KELAG AG

The positive outlook reflects our expectation that KELAG will post exceptionally strong credit metrics in 2023 and 2024, which could lead to rating upside depending on the company's capital allocation and financial policy. Public policy addressing affordability concerns by capping earnings could limit rating upside. We could revise our outlook to stable in the event of political intervention leading to a less favorable operating environment for KELAG, or if we believed that realized power prices for any other reason were to soften back to historical levels. We could also revise the outlook to stable if we forecast that, despite favorable earnings, KELAG's capital allocation was to result in funds from operations (FFO) to debt below 60%. This could stem, for

...We expect KELAG will capitalize on higher electricity prices over the coming years, reflected in funds from operations (FFO) to debt of about 60% by 2024. Despite reduced electricity prices compared to our previous base case, we think KELAG will keep benefitting from high power prices. In 2022, it generated about 2.7 terawatt hours (TWh) of power, which was about 18% below KELAG's long-term average, due to poor hydro conditions. With its 96 hydro power plants, KELAG stands to benefit materially from a low marginal cost in relation to hedged power prices for the next two years, of above 130/MWh. As a result, we forecast KELAG's EBITDA to exceed 500 million by 2024, compared to 302 million as of 2022. From this favorable position, we anticipate KELAG's credit metrics will increase toward the upside rating trigger of FFO to debt of 60% by 2024. KELAG should therefore continue to enjoy increased earnings visibility, with 80% coming from power generation in 2023 and 73% in 2024, while generating...

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