Elia Group Politics cloud the need for investments, but no turning back the clock

Elia suffers from negative downdraft as politics cast doubt on the expected RAB growth outlined in the grid development plans. In Belgium, there is currently a standstill in the government formation and in Germany an early election has been called. Also the rhetoric of president-elect Mr Trump does not bode well for US energy transition investments. For Elia specific, the Elisabeth Island and its budget have been subject of discussions that juggle with figures that are taken out of context. As the green party has been removed from the table, these projects appear low hanging fruit for cash strapped budgets that favour local social demands vs. global concerns. Disasters like Valencia does not yet ring a bell that these costs are related. A new Elia CEO to remind politicians of their responsibility for climate disasters should come soon. In this note, we zoom in on the Elisabeth Island as an example. Given the upside, we upgrade Elia to Buy from Accumulate.
The atmosphere is toxic, but no turning back the clock
The initial euphoria on green investments has soured into a deep pessimism. In GE and BE, green parties pushed for an end to nuclear power production and organised an “Energie Wende”. To bridge the time frame towards more renewables, Western-Europe relied on cheap gas from Russia, which fell apart as soon as their troops crossed the Ukrainian border. The acceleration in renewable investments, combined with interest rate increases and material cost inflation creates push-back from society as the rising bill of the transition is presented. However, we cannot go back in time and undo the nuclear switch off. Some new nuclear projects are started, but will take 10-15 years and also meet cost inflation for society. The Elisabeth Island is exemplary for this catch-22. It is a large scale project that will benefit beyond 2030 from its high up-front costs as more connections are combined on 1 platform, instead of building a steel structure for each additional MOG. (See our time schedule).
The Elisabeth Island as an example of long term vision and expertise
Recent news articles focus on alleged cost overruns and seem to cast doubt on the merits of the project will the first concrete caissons have already hit the sea floor. We believe this is an engineering expertise that can serve Elia in other regions and benefits from significant economies of scale over the long term.

The risks we identified and their potential impact on RAB growth