A clear result emerged in the Spanish market after more than 22,500 million euros were invested in Spanish electricity projects over the last five years, with an accounting loss of over 8,570 million euros recorded as depreciation of assets, primarily aging coal power plants. This summary comes from a Deloitte-led analysis for the Naturgy Foundation that examines how major electricity groups shaped their economic and financial condition between 2017 and 2021.
Last year saw electric giants post a consolidated global net profit of 8,504 million euros, up nearly 28% from the prior year and marking one of the highest profit levels in recent memory. They concentrated about 43% of their total profits in the Spanish market during that period. In Spain, joint profits reached 3,616 million euros, a 20% increase from the previous year and also among the strongest five-year results, following 3,018 million in 2020, 2,201 million in 2019, a minimal 53 million in 2018, and 2,968 million in 2017, which reflected earlier impairment adjustments by Naturgy for asset values.
Depreciation of old plants
To explain the recent profit improvement within the sector in Spain, Deloitte pointed out that since fiscal 2019 the annual net result has risen largely due to changes in asset impairment levels. Utilities continually adjust the book value of older generation assets as they transition to new energy realities, notably coal facilities, but also gas and nuclear plants slated for retirement as companies recalibrate returns and useful lifespans in line with the energy transition.
In 2021 the four major utilities reported only 690 million euros in impairment charges, compared with 1,591 million in 2020, 2,021 million in 2019, and a historic 4,530 million in 2018 when Naturgy significantly reduced the carrying value of non-renewable assets. The aggregate write-downs reflect a broad shift away from aging production facilities amid expectations of lower longRun output. Across the five years, accumulated depreciation for large Spanish groups surpassed 8.57 billion euros, versus 2.224 million impairment recorded in other countries outside Spain.
Alongside this, Iberdrola, Endesa, Naturgy and EDP deployed 22,564 million euros in electricity assets since 2017, a scale that helped to concentrate roughly 41% of all investments in the electricity sector globally.
new tax
The discussion around extra profits of energy companies has intensified as the government considers a new tax targeting windfall earnings during the price crisis. Deloitte’s report notes that within two years the electricity sector should see profits from operations in other countries totaling 4,888 million euros of the 8,504 million. The portion attributable to Spain from regulated activities would also be exempt from the new levy, estimated at 2,123 million out of the 3,616 million generated domestically. These figures reflect how a portion of international earnings can shield the sector from the tax while domestic regulated profits remain partially insulated.
Thus, some profits appear attributable to energy activities that the government may not fully detect. Truly free-market actions, namely production and supply within the Spanish market, totaled 1,493 million euros last year. This figure constitutes about one-sixth of the group’s global profits and less than half of the 3,600 million euros earned in the Spanish market that would have faced the tax if fully exposed.
Electric utilities have often rebutted claims of excessive profits, while the government contends that it must rein in windfall gains by curbing generation where producers lock in prices ahead of time and sell at prices lower than those set by the market. The intent is to ensure that price spikes do not translate into unjustified profits for producers while consumers bear the burden of higher costs.