UK Markets closed

Germany's utilities warn of insolvencies amid energy crisis

·2-min read

By Tom Käckenhoff, Vera Eckert and Christoph Steitz

DUESSELDORF/FRANKFURT (Reuters) -Germany's local utilities stand to face insolvencies amid cost pressures from high energy prices and possible defaults of their own clients, the head of the industry group VKU told Reuters.

"Local utilities in sum are relevant for the entire energy system," said VKU's managing director, Ingbert Liebing, in an interview, adding the group was in talks with the Berlin government to seek measures to make more financing available.

"We want to avoid insolvencies. I must warn that if individual companies are allowed to go bust, then it could become more difficult to finance the activities of all," he added.

More than 1,500 such companies, called Stadtwerke, are engaged in distributing two-thirds of all gas and many also provide a mix of power, water, heat, waste disposal, broadband and public transport.

Big energy sector leaders like Uniper or VNG parent EnBW which trade on exchanges to hedge forward production and sales obligations have access to a 100 billion euros ($100 billion) fund offered by state bank KfW..

This option was not open to smaller players, many of which were exposed to bilateral purchasing deals in the so-called over-the-counter market, Liebing said.

Energy procurement nevertheless must be covered by so-called margin payments which act as deposits against the buyer's default. As prices have soared, so have margin calls.

"We have made suggestions as to how this (KfW) programme can be improved so that municipal utilities can make better use of it," he said.

Only last week, Stadtwerke Leipzig received a 400 million euros credit line from the city to cover security payments, burdening its public sector owner.

Liebing listed huge challenges for the firms he represents.

Apart from the margin calls, many find themselves wedged in between high buying-in costs for energy and the inability to pass those on quickly to consumers, due to existing fixed-price and long-term retail contracts.

Depending on areas of operations, utilities also found that customers could or would not pay their bills.

"Defaults used to be below 1% of turnover. If we went up to 5-10%, or even 15-20%, this could become threatening for the Stadtwerkes' survival," he said.

As another consequence of the disruptions, Stadtwerke were pulling out of energy markets, helping to thin out turnover which in turn causes erratic prices moves.

($1 = 0.9993 euros)

(Reporting by Tom Kaeckenhoff, Vera Eckert, Christoph Steitz; editing by Miranda Murray and Kim Coghill)