The federal government of Switzerland has granted Axpo a credit line of up to CHF4 billion ($4.08 billion) to support the utility's liquidity needs in volatile power markets, Axpo said Sept. 6.
Not registered?
Receive daily email alerts, subscriber notes & personalize your experience.
Register NowThe move comes as Sweden and Finland said they would offer support to energy trading companies, and Fortum agreed a state credit line for its collateral needs in Nordic derivatives. Similar support has been offered in France, Germany, Spain and the Czech Republic.
"Compared to September 2021, electricity wholesale prices have increased tenfold, with price fluctuations reaching new records in the past few days. This extreme situation and its continuing unpredictability have had far-reaching impacts on the liquidity requirements of all market players," Axpo said.
Month-ahead Swiss baseload power contracts on the EEX exchange peaked at Eur837.50/MWh Aug. 26, up 81% in a month. By Sept. 5, the contract had fallen heavily to settle at Eur627.80/MWh.
The CHF4 billion credit line ensures that, should the situation worsen, "Axpo is in a position to cover the collateral requirements of long-term power supply contracts concluded with its customers, and continue contributing to Switzerland's security of energy supply," it said.
As of Sept. 5, the utility had more than CHF2 billion of liquidity at its disposal.
Axpo said it sold the electricity produced by its Swiss power plants several years in advance under long-term power purchase agreements, reducing future price risks for itself and its consumers.
"During the current situation, Axpo customers that have concluded such agreements benefit from comparatively low, stable prices and do not have to purchase electricity at today's record highs," it said.
Fortum bolstered
On Sept. 5, Finland's finance ministry said it would offer a Eur10 billion ($9.9 billion) loan and guarantee scheme for the energy sector. The proposed scheme was a last resort financing option for companies that would otherwise be at risk of insolvency, it said.
A day later Fortum said it had agreed bridge financing of Eur2.35 billion, with the Finnish state to buttress liquidity if collateral requirements continued to rise on the Nasdaq exchange.
"The ongoing energy crisis in Europe is caused by Russia's decision to use energy as a weapon and it is now also severely affecting Fortum and other Nordic power producers," said Fortum President and CEO Markus Rauramo.
The utility has sufficient funds to meet current collateral needs, and the arrangement will not be used to cover collateral needs of Fortum's subsidiary Uniper, the company said.
A first tranche of at least Eur350 million of the funds must to be drawn by Sept. 30. "The effective annual interest cost . . . would be 14.2%," Fortum said.
The deal gifts state company Solidium up to 8.97 million of new ordinary registered shares in Fortum, representing 1% of share capital and taking the state's share in Fortum to 51.26%.
Uncertainty in the market remained high but in the last week, "spot and futures prices and thus collateral requirements decreased from the highest levels," said Rauramo.
At market close Sept. 5, Fortum's collaterals tied up on Nasdaq amounted to Eur3.5 billion. At their highest, the requirements had totaled Eur5 billion based on closing prices Aug. 26.
Risk premiums
"About 50% of power prices is spike risk/risk premium, which is due to lack of liquidity," a market analyst who wished to remain anonymous told S&P Global Commodity Insights Sept. 5.
Variation margin payments were so demanding that trading had all but dried up, he said.
State bodies or banks stepping in to act as lenders of last resort for variation margins would bring liquidity back, and power prices down overnight, he said.