European energy companies Axpo and Fortum have secured state-backed credit lines to cover collateral requirements due to surging electricity prices.
Axpo, which is Switzerland’s largest renewable energy operator, has secured a credit line of up to Chf4bn (€4bn), approved by the Federal Council and Finance Delegation on 5 September.
Fortum has secured an incremental liquidity facility of €2.35bn, provided by Finnish state-owned holding company Solidium.
Axpo’s credit line is subordinated to existing financings and ensures that, should the situation intensify further, 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.
As of 5 September, Axpo had more than Chf2bn of liquidity at its disposal.
Axpo and other European electricity companies hedge their own production several years in advance, a widespread and internationally recognised hedging strategy “which Axpo applies conservatively”.
Axpo sells the electricity produced by its Swiss power plants several years in advance, minimising its future price risks, while its end customers, including large industrial energy users, can secure a guaranteed energy supply at a predictable price through long-term PPAs.
During the current situation, Axpo said its customers that have concluded such agreements benefit from comparatively low, stable prices and do not have to purchase electricity at today’s record highs.
To protect buyers and sellers, collateral is required on long-term power supply contracts, it said.
These funds are returned to the company as soon as the contract has been fulfilled, for example, when the agreed volume of power has been supplied.
The extreme price increases of recent months, particularly in recent weeks, have led to a “massive rise” in liquidity requirements across the European energy sector.
Axpo CEO Christoph Brand said: “Paradoxically, while in the short-term we are confronted with the challenges of an historic energy crisis, Axpo’s long-term outlook remains positive.
“By taking this action, we want to ensure that the company can continue to make its vital contribution to Switzerland’s security of energy supply, even if the highly uncertain market situation intensifies further as we approach the winter half-year.”
Fortum Corporation agreed with its majority owner, the Finnish State, on a bridge financing arrangement through Solidium, with which it aims to “ensure access to sufficient liquidity resources” if power prices and, with it, collateral requirements continue to rise significantly on the Nordic commodities exchange Nasdaq.
Currently, Fortum has sufficient liquid funds to meet the collateral needs.
The bridge financing is put in place now in accordance with the schedule and terms set by the Finnish state.
Using the arrangement is a last resort for Fortum, the company stated, and the arrangement cannot be used to cover collateral needs of Fortum’s subsidiary Uniper, while its Nordic power generating subsidiaries Fortum Power and Heat Oy and Fortum Sverige AB are parties to the arrangement.
The term of Fortum’s liquidity facility is one year and it matures in full within one year from signing.
“The uncertainty in the market remains high as we in recent weeks have seen historically high power prices. Last week, however, spot and futures prices and thus collateral requirements decreased from the highest levels.
“The arrangement provided by the Finnish state strengthens our liquidity backstop in the midst of the turbulence,” says Fortum’s President and CEO Markus Rauramo.
At market close yesterday on 5 September, Fortum’s standalone (excluding Uniper) collaterals tied up on Nasdaq amounted to approximately €3.5bn.
At their highest, the collateral requirements amounted to approximately €5bn based on closing prices of 26 August 2022.