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Europe's energy crisis tests mettle of utilities sector
This year’s spike in European energy prices — largely driven by Russia’s war with Ukraine — has fueled higher consumer inflation and cast a broader shadow on a regional economy already bracing for recession. To help alleviate the pain, some governments have intervened by reducing or eliminating value-added taxes from energy bills and providing subsidies to low income consumers. We have yet to see the imposition of explicit caps on gas prices, however. As a result, rising energy costs have continued to flow through to end users, and European utilities companies have generally been able to maintain their balance sheets and profitability.
Some investors fear that could change this winter, as the crisis likely takes a worsening toll on consumers, governments face increased pressure to provide relief and utilities companies may need to shoulder more of the burden of escalating prices. In this brief analysis, we offer our insights on the potential impact of the crisis on Europe’s utilities sector and which industries within the sector may be better positioned to weather the storm.
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