Naturgy’s $1.2 Billion Writedown Shows Green Shift Fallout

The energy transition is taking its toll on one of Spain’s largest utilities.

Naturgy Energy Group SA, the leading operator of large scale gas generation in Spain, announced Thursday, a 1.02 billion-euro ($1.2 billion) writedown of its Spanish conventional power generation assets. The second major impairment in less than three years, as the market for fossil fuels suffers.

Spain’s government wants to add about 60 gigawatts of green power over the next decade. The plan is to boost renewables in the generation mix to 70% by 2030, and to 100% before 2050, from about 50% now. The clean power push is reducing the role gas plants have to play in meeting demand.

Naturgy is currently subject to a tender offer by IFM Infrastructure, which is seeking to acquire a 23% stake. Two other shareholders, who own similar sized stakes, have said they won’t sell but haven’t signaled any opposition to the offer either.

The IFM bid “will prevent downside moves in the share price, in our view,” Jose Ruiz, an analyst at Barclays Bank Plc said in a note.

Shares fell 0.4% to 21.31 euros at 10:39 a.m. Madrid time.

Since joining the company in 2018, Chairman Francisco Reynes has pledged to significantly shift the firm to cleaner energy, but has been slow to deliver on the commitment.

Spain has been a tough market for gas operators accentuated by a drop in demand in 2020 due to the pandemic. Naturgy’s plants are operating at about 14% capacity on average, as renewable assets gain market share.

The utility, which has about 7,000 megawatts in combined-cycle gas turbine capacity, asked the government in 2019 to authorize the mothballing of four plants to stem operating losses but never received approval.

Spanish gas demand is recovering, according to Fernando Garcia, analyst at RBC Europe Ltd.

Naturgy will benefit from “the sudden change in the Spanish/global gas markets from over to under-capacity,” Garcia said in a note. “Naturgy’s oil-linked gas contracts appear increasingly competitive and profitable versus last year when they were out of the money.”

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