09.09.2022 | Electricity price, hedging, liquidity - what you need to know
The credit agreement with the federal government is a precautionary measure. But why is Axpo applying for money when the electricity price is high at the moment? Precisely because. Here are the most important answers about the federal government's credit line for Axpo.
It's a paradox: Axpo's long-term prospects remain positive, but in the short term the company is facing the challenges of the energy crisis. By applying for a credit line in the current market environment, which is characterised by enormously high levels of uncertainty, and in preparation for the winter half-year, Axpo wants to ensure that the company can continue to make its contribution to Switzerland's security of supply even in the event of further distortions on the energy market. These 10 answers help to understand the background.
Axpo's Board of Directors and Executive Board decided to submit an application to the federal government for a credit line of up to CHF 4 billion on 2 September 2022. The Federal Council and the Finance Delegation approved this application on 5 September 2022. The credit line is considered subordinate to existing financing and does not require the provision of collateral. This ensures that Axpo remains in a position to cover the security deposits associated with the long-term electricity supply contracts for its customers in the event of a further deterioration in the situation and continues to make its important contribution to Swiss supply security. To date, Axpo has not drawn on this credit line and is doing its utmost to avoid doing so.
In the energy markets, collateral security must be provided when trading energy in order to protect buyers and sellers and to keep the market stable. These securities are deposited in a trading transaction. This is comparable to a rent deposit. The security deposits flow back at the latest after the electricity supply contract has been fulfilled. However, this mechanism was not designed for the extreme price increases of the last weeks and months. This is a historically exceptional situation that has led to unpredictable price volatility and a massive increase in liquidity needs in the European energy sector.
Axpo has been actively managing its liquidity risk for years and continuously implements risk-reducing measures. The end customer portfolio in Switzerland and internationally significantly reduces risk and liquidity requirements. The measures have also been massively strengthened since December 2021. In addition to various operational measures to reduce liquidity requirements, Axpo has successfully placed several bonds in recent months.
So far, Axpo has been able to cope with the extreme market distortions on its own. However, the situation has worsened again in recent weeks and further developments are unpredictable. The credit line is a safety measure against further distortions, which have become absolutely unpredictable at the present time.
Axpo has therefore decided to take this precautionary measure.
Axpo has placed additional bonds, taken out loans and used money from its international business in recent months. But there is always a limit. If there had been even greater distortions, we would not have been able to keep up with the money. And the cantons were unable to raise the money in the short time available, especially since there is no legal basis for doing so. That is why the Confederation created the conditions for the credit line.
Unprecedented distortions have already been occurring on the European energy markets since the 4th quarter of 2021. The situation has worsened massively in recent weeks. Wholesale electricity prices have increased more than tenfold compared to September 2021 and price fluctuations have reached new record levels in recent days.
Until now, Axpo has been able to master this challenging situation. However, as developments in the coming months are unpredictable, we have agreed a credit line with the federal government as a precaution. So far, Axpo has not drawn on this credit line and is doing its utmost to avoid doing so.
All over Europe, countries are supporting their electricity producers in this extreme situation with liquidity to stabilise the system and ensure security of supply in Europe (for example Germany, Sweden, Finland, France or the Czech Republic).
No, on the contrary. Axpo pursued a conservative and internationally recognized strategy. Axpo did not speculate on falling or rising prices, but agreed fixed prices for electricity production from Swiss power plants for 3 years in advance in order to protect Axpo and its customers. However, the security system was not designed for short-term price fluctuations of up to 10 times.
No, Axpo can meet all its obligations and continue its business as normal. The credit agreement is a precautionary measure. Axpo has not yet drawn any francs.
It's a paradox: Axpo's long-term prospects remain positive, but in the short term we are facing the challenges of this historic energy crisis.
The current problem concerns liquidity, but not the profitability of the company. The temporarily deposited collateral flows back at the latest after the electricity supply contract has been fulfilled, i.e. after the agreed amount of electricity has been delivered, similar to a rent deposit.