As the novel coronavirus spreads across Europe, lower power prices and the suspension of consumer bills are set to squeeze utilities and could lead companies to scale back their ambitious growth plans, at least temporarily.

The spreading pandemic has already put countries such as Italy, Spain and France on lockdown, with other governments in Europe also tightening their borders and EU member states set to approve a temporary ban on nonessential travel in the bloc.

Industrial producers have also responded to rising infections, with several steel mills in Italy stopping production and automakers shutting down their factories across the continent.

As the growing number of closures cuts demand for gas and electricity, power producers and even large integrated utilities could start to feel the pinch, according to rating analysts, and they could cope in part by cutting their capex plans.

"2020 is going to be a tough year," Antonio Totaro, a senior director at Fitch Ratings and deputy head of its utilities and transport group in Europe, the Middle East and Africa, said in an interview. "If we will have other countries locking down like Italy, and this will be disruptive for the companies for the large part of 2020 ... [then] I expect them to scale back, for sure."

Integrated utilities from Enel SpA in Italy to RWE AG in Germany and Iberdrola SA in Spain have been ramping up their investment plans, pledging billions to build more renewable power plants and reinforce their networks. The same goes for pure grid utilities like Red Eléctrica Corporación SA and Terna - Rete Elettrica Nazionale Società per Azioni as well as independent power producers like Uniper SE.

Although none of the companies have so far scaled back their investment plans, analysts say growth could be put on hold as companies either voluntarily constrain capital expenditure or as quarantines and other operational obstacles slow construction activity.

"We will have to see whether they are able to progress on time on some of their projects," Paul Marty, a senior vice president in Moody's EMEA infrastructure finance team, said in an interview. Although utilities are less exposed to the risks associated with the pandemic than many other sectors, delays are likely, Marty said.

Adding pressure, governments have started to put in place moratoriums on utility bills to help consumers. France President Emmanuel Macron announced a suspension of bills alongside a countrywide lockdown on March 16, and similar measures have been discussed in Italy and Spain, according to analysts. That could tie up companies' cash for an uncertain period.

Meanwhile, factory closures are already crimping demand and starting to filter through into lower power prices: baseload front-month contracts across Europe hit new lows on March 16, according to S&P Global Platts, dropping to their lowest level in at least three years in countries including Spain, France and Germany.

Sabrina Kernbichler, European power analyst at Platts Analytics, said in an email that traders seemed to be adjusting their expectations for lower demand. In addition, prices for coal and carbon permits under the EU's Emissions Trading System are trending lower, partly as concerns mount around an economic slowdown, and gas prices had been dropping on the back of low demand even before the outbreak.

"Demand destruction in Europe and elsewhere could lead to further downside depending on what [gas and coal] producers decide to do [and] when," Kernbichler said.

Companies with generation and supply activity — mainly so-called price takers like nuclear and hydropower producers — could particularly suffer from a mix of weak electricity demand and low commodities prices, Fitch's Totaro said, even as hedging and solid liquidity in the sector help stave off the worst effects.

Deutsche Bank already cut its utility price targets on March 13, by 18% on average, to reflect concerns over the economic impact of the coronavirus.

The investment bank slashed its target price for Finland's Fortum Oyj, which runs both hydro and nuclear plants, by 29% and research analyst James Brand also pointed to power price exposure for Enel and Iberdrola, although he added that high-quality integrated stocks should perform well if markets rebound.

Moody's Marty said others with fixed-cost generation that are exposed to market prices include Verbund AG in Austria, state-owned Statkraft AS in Norway and Electricité de France SA.

Uncharted territory

Analysts at Platts Analytics said while industrial demand for power and gas has started to fall, for example in Italy, a sustained drop for at least a year would be required to have an impact in line with the 2008 financial crisis. In 2009, industrial power demand in Italy, Germany and France was down annually by around 14%, on average.

But Marty noted that utilities are also better equipped to weather an economic crisis than they would have been some years ago. Exposure to commodity prices has lessened across the sector, as companies including Engie SA and Ørsted A/S have sold off oil and gas businesses. Most of the industry's earnings nowadays come from regulated networks and contracted generation.

Significant cash piles and high refinancing activity over the past few years could also help utilities weather the storm. Totaro said even weak results into 2021 as a result of softer power prices would be surmountable without threatening credit ratings.

"We can overlook one year of spiking ratios if we believe that the situation is going back to normal," Totaro said. "With the current situation, the utilities could even prove to be a kind of safe haven."

Still, only time will tell how severely impacted companies will be by the pandemic, added Moody's Marty. "It's a bit uncharted territory," he said.

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.