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Global Utility White Paper
CONFIDENTIAL

Electron's structural changes: Europe

• EU energy efficiency directive and load growth
• EU ETS (carbon market) changes
• Renewables build and power market distortions
• Mismatches between tariff rises and costs/capex
• Infrastructure spending impact on energy costs and power/gas competition
• UK capacity markets
• Large combustion plant directive (LCPD) (UK)
• Power market impact of nuclear phase outs (Germany) and new nuclear build (UK)
• Political interference on the continent (taxes, return formulas, tariffs)
• M&A, divestitures, privatizations' impact on power markets and changing utilities' risk profiles
• Bifurcation of sector valuation because of WACC changes
• European gas price delinkage from oil
• Ongoing renegotiation of Gazprom contracts
• European utility non-regulated investments moving offshore
• Erosion of the Italian power price premium
• New Italian water regulations
• Shale gas potential in Europe
• Implementation of Russian RAB-based regulation
• Electric vehicles

• Asian Utilities

The Asian utility sector is a tale of two worlds. One enjoys a stable regulatory environment and solid power purchase agreements, as in Hong Kong and Thailand; the other is a victim of government intervention, as in Korea and China. The two worlds can coexist in the same country, for example in Malaysia where independent power producers enjoy solid power purchase agreements while utility Tenaga, which is a large employer and which faces the consumer directly, suffers from political meddling. Capex cycles and potential regulatory changes, respectively, tend to dominate performance of the two sides. For example, Korea Electric Power has outperformed sharply at times in the past on even small steps toward fuel cost passthrough implementation. In India's chaotic power markets, outperformance could arise from even small steps toward implementation of urgently-needed reform, e.g. any movement to improve access to fuel supply (notably coal) for independent power producers. The dichotomy between the two "worlds" of the Asian utility sector provides ample opportunities to generate alpha.

The vast population and developing nature of the region, and consequent issues of energy security and environmental sustainability, create additional forces for structural change. For example, as China increasingly promotes natural gas usage, we will see gradual pricing reform, more natural gas imports, greater natural gas vehicle adoption and accelerating shale gas development.

Below is a partial list of structural changes driving long/short opportunities in Asia-Pacific (ex-Japan):

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Electron Capital Partners, LLC
For exclusive of Jeffrey Epstein
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