,000/year)Source:GoldmanSachsGlobalInvestmentResearch4September202220GoldmanSachsEuropeanUtilitiesWeestimatethatintroducingapowergenerationpricecapongasacrossEurope,liketheoneinSpain,wouldlowerEuropeanpowerbillsbyc.€650bn.Thiswouldbringthemark-to-marketincreaseinenergybillsto+€1.3tnvs.thecurrentmtmlevelof+€2tn(vs.2021),thusloweringthepotentialamountthatwouldneedtobesecuritizedeachyear.Finally,wenotethatapricecapongasdoesnotprecludeanadditionalpricecaponpowerpricesappliedtoﬁxedcosttechnologies(solar,wind,hydroandnuclear).TariffdeﬁcitThismechanismwouldessentiallydeferandspreadthespikeinenergybillsoveranumberofyears(inourexample,weassume+8%pa,forc.20years),thussmoothingtheimpactonconsumers.Insuchascheme,Utilitiestypicallysecuritizethesereceivableswithacreditinstitution.Giventhelargeamountsinvolvedonthisoccasion(c.€2tn,asalreadydetailed),thesecuritizationmightbedoneatacentralizedlevel(ECB,Eurobonds).MoredetailsonthetariffdeﬁcitmechanismcanbefoundinTariffDeﬁcitwouldminimizetheimpactonconsumerssection,laterinthisreport.Longerterm:NewmarketdesignandgasdecouplingExhibit23:PotentialwindfallproﬁtsarecreatedinrisinggaspriceenvironmentsImpactfromrisinggaspricesonpowersupplycurve(€/MWh)Exhibit24:AtemporarypricecapongasledtoadecouplingoftheSpanishforwardcurvefromthoseoftherestofEuropeForward(1-year)powerpriceevolution,byregion(€/MWh)050100150200250300350400450SolarWindHydroNuclearGasTTF@30GasTTF@200PotentialwindfallprofitPowerpriceat€425/MWhPowerpriceat€90/MWh010020030040050060070003-Jan02-Feb04-Mar03-Apr03-May02-Jun02-Jul01-AugRestofEurope(ItalyandGermany)Spainc.€250c.€450Source:GoldmanSachsGlobalInvestmentResearchSource:Bloomberg,GoldmanSachsGlobalInvestmentResearchExhibit25:Withoutapricecapmechanism,weestimateenergycostsattheEUlevelwouldamounttoc.€2tnpaEurope’sincreaseinenergycostscalculation(TWh,€/MWhand€bn)Exhibit26:IntroducingapricecapmechanismongasliketheoneinSpainwouldlowerEuropeanenergycostsbyc.€650bn,toc.€1.3tnpaEurope’sincreaseinenergycostscalculation(TWh,€/MWhand€bn)StatusQuoPowerGasEnergyConsumptionTWh3,3005,500-ConsumptionadjforCCGTsTWh3,3004,125-Energypricein2021€/MWh7527-Currentenergyprice€/MWh450200-Energybillsincrease2021-now€bn1,2387141,951WithapowergenerationpricecapongasPowerGasEnergyConsumptionTWh3,3005,500-ConsumptionadjforCCGTsTWh3,3004,125-Energypricein2021€/MWh7527-Currentenergyprice€/MWh250200-Energybillsincrease2021-now€bn5787141,291Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch4September202221GoldmanSachsEuropeanUtilitiesTheincreaseincommoditypricesthroughout2021,thegradualrisingshareofﬁxed-costgeneration(wind,solar),andtheshrinkingroleofthermalplantsweregoodenoughreasonstosparkadebateonanewmarketdesign.Inthatsamereport,wenotedthatthemaincritiqueofthecurrentsystemisthatgasplants,whichcurrentlyproducec.25%oftheelectricityneeded,setpricesc.75%ofthetime,implyinghighpowerpricesfortheentiresystem.Anewdesignmayrequireprotracteddebate(1-2years)asthetechnicalitiesandtheanalysisofpotentialrepercussionsishighlycomplex.Nevertheless,oneapproachmightaimtodecouplegaspricesfromthepricesachievedbyﬁxed-costtechnologies.Windandsolarinparticularcouldberemuneratedona“cost-plus”basisforthedurationoftheirlives,webelieve.Inourview,customersarebetterservedwhentheproﬁtabilityofwindorsolararedrivenbycompetitiveauctions,ratherthanbeinglinkedtothegasprice.Movingawayfrom“marginalpricing”andtowardsasystembasedon“weightedaverage”pricescouldlowercurrentforwardcurvesfromc.€500/MWhto€210/MWh,asshowninthefollowingexhibit,ac.55%reduction.IfweweretoincreasetheshareofRESproductioninthesystemto75%(consistentwiththeREPowerEUplan),weestimatethatpowerpriceswoulddropfurther,toc.€140/MWh(ac.70%reduction)usingthisweightedaverageapproach.Exhibit27:MovingawayfrommarginalpricingandtowardsasystembasedonweightedaveragepricescouldsigniﬁcantlylowercurrentforwardcurvesPowerpriceunderdifferentmarketdesigns,underdifferentscenarios(€/MWh)c.500c.500213139TTFat200,RESshareat50%TTFat200,RESshareat75%Marginalprice(2023E=1yFwdcurve)Weightedavgpowerprice-c.55%-c.70%Thiscalculationassumesthefollowingpricesfortheremainingtechnologies:hydro(€50/MWh),nuclear(€65/MWh),onshorewind(€45/MWh),offshorewind(€70/MWh),solar(€40/MWh),otherrenewables(€85/MWh),lignite(c.€130/MWh)andcoal(c.€200/MWh)Source:GoldmanSachsGlobalInvestmentResearch4September202222GoldmanSachsEuropeanUtilitiesTariffdeﬁcitwouldminimizetheimpactonconsumersTheintroductionofa“tariffdeﬁcit”couldprovideapowerfultool:suchamechanismwouldessentiallydeferandspreadtheincreaseinenergybillsoveranumberofyears(weillustratethisbyassuming+8%pa,forc.20years),smoothingtheimpactonconsumers.Insuchascheme,Utilitieswouldsecuritizethesereceivableswithacreditinstitution,asseenrecentlyinFrance,inSpaininthe2000s,andasiscurrentlybeingdebatedintheUKandItaly.Astateguaranteewouldreducerisksfurther,andshouldallowforlowersecuritizationcosts.Suchadevelopmentcouldproveamaterialpositive,clearingregulatoryeventrisk,particularlyforbusinesseswithlargesupplyportfolios.Howwouldatariffdeﬁcitworkinpractice?WepresentasimulationofhowatheoreticaltariffdeﬁcitapproachmightworkanditsimpactonItaliangasbills.Onourestimates,in2021atypicalfamilyspent(onaverage)nearly€100/monthongasbills.Underthecurrentregime(clientsareliberalizedandtypicallysign12-monthﬁxed-pricecontractswithsuppliers),weestimatethat2022gasbillswillreachnearly€220/month,andthenpeakin2023(basedonthecurrentforwardcurves)atabove€300/month.Atariffdeﬁcitwouldspreadthesebillsovertime.Asahypotheticalexample,anannualincreaseof8%inbillsoutto2040(fromthe2021average)wouldimply(assumingnocostofcarry,i.e.,nointerestrateadjustment,forsimplicity)thesamepaymentsingasbillsoverthecomingcoupleofdecades,butwithaverydifferentschedule.In2041,billswouldnormalize.Exhibit28:Tariffdeﬁcitwouldspreadthesamecostforgasbills,overamuchlongerperiodoftime,asseeninthisexampleforItalyItalymonthlygasbillsperhouseholdevolution,averagepermonth(€/month)050100150200250300350400450500202120222023202420252026202720282029203020312032203320342035203620372038203920402041CurrentschemeTariffDeficitSource:GoldmanSachsGlobalInvestmentResearch,Eurostat4September202223GoldmanSachsEuropeanUtilitiesClearly,forthisapproachtobeeffective,certainconditionsareneeded:Securitization:theabilitytosecuritizethesefuturepaymentsiskeyinourview,tonavoidanyexcessiveburdenonthebalancesheetsofUtilities(theUtilitieswouldhavetoprocuregasatveryexpensivepricelevels,andwouldbesellingitatalossuntil,inourexample,2031).SecuritizingthesefuturepaymentswouldallowtheUtilitiestomaintainsolidcreditratingsandanappropriateliquidityposition.Costofcarryadjustment:forsimplicity,ourexampleassumesnocostofcarry.nClearlythough,anytariffpaymentdeferralwouldlikelyhavetobeadjusted(increased)forinterestcosts.Visibilityonthedeclineinlong-termbills:thetariffdeﬁcitmechanismworksasnanextraordinarymeasure,inextraordinarycircumstances.Webelievethedouble-digitsupplyshockcausedbythereductioninRussiangasﬂowsqualiﬁesassuch.Overthepast15years,theaveragegaspriceinEuropehasbeenlessthan€25/MWh.Althoughthemarketmayremaintighterforlonger,alternativesupplies(USLNG,NorthAfrica,etc.)and–mostofall–theelectriﬁcationofbuildings(spaceheating)imply,inourview,anear-certainreductioninlonger-termcosts.4September202224GoldmanSachsEuropeanUtilitiesRESarepartofthesolutiontotheaffordabilityproblemWeseerenewablesources(windandsolaraboveall)ascentraltoanystructuralsolutiontotheenergyaffordabilitycrisis.Since2010,thelevelizedcostofelectricityofthesetechnologieshasfallenbyc.60%-80%.Dependingonlocationandtechnologytype,onour2025estimates,theLCOEforwindandsolarwillbe€35-70/MWh(consistentwithIRRsat200bpoverWACC).ThiscompareswithforwardcurvesacrossEuropeofc.€500/MWhinmostregions,andreplacementcostsforthermalplantsatc.€600/MWh.A60%-80%dropinLCOEsince2010Overthepastdecade,theeconomicsofrenewableshavedramaticallyimproved.Thecostofonshorewind,asanexample,hasdroppedbymorethanc.60%since2010,mainlydrivenbythebetterperformance(i.e.,output)oflargerandlargerturbines.WehaveseenanevensteepercostreductionforsolarPV,whichtodayisc.80%cheapertodevelopandoperatethanitwastenyearsago.Here,mostofthecostreductionhasbeenaresultoftheindustrialisationandautomationofthemanufacturingprocess.Renewableshavebecomeadeﬂationaryforceforpowersystems.Inotherwords,windandsolararenowpartofthesolutiontotheaffordabilityproblem,nottheircause.ThefollowingexhibitshowsthattheLCOEsofwindandsolararewellbelowthecashcostsofthermalplants,andareevenlowerthanthereplacementcostsoflegacygenerationassets.Exhibit29:Thecostofrenewablegenerationhasdecreasedbyc.60%-80%since2008WindandsolarLCOEs(€/MWh)020406080100120140160180200200820102012201420162018202020222024202620282030OffshoreOnshoreSolarPvSource:GoldmanSachsGlobalInvestmentResearch4September202225GoldmanSachsEuropeanUtilitiesThefollowingexhibitsshowthepowergenerationsupplycurvesinSpain,for2022Eand2030E.WecanseeasigniﬁcantincreaseinRESshare(wind,solar)inthegenerationmixovertime:whiletheyrepresentc.45%ofthegenerationmixin2022E,by2030Ethisshouldincreasetoc.75%.Thisleads,bytheendofthedecade,toaﬂatteningofthemeritordercurve,marginalisingtheroleofthermalplants.Weestimatethatthermal(gas)plantswillbemarginalsome60%ofthetimebythen,vs.c.70%-80%currently.Giventhecost-gapbetweengasplantsandrenewables,alowershareofthermalplantsatthemarginwouldputdownwardpressureonwholesalepowerprices.Exhibit33detailsourpowerpriceforecastfortheGermanmarket;inlightofthedeﬂationaryeffectofrenewables,andthankstothenormalizationofcommodities,weforecastpricesdecliningtoc.€60/MWhby2030,andbeingsub-€55/MWhby2035.Thesearecalculatedassuminggaspricesinlinewiththelong-termaverageofExhibit30:LCOEsofwindandsolararewellbelowthecashcostsofthermalplants,andareevenlowerthanthereplacementcostsoflegacygenerationassetsLevelisedcostofelectricitybytechnoloyfor2022E,costbreakdown(€/MWh)618608597221882342363463536186085979082705241OCGTCCGTCCGTwithCCUSNuclearOffshoreHydroOnshoreSolarFuel&CarbonO&MCapitalCostsSource:GoldmanSachsGlobalInvestmentResearchExhibit31:Gasistheprice-settingtechnologyinmosthoursMeritordercurve(€/MWh),2022EExhibit32:RenewablesshouldshiftthesupplycurveMeritordercurve(€/MWh),2030E€0€50€100€150€200€250€300€350€400€450€500InstalledCapacity(GW)1929203725WindHydroCoalSolarGasOt.RESNuclear1Windandsolarc.45%ofmeritcurve€0€50€100€150€200€250€300€350€400€450€500InstalledCapacity(GW)4948320118WindHydroGasSolarNuclearOt.RESWindandsolarc.75%ofmeritcurveSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch4September202226GoldmanSachsEuropeanUtilities€22.5/MWhgandcarbonat€50/t.IfweweretomaintaintheCO2priceat€100/t(thecurrentlevel)andgasat€35/MWhg(theaveragebetweenthelong-termlevelandthe2021,pre-conﬂict,level),thenour2030-35estimateswouldbemuchhigher.Exhibit33:WeexpecttheGermanpowerpricetodeclinetoc.€60/MWhby2030Eandtosub-€55/MWhby2035EGerman1-yearforwardpowerpriceevolutionunderdifferentscenarios,GSe(€/MWh)01002003004005002023E2024E2025E2026E2027E2028E2029E2030E2031E2032E2033E2034E2035EForecastsw.Carbon=€100/tGas=€35/MWhSource:EEX,GoldmanSachsGlobalInvestmentResearch4September202227GoldmanSachsEuropeanUtilitiesElectriﬁcationcouldcuthouseholdenergybillsbyc.75%Structurally,webelieveelectriﬁcationwouldprovidethemost-costeffective,permanentsolution:thankstotheREScostadvantage,electrifyingpowergenerationandbuildings(heating)couldlowerenergybillsbyc.75%vscurrentlevels.Furthermore,webelievebillswouldlargelydecouplefromgasprices,thusminimizingthevolatilityoffuturemonthlypayments.Italy:householdscouldpotentiallyspendc.€6,000peryearonenergybillsby2023,withoutinterventionIfweweretoassumethecurrentgas/powerforwardcurvesremainedconstant,weestimatethatby2023,atypicalhousehold–webaseourcalculationsonatypicalItalianfamily,usingofﬁcialtariffsdisclosedbyEurostat–wouldincurenergybillsofc.€500/month(c.€6,000/year),reﬂectingtwomaincostitems.Electricity.Electricitycostswouldrepresentabout30%ofannualenergycostsn(c.€150/month),andwouldmostlyreﬂectthecostsofllightingandappliancesinatypicalhouseholdconsuming2.75MWhperyear.Gas.GasbillsinItalywouldrepresenttheremaining70%oftotalenergycostsn(c.€350/month),andreﬂecttheheavyutilisationofgastoheatresidentialhomesduringwinter.Electricitybills.WewouldexpecttheunitarycostofelectricitytodropbynearlynExhibit34:Weestimatethathouseholdswillspendc.€500/monthonenergybillsby2023ETypicalItalianhouseholdenergybillbreakdownbysource,2023E(percentage)Electricity30%Gas70%Householdenergybillc.€500/month(c.€6,000/year)Source:GoldmanSachsGlobalInvestmentResearchElectriﬁcationofhouseholdscouldsupportac.75%reductioninbillsOnourestimates,householdenergybillscoulddropbyc.80%,oncefullyelectriﬁed.Thiswouldimplynearly€400/monthofsavings(vs.currentlevels),ornearly€5,000pa.Thiswouldbemostlyowingto:4September202228GoldmanSachsEuropeanUtilitiesc.55%to2030inanelectriﬁcationscenario.Thiswoulddrivenby:(1)thenormalizationofcommodityprices(gasbacktopre-crisislevels,at€50/MWh);(2)thedeﬂationarypressureofgrowingREScapacityinthegenerationsystem;and(3)thelapsingofincentivesonlegacyRESinvestments.Gasbills.Inanelectriﬁcationscenario,wewouldexpectgasbillstodroptozero,asnheatingwouldbeelectriﬁed.Thiswould,inturn,increasetheconsumptionofelectricity.Weestimatethatheatpumpuse(HPs)wouldmorethandouble(toc.6-7MWhpa)theannualconsumptionofelectricitybyhouseholds.Theup-frontcostsofelectrifyinghouseholdsTheelectriﬁcationofhouseholds’energybillsimpliestheeliminationoffossilfuel-basedpowergeneration,andtheinstallationofaheatpumpsystemtoelectrifyheating.Weseetheneedforenergypolicyintheprocessofhouseholdelectriﬁcationaspurelymonetary:weestimatetheup-frontinvestmentinHPsrepresentingatotalcostofc.€4,400pergivenhousehold.Ifweaddtothistheup-frontcostsforhouserecabling(ashouseholdsintensifytheirelectricityconsumptionviaelectriﬁcation,electricitycableswillneedanincreaseinvoltagecapacity,fromc.3kWtoc.9kW–alsopreparingconsumersforanelectricvehicle),theup-frontinvestmentforelectriﬁcationwouldsitatjustbelow€5,000perhousehold.Exhibit35:By2030E,ouranalysisshowsthatenergybillscoulddropbyc.75%inanelectriﬁcationscenarioTypicalhouseholdenergybillevolutionindifferentscenarios(€year)1466957333146614792151182023E2030E,gasat€50/MWh2030EElectrificationElectricityGas/HeatPump-c.55%-c.75%Source:GoldmanSachsGlobalInvestmentResearch4September202229GoldmanSachsEuropeanUtilitiesHouseholdrecablingwouldrequireup-frontinvestmentsofc.€400pernhousehold.Thisisthecosttoupgradecablestoavoidoverloadsashouseholdelectricityconsumptionintensiﬁes.Weestimateanaveragecostperhouseholdofc.€70/kW,andweassumeanaverageincreasetoc.9kWfromc.3kW.Theelectriﬁcationofheatingwouldrequiresomec.€4,400ofup-frontcosts.nThis,basedonourestimate,isthecostrequiredtopurchaseaheatpumpandtoreconﬁguretheheatingsystemaccordingly(overandabovethetypicalcostofagasboiler).Weassumethecurrentcostgapbetweenaheatpumpandagasboileratc.€5,100,andweanticipatethisgapnarrowingby2050,atac.1%parate.Againstthec.€5,000ofsubsidiesneeded,intheeventthathouseholdsweretobeshieldedfromup-frontelectriﬁcationcosts,weestimatethatatypicalfamilycouldsavenearly€5,000pafromthereenergybills.Inotherwords,thepaybackperiodofgrantsinthisscenariowouldthenbeclosetooneyear,basedoncurrentwholesalecurves.Exhibit36:Up-frontinvestmentsinHPsandrecablingcouldrepresentatotalcostofjustbelow€5,000perhousehold,weestimateCostsincurredinanelectriﬁcationscenario,perhousehold,breakdownbysource(€)4004,4004,800HouserecablingHeatPumps(e-Heating)SubsidiesneededSource:GoldmanSachsGlobalInvestmentResearchExhibit37:Paybackperiodforgrantsforatypicalhouseholdwouldbeclosetoayear,atcurrentwholesalecurvesPaybackperiodofgrantc.1yearForatypicalhousehold..Totalsubsidiesofc.€5,000Annualsavingsofc.€5,000Source:GoldmanSachsGlobalInvestmentResearch4September202230GoldmanSachsEuropeanUtilitiesStocknegativesmaybemeaningful,buttemporaryTheEnergyAffordabilityCrisisislikelytohaveseveralindustryrepercussions:thenegativesmaybemeaningful,butappearmoretemporaryinnature.First,weﬂagthatregulatoryriskmaynotyethavepeaked,butmaydosoonceenergybillshavepeakedthiscomingwinter(perourexpectation).Regulatoryinterventioncouldtakedifferentshapes:weinvestigateprice-caps/windfalltaxes,socialtariffsandatarifffreeze.Wealsoinvestigatehowthespikeinbillsmaycausedemanddestruction.Webelieveinvestorsseepowergenerationand(mostly)largesupplyportfoliosasparticularlyrisky.ThreemainsourcesofregulatoryriskinsupplyactivitiesnPrice-capsand/orwindfalltaxes.AsseeninSpain(arecentlyintroduced1.2%revenuetaxonsupply)orinRomania(1Q-2022tarifffreeze),supplyactivitiescanbesubjecttoadhoctaxes,ortarifffreezes.Webelieveatarifffreezewouldbehighlypunitive(andunsustainableinthecontextofcurrentpricecurves,asitwouldlikelyputconsiderableﬁnancialstrainonsuppliers).nSocialtariffs.Typically,asocialtariffisadiscountonenergybills,giventothemostvulnerablecustomersandpaidby(socializedamong)theothercustomers.InSpain,thegovernmenthasimposed(andpreviouslyattemptedtoimpose)asocialtariffonsuppliers,asawaytofundcustomersubsidies.IntheUK,theprice-caponstandardvariablecustomershaslimitedtheEBITDAmarginthatcanbeachievedoncustomersthatarelesspronetoswitchsupplier.Giventheexceptionalityofthecircumstancesdescribedinthisreport,thefollowingexhibit(forpurelyillustrativepurposes)showsourestimateofthepotentialbottomlineimpactthata25%socialtariff(atzeroEBITDAmargin)wouldhaveonthemainContinentalEuropeansuppliers.nTarifffreeze.Atarifffreeze,inourview,couldbehighlydetrimentaltothebroaderenergysystem.Althoughtheyhavebeenused,asseeninRomaniain1Q2022,afreezecouldcreateasigniﬁcantspikeindebt.Forlarger,listedcorporates,theliquidityissuesthatthiscouldcreatecouldleadtodividendcancellations,potentialcapitalraisesandwouldlikelyharminvestments.Forsmallersuppliers,afreezecouldthreatentheentirebusinessmodel.Forthesereasons,weseesuchmeasuresashavingonlyaveryslimchanceofbeingimplemented.4September202231GoldmanSachsEuropeanUtilitiesTradinglosses:abusinessriskinwinter2022/23ETheexhibitbelowshowsvolumesofelectricity(TWhe)andgas(TWhg)suppliedoverayear(2021)bythemainsupplierswithinourcoverage.Ascanbeseen,EONsuppliesthelargestenergyvolumesinEurope(>400TWhinbothgasandelectricity),followedbyEngie(nearly200TWhofgas)andEnel(nearly200TWhofelectricity).Exhibit38:EON,EngieandEnelaretheEUutilitiesinourcoveragesupplyingthelargestvolumesofgasandelectricityGas(TWhg)andelectricity(TWhe)volumessuppliedin2021bycompany(TWhgandTWhe);20214501821041035543415641821980117E.ONEngieEnelNaturgyEndesaIberdrolaGas(TWhg)Electricity(TWhe)Source:Companydata4September202232GoldmanSachsEuropeanUtilitiesTypically,suppliershedgeprocurement/salesabout12monthsinadvance.Itisnotunusualforcompaniestoleaveasmallshareoftheirprocurementunhedgedhowever,toprovideheadroomforlast-minuteadjustmentsinconsumptionpatterns(i.e.,weather,churnrate,etc.).Althoughsuchastrategyworksinanormalizedpricingenvironment(thesuppliercanalwaysaccessthemarketandbuyadditionalvolumesasneeded),inenvironmentssuchasthecurrentone,thiscanentaillargetradinglosses.BaddebtprovisionscouldsoonbecomerelevantTypically,suppliersarerequiredtoprovisionc.0.5%-1.0%oftheirrevenuesasbaddebt,toaccountforanyissueswhencollectingbillsfromconsumers.However,withincreasingenergybills,someconsumersmaystruggletopaythem,orpaythemontime.Thiscouldtriggerfurtherdelaysinpayments,withcompaniespotentiallyrequiredtoincreasebaddebtprovisionstoprotectthemselvesagainstcustomers’defaults.Asareference,thefollowingexhibitthepotentialimpactfrombaddebtprovisions(on2023Enetincome),foreach0.5ppincreaseinbaddebtprovisions.4September202233GoldmanSachsEuropeanUtilitiesThepositivesarestructuralTheongoingEnergyAffordabilityCrisisislikelytohaveseveralindustryrepercussions:thenegativeonesappearmoretemporaryinnature(regulatoryrisk,demanddestruction),whilstthepositiveones(greenenergycapexsuper-cycle,higherforlongerenergyprices)havemuchlongerduration.GreencapexsupercycleisheretostayAsdiscussedinprevioussections,webelievethecurrentenergyaffordabilitycrisiscanonlybestructurallysolvedthroughtheelectriﬁcationoftheEuropeaneconomy.MeetingtheREPowerEUgoalswouldrequirethemobilisationof€3.7tnattheEUlevel,weestimate.Ofthis,weestimatemorethanhalf(c.€2.2tn)couldbeprivatelyfundedinvestment,carriedoutforthemostpartbygreenenergycompanies.Onrenewablesspeciﬁcally(whereweforeseec.€1tnofinvestmentto2030E),complyingwithREPowerEUplanrequiresthedeploymentofanadditionalc.900GWintheregionto2030.Thiswouldrepresentaquadruplingofitsinstalledwindandsolarbase(c.300GW)injustoveradecade.Exhibit39:REPowerEUtargetsimplyc.€3.7tnofcapitalmobilisationby2030ECumulativeinvestmentsto2030EunderREPowerEU(€tnand%)Renewables27%Transmissiongrids4%Distributiongrids14%Batteries2%Hydrogen5%EnergyEfficiency18%Mobility-cars18%Mobility-heavyduty4%Chargingpoints2%Heating6%CCS1%Privatelyfundedcleanenergyinvestmentsc.€2.2trnREPowerEU€3.7trnSource:GoldmanSachsGlobalInvestmentResearch4September202234GoldmanSachsEuropeanUtilitiesHowever,theprocessofscalinguprenewablesinvestmentsdoesnothappenovernight.Thetimeneededtoraisethenumberofpublicemployeesnecessarytosupporttheapprovalofpermits,todeveloplargerpipelines,andtoconvertthemintorealassets,impliesalagbetweentheannouncementofnewpoliciesandtheachievementofpeakcapacitygrowth.ItisforthesereasonsthatwebelievethestepupinRESinvestmentswillbegradual,andthatgrowthwillcontinueacceleratinguntiltheendofthedecade.Thefollowingexhibitshowsourestimatesoftheannualcapexinwind/solar(€bn)necessaryforEuropetocomplywithitsREPowerEUplan.Investments(atc.€25bnperyear,in2016-20,onaverage)couldreachapeakofc.€180bnpabytheendofthedecade.Exhibit40:REPowerEUtargets>1,200GWofrenewablecapacityby2030EuropeansolarandwindcapacityunderREPowerEU(GW)+420GW+480GW336GW1,236GW2021ESolarPVWind2030ESource:EuropeanCommission,GoldmanSachsGlobalInvestmentResearch4September202235GoldmanSachsEuropeanUtilitiesExhibit41:Annualinvestmentsinwind/solarcouldrisetoc.€180bnby2030EEurope’srenewablesannualcapexevolution(€bn)2553686573921151521701741782016-202021E2022E2023E2024E2025E2026E2027E2028E2029E2030ESource:GoldmanSachsGlobalInvestmentResearchHigher-for-longerenergypricesAsnotedearlierinthisreport,althoughweexpectagradualnormalizationofpowerpricesto2030(inlightofanormalizationincommodityprices,togetherwiththedeﬂationaryeffectofrenewables),weexpectthemtobeataround€60/MWhby2030E4September202236GoldmanSachsEuropeanUtilitiesand€55/MWhby2035E,thiswouldstillbewellabovelong-termaverageEUpowerprices,atc.€50/MWh.WenotethatthesearecalculatedassuminggaspricesinlinewiththeLTaverageof€22.5/MWhgandcarbonat€50/t.IfweweretokeeptheCO2priceat€100/t(currentlevels)andgasat€35/MWhg(theaveragebetweenthelong-termlevelandthe2021pre-conﬂictlevel),thenour2030-35estimateswouldbemuchhigher.Exhibit42:WeexpecttheGermanpowerpricetodeclinetoc.€60/MWhby2030andtosub€55/MWhby2035Germanpowerprice(€/MWh)01002003004005006002023E2024E2025E2026E2027E2028E2029E2030E2031E2032E2033E2034E2035EForecastsw.Carbon=€100/tGas=€35/MWhSource:EEX,GoldmanSachsGlobalInvestmentResearch4September202237GoldmanSachsEuropeanUtilitiesDisclosureAppendixRegACWe,AlbertoGandolﬁ,MafaldaPombeiro,AjayPatel,MathieuPidouxandSimonBergmann,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyreﬂectourpersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.Wealsocertifythatnopartofourcompensationwas,isorwillbe,directlyorindirectly,relatedtothespeciﬁcrecommendationsorviewsexpressedinthisreport.Unlessotherwisestated,theindividualslistedonthecoverpageofthisreportareanalystsinGoldmanSachs’GlobalInvestmentResearchdivision.GSFactorProﬁleTheGoldmanSachsFactorProﬁleprovidesinvestmentcontextforastockbycomparingkeyattributestothemarket(i.e.ourcoverageuniverse)anditssectorpeers.Thefourkeyattributesdepictedare:Growth,FinancialReturns,Multiple(e.g.valuation)andIntegrated(acompositeofGrowth,FinancialReturnsandMultiple).Growth,FinancialReturnsandMultiplearecalculatedbyusingnormalizedranksforspeciﬁcmetricsforeachstock.Thenormalizedranksforthemetricsarethenaveragedandconvertedintopercentilesfortherelevantattribute.Theprecisecalculationofeachmetricmayvarydependingontheﬁscalyear,industryandregion,butthestandardapproachisasfollows:Growthisbasedonastock’sforward-lookingsalesgrowth,EBITDAgrowthandEPSgrowth(forﬁnancialstocks,onlyEPSandsalesgrowth),withahigherpercentileindicatingahighergrowthcompany.FinancialReturnsisbasedonastock’sforward-lookingROE,ROCEandCROCI(forﬁnancialstocks,onlyROE),withahigherpercentileindicatingacompanywithhigherﬁnancialreturns.Multipleisbasedonastock’sforward-lookingP/E,P/B,price/dividend(P/D),EV/EBITDA,EV/FCFandEV/DebtAdjustedCashFlow(DACF)(forﬁnancialstocks,onlyP/E,P/BandP/D),withahigherpercentileindicatingastocktradingatahighermultiple.TheIntegratedpercentileiscalculatedastheaverageoftheGrowthpercentile,FinancialReturnspercentileand(100%-Multiplepercentile).FinancialReturnsandMultipleusetheGoldmanSachsanalystforecastsattheﬁscalyear-endatleastthreequartersinthefuture.Growthusesinputsfortheﬁscalyearatleastsevenquartersinthefuturecomparedwiththeyearatleastthreequartersinthefuture(onaper-sharebasisforallmetrics).ForamoredetaileddescriptionofhowwecalculatetheGSFactorProﬁle,pleasecontactyourGSrepresentative.M&ARankAcrossourglobalcoverage,weexaminestocksusinganM&Aframework,consideringbothqualitativefactorsandquantitativefactors(whichmayvaryacrosssectorsandregions)toincorporatethepotentialthatcertaincompaniescouldbeacquired.WethenassignaM&Arankasameansofscoringcompaniesunderourratedcoveragefrom1to3,with1representinghigh(30%-50%)probabilityofthecompanybecominganacquisitiontarget,2representingmedium(15%-30%)probabilityand3representinglow(0%-15%)probability.Forcompaniesranked1or2,inlinewithourstandarddepartmentalguidelinesweincorporateanM&Acomponentintoourtargetprice.M&Arankof3isconsideredimmaterialandthereforedoesnotfactorintoourpricetarget,andmayormaynotbediscussedinresearch.QuantumQuantumisGoldmanSachs’proprietarydatabaseprovidingaccesstodetailedﬁnancialstatementhistories,forecastsandratios.Itcanbeusedforin-depthanalysisofasinglecompany,ortomakecomparisonsbetweencompaniesindifferentsectorsandmarkets.Disclosures4September202238GoldmanSachsEuropeanUtilitiesRegulatorydisclosuresDisclosuresrequiredbyUnitedStateslawsandregulationsSeecompany-speciﬁcregulatorydisclosuresaboveforanyofthefollowingdisclosuresrequiredastocompaniesreferredtointhisreport:managerorco-managerinapendingtransaction;1%orotherownership;compensationforcertainservices;typesofclientrelationships;managed/co-managedpublicofferingsinpriorperiods;directorships;forequitysecurities,marketmakingand/orspecialistrole.GoldmanSachstradesormaytradeasaprincipalindebtsecurities(orinrelatedderivatives)ofissuersdiscussedinthisreport.Thefollowingareadditionalrequireddisclosures:Ownershipandmaterialconﬂictsofinterest:GoldmanSachspolicyprohibitsitsanalysts,professionalsreportingtoanalystsandmembersoftheirhouseholdsfromowningsecuritiesofanycompanyintheanalyst’sareaofcoverage.Analystcompensation:AnalystsarepaidinpartbasedontheproﬁtabilityofGoldmanSachs,whichincludesinvestmentbankingrevenues.Analystasofﬁcerordirector:GoldmanSachspolicygenerallyprohibitsitsanalysts,personsreportingtoanalystsormembersoftheirhouseholdsfromservingasanofﬁcer,directororadvisorofanycompanyintheanalyst’sareaofcoverage.Non-U.S.Analysts:Non-U.S.analystsmaynotbeassociatedpersonsofGoldmanSachs&Co.LLCandthereforemaynotbesubjecttoFINRARule2241orFINRARule2242restrictionsoncommunicationswithsubjectcompany,publicappearancesandtradingsecuritiesheldbytheanalysts.Distributionofratings:Seethedistributionofratingsdisclosureabove.Pricechart:Seethepricechart,withchangesofratingsandpricetargetsinpriorperiods,above,or,ifelectronicformatorifwithrespecttomultiplecompanieswhicharethesubjectofthisreport,ontheGoldmanSachswebsiteathttps://www.gs.com/research/hedge.html.4September202239GoldmanSachsEuropeanUtilitiesAdditionaldisclosuresrequiredunderthelawsandregulationsofjurisdictionsotherthantheUnitedStatesThefollowingdisclosuresarethoserequiredbythejurisdictionindicated,excepttotheextentalreadymadeabovepursuanttoUnitedStateslawsandregulations.Australia:GoldmanSachsAustraliaPtyLtdanditsafﬁliatesarenotauthoriseddeposit-takinginstitutions(asthattermisdeﬁnedintheBankingAct1959(Cth))inAustraliaanddonotprovidebankingservices,norcarryonabankingbusiness,inAustralia.Thisresearch,andanyaccesstoit,isintendedonlyfor“wholesaleclients”withinthemeaningoftheAustralianCorporationsAct,unlessotherwiseagreedbyGoldmanSachs.Inproducingresearchreports,membersoftheGlobalInvestmentResearchDivisionofGoldmanSachsAustraliamayattendsitevisitsandothermeetingshostedbythecompaniesandotherentitieswhicharethesubjectofitsresearchreports.InsomeinstancesthecostsofsuchsitevisitsormeetingsmaybemetinpartorinwholebytheissuersconcernedifGoldmanSachsAustraliaconsidersitisappropriateandreasonableinthespeciﬁccircumstancesrelatingtothesitevisitormeeting.Totheextentthatthecontentsofthisdocumentcontainsanyﬁnancialproductadvice,itisgeneraladviceonlyandhasbeenpreparedbyGoldmanSachswithouttakingintoaccountaclient’sobjectives,ﬁnancialsituationorneeds.Aclientshould,beforeactingonanysuchadvice,considertheappropriatenessoftheadvicehavingregardtotheclient’sownobjectives,ﬁnancialsituationandneeds.AcopyofcertainGoldmanSachsAustraliaandNewZealanddisclosureofinterestsandacopyofGoldmanSachs’AustralianSell-SideResearchIndependencePolicyStatementareavailableat:https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html.Brazil:DisclosureinformationinrelationtoCVMResolutionn.20isavailableathttps://www.gs.com/worldwide/brazil/area/gir/index.html.Whereapplicable,theBrazil-registeredanalystprimarilyresponsibleforthecontentofthisresearchreport,asdeﬁnedinArticle20ofCVMResolutionn.20,istheﬁrstauthornamedatthebeginningofthisreport,unlessindicatedotherwiseattheendofthetext.Canada:Thisinformationisbeingprovidedtoyouforinformationpurposesonlyandisnot,andundernocircumstancesshouldbeconstruedas,anadvertisement,offeringorsolicitationbyGoldmanSachs&Co.LLCforpurchasersofsecuritiesinCanadatotradeinanyCanadiansecurity.GoldmanSachs&Co.LLCisnotregisteredasadealerinanyjurisdictioninCanadaunderapplicableCanadiansecuritieslawsandgenerallyisnotpermittedtotradeinCanadiansecuritiesandmaybeprohibitedfromsellingcertainsecuritiesandproductsincertainjurisdictionsinCanada.IfyouwishtotradeinanyCanadiansecuritiesorotherproductsinCanadapleasecontactGoldmanSachsCanadaInc.,anafﬁliateofTheGoldmanSachsGroupInc.,oranotherregisteredCanadiandealer.HongKong:FurtherinformationonthesecuritiesofcoveredcompaniesreferredtointhisresearchmaybeobtainedonrequestfromGoldmanSachs(Asia)L.L.C.India:FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(India)SecuritiesPrivateLimited,ResearchAnalyst-SEBIRegistrationNumberINH000001493,951-A,RationalHouse,AppasahebMaratheMarg,Prabhadevi,Mumbai400025,India,CorporateIdentityNumberU74140MH2006FTC160634,Phone+912266169000,Fax+912266169001.GoldmanSachsmaybeneﬁciallyown1%ormoreofthesecurities(assuchtermisdeﬁnedinclause2(h)theIndianSecuritiesContracts(Regulation)Act,1956)ofthesubjectcompanyorcompaniesreferredtointhisresearchreport.Japan:Seebelow.Korea:Thisresearch,andanyaccesstoit,isintendedonlyfor“professionalinvestors”withinthemeaningoftheFinancialServicesandCapitalMarketsAct,unlessotherwiseagreedbyGoldmanSachs.FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(Asia)L.L.C.,SeoulBranch.NewZealand:GoldmanSachsNewZealandLimitedanditsafﬁliatesareneither“registeredbanks”nor“deposittakers”(asdeﬁnedintheReserveBankofNewZealandAct1989)inNewZealand.Thisresearch,andanyaccesstoit,isintendedfor“wholesaleclients”(asdeﬁnedintheFinancialAdvisersAct2008)unlessotherwiseagreedbyGoldmanSachs.AcopyofcertainGoldmanSachsAustraliaandNewZealanddisclosureofinterestsisavailableat:https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html.Russia:ResearchreportsdistributedintheRussianFederationarenotadvertisingasdeﬁnedintheRussianlegislation,butareinformationandanalysisnothavingproductpromotionastheirmainpurposeanddonotprovideappraisalwithinthemeaningoftheRussianlegislationonappraisalactivity.ResearchreportsdonotconstituteapersonalizedinvestmentrecommendationasdeﬁnedinRussianlawsandregulations,arenotaddressedtoaspeciﬁcclient,andarepreparedwithoutanalyzingtheﬁnancialcircumstances,investmentproﬁlesorriskproﬁlesofclients.GoldmanSachsassumesnoresponsibilityforanyinvestmentdecisionsthatmaybetakenbyaclientoranyotherpersonbasedonthisresearchreport.Singapore:GoldmanSachs(Singapore)Pte.(CompanyNumber:198602165W),whichisregulatedbytheMonetaryAuthorityofSingapore,acceptslegalresponsibilityforthisresearch,andshouldbecontactedwithrespecttoanymattersarisingfrom,orinconnectionwith,thisresearch.Taiwan:Thismaterialisforreferenceonlyandmustnotbereprintedwithoutpermission.Investorsshouldcarefullyconsidertheirowninvestmentrisk.Investmentresultsaretheresponsibilityoftheindividualinvestor.UnitedKingdom:PersonswhowouldbecategorizedasretailclientsintheUnitedKingdom,assuchtermisdeﬁnedintherulesoftheFinancialConductAuthority,shouldreadthisresearchinconjunctionwithpriorGoldmanSachsresearchonthecoveredcompaniesreferredtohereinandshouldrefertotheriskwarningsthathavebeensenttothembyGoldmanSachsInternational.Acopyoftheseriskswarnings,andaglossaryofcertainﬁnancialtermsusedinthisreport,areavailablefromGoldmanSachsInternationalonrequest.EuropeanUnionandUnitedKingdom:DisclosureinformationinrelationtoArticle6(2)oftheEuropeanCommissionDelegatedRegulation(EU)(2016/958)supplementingRegulation(EU)No596/2014oftheEuropeanParliamentandoftheCouncil(includingasthatDelegatedRegulationisimplementedintoUnitedKingdomdomesticlawandregulationfollowingtheUnitedKingdom’sdeparturefromtheEuropeanUnionandtheEuropeanEconomicArea)withregardtoregulatorytechnicalstandardsforthetechnicalarrangementsforobjectivepresentationofinvestmentrecommendationsorotherinformationrecommendingorsuggestinganinvestmentstrategyandfordisclosureofparticularinterestsorindicationsofconﬂictsofinterestisavailableathttps://www.gs.com/disclosures/europeanpolicy.htmlwhichstatestheEuropeanPolicyforManagingConﬂictsofInterestinConnectionwithInvestmentResearch.Japan:GoldmanSachsJapanCo.,Ltd.isaFinancialInstrumentDealerregisteredwiththeKantoFinancialBureauunderregistrationnumberKinsho69,andamemberofJapanSecuritiesDealersAssociation,FinancialFuturesAssociationofJapanandTypeIIFinancialInstrumentsFirmsAssociation.Salesandpurchaseofequitiesaresubjecttocommissionpre-determinedwithclientsplusconsumptiontax.Seecompany-speciﬁcdisclosuresastoanyapplicabledisclosuresrequiredbyJapanesestockexchanges,theJapaneseSecuritiesDealersAssociationortheJapaneseSecuritiesFinanceCompany.Ratings,coverageuniverseandrelateddeﬁnitionsBuy(B),Neutral(N),Sell(S)AnalystsrecommendstocksasBuysorSellsforinclusiononvariousregionalInvestmentLists.BeingassignedaBuyorSellonanInvestmentListisdeterminedbyastock’stotalreturnpotentialrelativetoitscoverageuniverse.AnystocknotassignedasaBuyoraSellonanInvestmentListwithanactiverating(i.e.,astockthatisnotRatingSuspended,NotRated,CoverageSuspendedorNotCovered),isdeemedNeutral.Eachregion’sInvestmentReviewCommitteemanagesRegionalConvictionlists,whichrepresentinvestmentrecommendationsfocusedonthesizeofthetotalreturnpotentialand/orthelikelihoodoftherealizationofthereturnacrosstheirrespectiveareasofcoverage.TheadditionorremovalofstocksfromsuchConvictionlistsdonotrepresentachangeintheanalysts’investmentratingforsuchstocks.Totalreturnpotentialrepresentstheupsideordownsidedifferentialbetweenthecurrentsharepriceandthepricetarget,includingallpaidoranticipateddividends,expectedduringthetimehorizonassociatedwiththepricetarget.Pricetargetsarerequiredforallcoveredstocks.Thetotalreturnpotential,pricetargetandassociatedtimehorizonarestatedineachreportaddingorreiteratinganInvestmentListmembership.CoverageUniverse:Alistofallstocksineachcoverageuniverseisavailablebyprimaryanalyst,stockandcoverageuniverseathttps://www.gs.com/research/hedge.html.NotRated(NR).Theinvestmentrating,targetpriceandearningsestimates(whererelevant)havebeensuspendedpursuanttoGoldmanSachspolicywhenGoldmanSachsisactinginanadvisorycapacityinamergerorinastrategictransactioninvolvingthiscompany,whentherearelegal,regulatoryorpolicyconstraintsduetoGoldmanSachs’involvementinatransaction,andincertainothercircumstances.RatingSuspended(RS).GoldmanSachsResearchhassuspendedtheinvestmentratingandpricetargetforthisstock,becausethereisnotasufﬁcientfundamentalbasisfordetermininganinvestmentratingortargetprice.Thepreviousinvestmentratingandtargetprice,ifany,arenolongerineffectforthisstockandshouldnotbereliedupon.CoverageSuspended(CS).GoldmanSachshassuspendedcoverageofthiscompany.NotCovered(NC).GoldmanSachsdoes4September202240GoldmanSachsEuropeanUtilitiesnotcoverthiscompany.NotAvailableorNotApplicable(NA).Theinformationisnotavailablefordisplayorisnotapplicable.NotMeaningful(NM).Theinformationisnotmeaningfulandisthereforeexcluded.Globalproduct;distributingentitiesTheGlobalInvestmentResearchDivisionofGoldmanSachsproducesanddistributesresearchproductsforclientsofGoldmanSachsonaglobalbasis.AnalystsbasedinGoldmanSachsofﬁcesaroundtheworldproduceresearchonindustriesandcompanies,andresearchonmacroeconomics,currencies,commoditiesandportfoliostrategy.ThisresearchisdisseminatedinAustraliabyGoldmanSachsAustraliaPtyLtd(ABN21006797897);inBrazilbyGoldmanSachsdoBrasilCorretoradeTítuloseValoresMobiliáriosS.A.;PublicCommunicationChannelGoldmanSachsBrazil:08007275764and/orcontatogoldmanbrasil@gs.com.AvailableWeekdays(exceptholidays),from9amto6pm.CanaldeComunicaçãocomoPúblicoGoldmanSachsBrasil:08007275764e/oucontatogoldmanbrasil@gs.com.Horáriodefuncionamento:segunda-feiraàsexta-feira(excetoferiados),das9hàs18h;inCanadabyGoldmanSachs&Co.LLC;inHongKongbyGoldmanSachs(Asia)L.L.C.;inIndiabyGoldmanSachs(India)SecuritiesPrivateLtd.;inJapanbyGoldmanSachsJapanCo.,Ltd.;intheRepublicofKoreabyGoldmanSachs(Asia)L.L.C.,SeoulBranch;inNewZealandbyGoldmanSachsNewZealandLimited;inRussiabyOOOGoldmanSachs;inSingaporebyGoldmanSachs(Singapore)Pte.(CompanyNumber:198602165W);andintheUnitedStatesofAmericabyGoldmanSachs&Co.LLC.GoldmanSachsInternationalhasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdom.EffectivefromthedateoftheUnitedKingdom’sdeparturefromtheEuropeanUnionandtheEuropeanEconomicArea(“BrexitDay”)thefollowinginformationwithrespecttodistributingentitieswillapply:GoldmanSachsInternational(“GSI”),authorisedbythePrudentialRegulationAuthority(“PRA”)andregulatedbytheFinancialConductAuthority(“FCA”)andthePRA,hasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdom.EuropeanEconomicArea:GSI,authorisedbythePRAandregulatedbytheFCAandthePRA,disseminatesresearchinthefollowingjurisdictionswithintheEuropeanEconomicArea:theGrandDuchyofLuxembourg,Italy,theKingdomofBelgium,theKingdomofDenmark,theKingdomofNorway,theRepublicofFinland,theRepublicofCyprusandtheRepublicofIreland;GS-SuccursaledeParis(Parisbranch)which,fromBrexitDay,willbeauthorisedbytheFrenchAutoritédecontrôleprudentieletderesolution(“ACPR”)andregulatedbytheAutoritédecontrôleprudentieletderesolutionandtheAutoritédesmarchesﬁnanciers(“AMF”)disseminatesresearchinFrance;GSI-SucursalenEspaña(Madridbranch)authorizedinSpainbytheComisiónNacionaldelMercadodeValoresdisseminatesresearchintheKingdomofSpain;GSI-SwedenBankﬁlial(Stockholmbranch)isauthorizedbytheSFSAasa“thirdcountrybranch”inaccordancewithChapter4,Section4oftheSwedishSecuritiesandMarketAct(Sw.lag(2007:528)omvärdepappersmarknaden)disseminatesresearchintheKingdomofSweden;GoldmanSachsBankEuropeSE(“GSBE”)isacreditinstitutionincorporatedinGermanyand,withintheSingleSupervisoryMechanism,subjecttodirectprudentialsupervisionbytheEuropeanCentralBankandinotherrespectssupervisedbyGermanFederalFinancialSupervisoryAuthority(BundesanstaltfürFinanzdienstleistungsaufsicht,BaFin)andDeutscheBundesbankanddisseminatesresearchintheFederalRepublicofGermanyandthosejurisdictionswithintheEuropeanEconomicAreawhereGSIisnotauthorisedtodisseminateresearchandadditionally,GSBE,CopenhagenBranchﬁlialafGSBE,Tyskland,supervisedbytheDanishFinancialAuthoritydisseminatesresearchintheKingdomofDenmark;GSBE-SucursalenEspaña(Madridbranch)subject(toalimitedextent)tolocalsupervisionbytheBankofSpaindisseminatesresearchintheKingdomofSpain;GSBE-SuccursaleItalia(Milanbranch)totherelevantapplicableextent,subjecttolocalsupervisionbytheBankofItaly(Bancad’Italia)andtheItalianCompaniesandExchangeCommission(CommissioneNazionaleperleSocietàelaBorsa“Consob”)disseminatesresearchinItaly;GSBE-SuccursaledeParis(Parisbranch),supervisedbytheAMFandbytheACPRdisseminatesresearchinFrance;andGSBE-SwedenBankﬁlial(Stockholmbranch),toalimitedextent,subjecttolocalsupervisionbytheSwedishFinancialSupervisoryAuthority(Finansinpektionen)disseminatesresearchintheKingdomofSweden.GeneraldisclosuresThisresearchisforourclientsonly.OtherthandisclosuresrelatingtoGoldmanSachs,thisresearchisbasedoncurrentpublicinformationthatweconsiderreliable,butwedonotrepresentitisaccurateorcomplete,anditshouldnotbereliedonassuch.Theinformation,opinions,estimatesandforecastscontainedhereinareasofthedatehereofandaresubjecttochangewithoutpriornotiﬁcation.Weseektoupdateourresearchasappropriate,butvariousregulationsmaypreventusfromdoingso.Otherthancertainindustryreportspublishedonaperiodicbasis,thelargemajorityofreportsarepublishedatirregularintervalsasappropriateintheanalyst’sjudgment.GoldmanSachsconductsaglobalfull-service,integratedinvestmentbanking,investmentmanagement,andbrokeragebusiness.WehaveinvestmentbankingandotherbusinessrelationshipswithasubstantialpercentageofthecompaniescoveredbyourGlobalInvestmentResearchDivision.GoldmanSachs&Co.LLC,theUnitedStatesbrokerdealer,isamemberofSIPC(https://www.sipc.org).Oursalespeople,traders,andotherprofessionalsmayprovideoralorwrittenmarketcommentaryortradingstrategiestoourclientsandprincipaltradingdesksthatreﬂectopinionsthatarecontrarytotheopinionsexpressedinthisresearch.Ourassetmanagementarea,principaltradingdesksandinvestingbusinessesmaymakeinvestmentdecisionsthatareinconsistentwiththerecommendationsorviewsexpressedinthisresearch.Theanalystsnamedinthisreportmayhavefromtimetotimediscussedwithourclients,includingGoldmanSachssalespersonsandtraders,ormaydiscussinthisreport,tradingstrategiesthatreferencecatalystsoreventsthatmayhaveanear-termimpactonthemarketpriceoftheequitysecuritiesdiscussedinthisreport,whichimpactmaybedirectionallycountertotheanalyst’spublishedpricetargetexpectationsforsuchstocks.Anysuchtradingstrategiesaredistinctfromanddonotaffecttheanalyst’sfundamentalequityratingforsuchstocks,whichratingreﬂectsastock’sreturnpotentialrelativetoitscoverageuniverseasdescribedherein.Weandourafﬁliates,ofﬁcers,directors,andemployees,excludingequityandcreditanalysts,willfromtimetotimehavelongorshortpositionsin,actasprincipalin,andbuyorsell,thesecuritiesorderivatives,ifany,referredtointhisresearch.TheviewsattributedtothirdpartypresentersatGoldmanSachsarrangedconferences,includingindividualsfromotherpartsofGoldmanSachs,donotnecessarilyreﬂectthoseofGlobalInvestmentResearchandarenotanofﬁcialviewofGoldmanSachs.Anythirdpartyreferencedherein,includinganysalespeople,tradersandotherprofessionalsormembersoftheirhousehold,mayhavepositionsintheproductsmentionedthatareinconsistentwiththeviewsexpressedbyanalystsnamedinthisreport.Thisresearchisnotanoffertosellorthesolicitationofanoffertobuyanysecurityinanyjurisdictionwheresuchanofferorsolicitationwouldbeillegal.Itdoesnotconstituteapersonalrecommendationortakeintoaccounttheparticularinvestmentobjectives,ﬁnancialsituations,orneedsofindividualclients.Clientsshouldconsiderwhetheranyadviceorrecommendationinthisresearchissuitablefortheirparticularcircumstancesand,ifappropriate,seekprofessionaladvice,includingtaxadvice.Thepriceandvalueofinvestmentsreferredtointhisresearchandtheincomefromthemmayﬂuctuate.Pastperformanceisnotaguidetofutureperformance,futurereturnsarenotguaranteed,andalossoforiginalcapitalmayoccur.Fluctuationsinexchangeratescouldhaveadverseeffectsonthevalueorpriceof,orincomederivedfrom,certaininvestments.Certaintransactions,includingthoseinvolvingfutures,options,andotherderivatives,giverisetosubstantialriskandarenotsuitableforallinvestors.InvestorsshouldreviewcurrentoptionsandfuturesdisclosuredocumentswhichareavailablefromGoldmanSachssalesrepresentativesorathttps://www.theocc.com/about/publications/character-risks.jspandhttps://www.ﬁadocumentation.org/ﬁa/regulatory-disclosures_1/ﬁa-uniform-futures-and-options-on-futures-risk-disclosures-booklet-pdf-version-2018.Transactioncostsmaybesigniﬁcantinoptionstrategiescallingformultiplepurchaseandsalesofoptionssuchasspreads.Supportingdocumentation4September202241GoldmanSachsEuropeanUtilitieswillbesupplieduponrequest.DifferingLevelsofServiceprovidedbyGlobalInvestmentResearch:ThelevelandtypesofservicesprovidedtoyoubytheGlobalInvestmentResearchdivisionofGSmayvaryascomparedtothatprovidedtointernalandotherexternalclientsofGS,dependingonvariousfactorsincludingyourindividualpreferencesastothefrequencyandmannerofreceivingcommunication,yourriskproﬁleandinvestmentfocusandperspective(e.g.,marketwide,sectorspeciﬁc,longterm,shortterm),thesizeandscopeofyouroverallclientrelationshipwithGS,andlegalandregulatoryconstraints.Asanexample,certainclientsmayrequesttoreceivenotiﬁcationswhenresearchonspeciﬁcsecuritiesispublished,andcertainclientsmayrequestthatspeciﬁcdataunderlyinganalysts’fundamentalanalysisavailableonourinternalclientwebsitesbedeliveredtothemelectronicallythroughdatafeedsorotherwise.Nochangetoananalyst’sfundamentalresearchviews(e.g.,ratings,pricetargets,ormaterialchangestoearningsestimatesforequitysecurities),willbecommunicatedtoanyclientpriortoinclusionofsuchinformationinaresearchreportbroadlydisseminatedthroughelectronicpublicationtoourinternalclientwebsitesorthroughothermeans,asnecessary,toallclientswhoareentitledtoreceivesuchreports.Allresearchreportsaredisseminatedandavailabletoallclientssimultaneouslythroughelectronicpublicationtoourinternalclientwebsites.Notallresearchcontentisredistributedtoourclientsoravailabletothird-partyaggregators,norisGoldmanSachsresponsiblefortheredistributionofourresearchbythirdpartyaggregators.Forresearch,modelsorotherdatarelatedtooneormoresecurities,marketsorassetclasses(includingrelatedservices)thatmaybeavailabletoyou,pleasecontactyourGSrepresentativeorgotohttps://research.gs.com.Disclosureinformationisalsoavailableathttps://www.gs.com/research/hedge.htmlorfromResearchCompliance,200WestStreet,NewYork,NY10282.©2022GoldmanSachs.Nopartofthismaterialmaybe(i)copied,photocopiedorduplicatedinanyformbyanymeansor(ii)redistributedwithoutthepriorwrittenconsentofTheGoldmanSachsGroup,Inc.4September202242GoldmanSachsEuropeanUtilities

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