Europe's recent spike in energy costs has kept household and industrial electricity bills elevated across the continent. Goldman Sachs analysts, in a research note dated Monday, argue the public-policy conversation may be nearing an inflection point - moving away from short-term affordability interventions and toward policies that prioritize energy security over the medium and long term.
The note links the most pronounced increases in commodity and wholesale power prices to markets where gas-fired plants largely determine the price of electricity. Italy, the United Kingdom and Germany are singled out as the countries that experienced the sharpest rises in power costs. By contrast, markets with a heavier mix of renewables or nuclear generation registered more muted price movements - Spain, France and the Nordic countries are cited as examples.
Goldman framed the prospective policy shift succinctly: "Energy Affordability concerns will normalize upon the normalization in the current energy crunch," the brokerage said. "At that stage, the energy policy focus might quickly shift towards Energy Security."
Several governments have already intervened to cap or reduce household power bills; Italy and the United Kingdom are among those that have taken such measures. However, the analysts cautioned that these interventions are unlikely to push wholesale power prices materially below Goldman Sachs’ long-term benchmark of around €60 per megawatt-hour.
Corporate earnings sensitivity
Goldman quantified how a drop in wholesale power of €10 per megawatt-hour could affect European utility earnings, noting the impact would vary considerably from company to company. Under the assumption that current hedging programs remain in place, the firm estimates a 2027 net income hit of roughly 1% for Enel, RWE and Iberdrola. By contrast, Fortum could face a hit of as much as 13% in the same scenario, underlining divergent exposure across the sector.
The brokerage said the earnings downside would grow materially if hedges were removed. Without existing hedging, Fortum’s net income could fall by as much as 22%, while Acciona Energía and PPC might see declines near 15% and 16%, respectively.
Across the 15 utilities analyzed, Goldman calculated that with hedging in place an average net income decline of about 2% would follow a €5/MWh move and close to 5% for a €10 move. If hedges were not in place, the average declines widen to roughly 3% and 8%, respectively. The bank emphasized that hedging programmes serve to cushion companies from spot-price volatility.
Valuation and market positioning
Despite the short-term pressure on earnings, Goldman said the implied effect on equity valuations should be more muted. The analysts point to two main reasons: first, the interventions are expected to be temporary, consistent with measures enacted in 2022 and a recent European Commission paper cited in the note; second, policy action is unlikely to drive prices below the roughly €60/MWh long-term level.
Goldman maintains "buy" ratings on RWE and Centrica and views any near-term weakness in their share prices as potential buying opportunities. The brokerage also flagged that political and policy uncertainty in the United Kingdom could weigh on the near-term performance of SSE and Centrica, and to a lesser extent on RWE, Ørsted and Iberdrola.
By contrast, Enel appears less exposed to downside in Goldman’s view, because the company has provided above-consensus guidance to 2030 that the analysts say already incorporates the effects of Italy’s energy decree law.
Outlook for the sector
The note concludes with a broader industry assessment: Goldman’s analysts describe European utilities as entering the early stages of what they call a "Generational Earnings Super-Cycle," which they expect will lift profits beyond current consensus estimates. That characterisation frames the bank’s willingness to look through temporary earnings hits and retain constructive ratings on select names.
While the focus of policymakers could shift toward securing supply as the acute crunch fades, the degree to which that will alter market structures, regulation and long-term pricing dynamics was not detailed in the note. The analysts confined their assessment to the likely near-term mechanics of interventions, the hedging landscape and the resulting earnings sensitivity across the companies reviewed.