Italian energy retailers warn competition may shrink

LONDON (ICIS)–Coronavirus-triggered cash-flow problems could exacerbate long-standing issues for Italian energy retailers, warned Paolo Ghislandi, secretary general at the Italian association of energy wholesalers and traders (AIGET).

This could cause insolvency for smaller retailers, reducing competition in the market.

“If regulator ARERA fails to address these issues, energy suppliers will find themselves operating in with an increasingly volatile and risky sector,” he told ICIS. “In the long-run, this may dissuade foreign companies from keeping their subsidiaries in the country.”

Economic repercussions following the start of the lockdown have hit power suppliers particularly hard.

According to a survey conducted by the association in June, 45% of energy suppliers are grappling with over 50% of outstanding payments, while the remaining 55% responded that at least 20% of their end-users delayed payments.

While the amount of debt on the part of end-consumers has stabilised compared with the first months of lockdown, the situation is far from being solved.

MARKET DISTORTION

As Ghislandi notes, the main problem putting energy retailers at risk lies in the uneven emergency strategy put in place by ARERA in the wake of the implementation of lockdown measures.

As noted in a previous ICIS article published in April, flexibility mechanisms were promptly granted to consumers, while suppliers were expected to continue delivering electricity for which they were not being paid.

On top of that, Italian electricity retailers were provided with only limited flexibility tools.

According to a recent resolution set by ARERA, “retailers would now be required to pay their obligations by the end of the year, even if they have not been paid by end-clients.”

AIGET said it is currently in negotiation with both the watchdog and the government to scrap this law.

“An uneven response of this type would create market distortion and limit competition across the electricity value chain,” Ghislandi argued.

He added that “while mid-market and large enterprises – such as Shell, Iberdrola, EDF – have their back covered and can deal with a growing insolvency rate, this could turn into a fatal blow for independent and family-run energy retailers.”

PROBLEMS PRE-DATE PANDEMIC

AIGET’s spokesman said the situation for energy retailers is made no easier by the fact that difficulties pre-dated the pandemic.

Italy differs from other countries in that utility bills are used to collect a wealth of other regular services – such as television tax – in addition to common utility costs, meaning gas, water and electricity.

“This arrangement, which forces Italian energy companies to collect licenses for third parties, inevitably increases the credit risk for all energy retailers and all the more so in a scenario of growing insolvency,” he said.