Report: Q3 2020 Covid-19 Revenue Forecasts Update

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Report: Q3 2020 Covid-19 Revenue Forecasts Update

26 minutes
October 14, 2020 11:34 am

The Q3 2020 release of the EDHECinfra indices incorporates the views and asset-level revenue forecasts of our team of financial analysts.

by Jack Lee and the team

1.     Overview: Q3 Update – EDHECinfra updates to cash flow projections due to the impact of the Covid-19 pandemic on infrastructure investments

At the beginning of the third quarter of 2020, some countries began to ease their lockdown measures, particularly in Europe. For example, people other than key workers were allowed to travel to their jobs and make non-essential journeys on public transport. Schools and hospitality venues reopened.  However, towards the end of the third quarter, European countries including France and Spain have seen a resurgence of infections, likely signalling a second wave of the virus which may once again require the imposition of stricter measures (The Straits Times, 2020).

Our forecasts made in the last quarter remains applicable. We will continue to observe the unfolding events and will make new revisions should the severity of the event escalates further. That said, we have revised the basis for road companies, and also some rail companies. These amendments are based on changes in traffic data and also on an update to the government agreements with some rail companies.

Back in Q2, we expanded our focus to encompass more sectors and also applied appropriate revisions at the company level. We took this action as we had begun to see more evidence of how the Covid-19 lockdowns and other side effects were impacting a wider range of the infrastructure universe. These additional sectors include non-renewable power generation, energy and water resources, renewable power, and network utilities. We have performed our forecasts at the asset level within each sector.

Those business models most impacted include merchant and regulated arrangements (as per the TICCS® Business-Risk Classification). These are long-term infrastructure contracts where variable underlying elements generate revenues, making an investment more susceptible to external economic shifts. This is in contrast with pure contracted business models, where the income derives from fixed and pre-agreed amounts that are stated within a contract. This latter type are typically far more insulated from shifting economic developments.

Further, we have not filtered these companies according to the TICCS® Geo-economic Classification and have included those that are exposed to both national and sub-national factors. This is in view of the fact that the pandemic’s effects are not limited to regional and global economic factors and are likely to put assets at a local and national level under pressure.

Based on our Quarter 3 updated review of our TICCS® Industrial Classification, we forecast that the following sectors will suffer the most substantial shocks from the various global lockdowns:

TICCS® Industrial Super-classes most affected
Code Name
IC10 Power Generation x-Renewables
IC40 Energy and Water Resources
IC60 Transport
IC70 Renewable Power
IC80 Network utilities

2.     IC10 Power Generation ex-Renewables

Q3 latest: electricity demand saw a steady recovery in the early part of Q3 when confinement measures were gradually softened in most countries. However, the need for non-renewable power generation remains low due to higher renewable power production level. Further, electricity demand declined again towards the end of the quarter due as the resurgence of new cases in Europe meant that many governments reintroduced stricter confinement measures. Thus, our Q2 forecasts remains valid at the end of Q3.

The transition away from fossil fuels had already created difficulties for traditional electricity generators. Given the lower operating costs and the intermittency of the generation of renewable assets, those generators that are more flexible are more likely to achieve better returns. As a result, coal-fired generation was facing challenges even before the Covid-19 crash (Schiavo, 2019). Gas-fired generators were also likely to be squeezed by the increasing penetration of renewables and as well as developments in electricity markets such as capacity contracts.

Further, with businesses shutting down or not returning to full operation, demand remains depressed in many regions, which affects realised power prices for merchant assets.

Industrial Classes in this TICCS® Segment
Code Name
IC1010 Independent Power Producers
IC1020 Independent Water and Power Producers


Rules applied:

The table below details the amount by which EDHECinfra has reduced revenue forecasts for the affected IC10 constituents, analysed at the asset level:

Countries Year Basis
Germany, Spain, the UK, Ireland, Italy, Portugal, Australia, the Philippines and Singapore 2020 Decrease forecast projection by 3-22%

These forecasts are based on detailed analysis of individual constituents to calculate the given range in the basis.


For European constituents, we have applied revenue reduction at the mid to higher end of the range. Demand in the power sector across European countries has seen significant slump because of the nationwide lockdowns.

Negative power prices began became the norm at various times in France, Germany and other European countries (Morison and Andrew, 2020), and continue to remain depressed.

  • Despite an easing of lockdown measures, demand for power in Spain is expected to remain low year on year for the remainder of 2020.
  • Further, electricity demand in Germany dropped significantly during the pandemic, with the wholesale price of electricity staying negative during the lockdown period. This situation arose mainly due to renewably-produced energy being the first to access the grid, an increase in renewable energy production in the same period and Germany being unable to export the excess electricity to neighbouring countries (Amelang, 2020).
  • The UK has had a record-breaking coal-free run since lockdown began, easily beating last year’s record of 19 days without electricity generated by the fossil fuel (Rowlatt, 2020). We have applied a 20% average decrease in the year 2020 for all UK constituents.

However, it is our view that in Europe the impact of lowered power prices on cash flows in the year 2020 will not be substantial, mainly due to the hedging strategies adopted by major European utilities. Typically, they have hedged about of 80-100% their output for 2020 and at least 50% for the first quarter of 2021 (Steiner-Dicks, 2020).

Taking all this into account, we assume significant economic impact for European constituents in the future, followed by gradual revenue growth once the economy is allowed to recover, but not returning to pre-Covid levels for more than five years.

Australia, the Philippines and Singapore

  • Australia started a lockdown on 23 March 2020 which has affected electricity demand, but not to the degree seen in some European countries. Across the National Electricity Market (NEM), electricity demand to date shows only a small decrease (Carol, 2020).
  • Singapore started a lockdown in early April, and this has affected electricity demand. On day one, peak electricity demand had already dropped by about 8-9% from the average peak of power demand (Yep, Odaka, Kanoi and Kumagai, 2020). We have consequently applied 10% revenue reductions to Singapore constituents.
  • The Philippines’s electricity demand shrank by 30% when compared with the same period a year before, according to the Department of Energy (DOE) (Velasco, 2020). We have incorporated this demand drop into our reduction estimates.

In these countries, we have assumed that the constituents will take the coming two years to recover and see revenues return to their levels level before the pandemic. However, this recovery period may be revised depending as the impact of pandemic responses on the general economy becomes apparent.

3.     IC40 Energy and Water Resources

Q3 latest: our Q2 forecast remains valid for Q3 with a pessimistic outlook of 3-5% decline, depending on region, with Europe hit harder than others. Merchant IC40 companies will see large declines in their revenue streams for the year, as high as -30%.

With OPEC agreeing to extend production cuts through July, oil prices have risen slightly. Though the International Energy Agency (IEA) increased its oil demand forecast for the year, global oil demand has not yet picked up considerably. The growth of oil demand remains depressed and consumption cannot fully recover until the global transport sector (particularly air transport) returns to normal. Our revenue forecast remains the same for IC40 Infra-companies.

The revenue streams of most IC40 assets are largely protected by long-term contracts. Though Asia has eased on lockdowns, demand remains limited and economies are embracing the possibility of a second wave. For LNG firms, low demand has caused supply contract re-negotiations and cargo deferments by importing countries, causing a built-up of floating cargoes. This has led vessels diverting to Europe, causing tanker congestion. Despite this, LNG demand still likely/forecasted to be at minimum contracted levels.

For Gas/Liquid Storages, capacities are fully contracted and revenue streams stem predominantly from storage rental income through leases. Low consumption has led to storages being filled to the brim and at maximum storage capacities. For all storage companies we track, they indicate smooth business operations.

Despite the recent pickup in oil prices, oil & gas prices remain strongly down on the year given that the pandemic has triggered reduced economic activity globally. This slump in demand has, in turn, precipitated an excess in overall supply, which has forced companies to rush and secure storage capacities for their supplies. Global oil and gas storages have consequently seen an unprecedented rise in their capacities. As a result, markets are experiencing the pressures of both low demand and excess supply.

As inventory levels rise and weak demand from the industrial, manufacturing and hospitality sectors persists, we anticipate that IC40 Infra-companies will be impacted negatively in the years ahead.

In terms of total expected loss for Energy and Water Resources firms, analysis by Rystad Energy has estimated that Oil and gas companies will incur a total loss of $1 trillion in revenues in 2020 (Turak, 2020). The figure can perhaps be reconciled by the fact that long-term contracts represent 70-75% of the LNG market. Exporters who are highly dependent on oil-linked contracts will hence, be vulnerable to declining revenues as a result of lower oil prices (Yep and Mohanty, 2020). In terms of recovery, this will consequently be highly dependent on the speed with which countries return to normal, specifically in those sectors mentioned above that are particularly reliant on oil and gas supplies. We estimate that, for this industry, it will take about two years.

Industrial Classes in this TICCS® Segment
Code Name
IC4010 Natural Resources Transportation Companies
IC4020 Energy Resource Processing Companies

Rules applied:

The table below details the amount by which EDHECinfra has reduced revenue forecasts for our affected IC40 constituents, analysed at the asset level:

Countries Year Basis
Germany, Spain, France, the UK, Italy, Netherlands, and Norway 2020 Decrease forecast projection by 5-30% (depending on the individual company’s proportion of revenue stream protected by long-term capacity contracts)
Australia and New Zealand 2020 Decrease forecast projection by 3-5%


IHS Markit estimates a reduction of 4% in the overall gas demand of the leading LNG importing markets in the year of 2020 relative to the pre-Covid outlook. However, the expected demand reduction results predominantly from reduced pipeline supplies, especially in Europe and is partially expected to come from indigenous production (BIC Magazine, 2020). This is in line with our conservative estimate of reducing European gas pipeline and liquefied natural gas companies’ revenue forecasts by 5%.

Snam, a company that shares similar infra characteristics with Italy’s Societa Gasdotti, said that it was difficult to give a ballpark estimate. The company has stated that it expects a minor impact on its 2020 results (Amara and Belaifa, 2020). Similarly, most Italian constituents follow the same expectation. Hence, no significant negative revenue growth rate are imposed for them. Consistent with our Europe’s estimate, we have likewise applied a 5% reduction for the first projection year from the current.

Enagas, the Spanish gas grid operator, highlighted that demand for natural gas in Spain at the end of the first quarter was down 2.4% from the same period a year ago. Still, the results of its first- quarter financial statements didn’t show a heavy impact from COVID-19 (Cawthorne, 2020). Enagas has remained largely resilient to the crisis in Q3 as its regulated assets in Spain have limited exposure to volume risk. Thus, our 5% estimate on the first year is more prudent as we see believe there will be an impact from the pandemic but with limited effects.

Pisto SAS, a France oil pipeline operator that follows a merchant business model, derives its revenue entirely by market forces like demand and supply. We have applied a revenue decline estimate to the company based on the latest global demand statistics. The basis also extends to other infra-constituents that follow the same business model in the region.

Australia and New Zealand

Australian gas pipelines constituents are likely to see about 3-5% reduction in revenue forecast in 2020, in our view. An example is APA Group, an operator of natural gas transmission in Australia. APA generates revenue based on business and customer capacity contracts, with agreed-upon monthly tariffs. The company, and others that follow the same revenue structure, are therefore shielded against the risks associated with short term volume volatility. It is our view that these companies, including those in New Zealand that we cover, are unlikely to face a substantially negative impact.

4.     IC60 Transport

The table below details the amount by which EDHECinfra has reduced revenue forecasts for our affected IC60 constituents, analysed at the asset level:

Industrial Classes in this TICCS® Segment
Code Name
IC6010 Airport Companies
IC6030 Port Companies
IC6040 Rail Companies
IC6050 Road Companies
IC6060 Urban Commuter Companies

4.1       IC6010 Airport Companies

Q3 latest: in Q3, domestic air travel start to show signs of recovery as more countries begin to loosen travel restrictions within their borders (IATA, 2020). Due to the continuing uncertainty for air travel, airports need to be well equipped with sufficient liquidity to sustain operations, including debt financing and equity funding to pay their debts when due. Many airports are seeking for additional funding and equity from shareholders ahead of time (Shaun Drummond, 2020).

It is in line with our view in Q2, where we expect a slight recovery in subsequent quarters. Thus, we have made changes in our Q3 estimates.

Rules applied:

The table below details the amount by which EDHECinfra has reduced revenue forecasts for our affected IC6010 constituents, following asset level analysis:

Countries Year Basis
Germany, France, Italy, Portugal, the UK, Australia, Chile and New Zealand 2020 Decrease forecast projection by 45-60%
2021 Decrease forecast projection by 15-30%
2022 Decrease forecast projection by 5-10%



  • We have estimated that German airports will see a reduction of 50% in the year 2020. Munich airport experienced a 65.8% decrease in passenger volume for the first half of 2020 as compared to 2019 (Munich Airport, 2020). As travel restrictions within the EU were lifted, a slow upward trend is expected.
  • In France, Groupe ADP, an airport operator based in Paris, released their financial results for the first half of 2020 and the traffic data is down by 62.2% as at June 2020 as compared to June 2019 (Groupe ADP, 2020).
  • In the UK, according to the Civil Aviation Authority (CAA), their passenger traffic data indicates that the year-to-date traffic of the airports in UK decreased by 42-60% as at June 2020 compared with June 2019 as a result of the impact from the pandemic. For example, Edinburgh Airport’s traffic data fell 55%, while Heathrow Airport highlighted a 58% reduction (CAA, 2020) and for the first half of 2020, Gatwick Airport’s passenger numbers dropped by 66%, pushing revenues down 61% to 144 million pounds and resulting in a 321 million pound loss (NASDAQ, 2020).
  • Similarly, in Italy, Aeropoti di Roma, the airport operator in the city of Rome, foresees a 50% passenger traffic decrease year-on-year following the closure of its main terminal (Fabrizio, 2020). August, Rome has reopened their borders for domestic travel within the EU countries only.

Since 15 June 2020, Europe has progressively lifted travel restrictions for EU countries, these being selected together by Member States. On 6 August 2020, Member States started lifting the travel restrictions at the external borders for residents in some countries including Australia, Canada and New Zealand. Member States and Schengen Associated countries have temporarily suspended all non-essential travel from those countries not on the list into the EU.

Therefore, based on the available news and statistical data, the passenger traffic decrease is forecast to be in the region of 50-60%, which aligns with our own estimated range.

Australia, New Zealand and Chile

  • In Australia, international borders were closed early on in the crisis (Gross, 2020). According to the Airport traffic data released by the Australian Department of Infrastructure, Transport, Regional Development and Communication, the decrease in passenger movements for March 2020 compared with March 2019 is in the range of 83-95% among Australian airports (Bitre, 2020). We have applied a 50% decrease in the year 2020 for Australian constituents, as international borders still remain closed in Q3.
  • In Chile, following the closure of borders that commenced on 18 March 2020, passenger traffic dropped by 49.2% in the second quarter of 2020 (Vinci Airports, 2020).
  • In New Zealand, Auckland Airport has experienced a decrease of 70.8% in July 2020 as compared with July 2019 and a year-to-date decrease of 32.4% as at July 2020 compared with July 2019 (Auckland Airport, 2020). New Zealand continues to remain in full national lockdown and we have estimated reductions of 50% for the year 2020.


Subsequently, we have moderated our decrease estimates to 15-30% in 2021 and 5-10% in 2022, based on an industry recovery from this economic pandemic. Current predictions are that the global economy will see in the region of $2.7 trillion wiped out by the epidemic (Orlik, 2020).

4.2       IC6030 Port Companies

Q3 latest: trading activity picked up in Q3 when compared with Q2. However, the outlook for global trade is still up in the air, supported by bleak GDP forecasts for the year and repeated waves of infection.

Our projections for Port companies following a merchant business model (subject to demand risk) can still be maintained at -25% and -10%.  For regulated and contracted Port companies, minimum volume guarantee or fixed revenue arrangements shield revenues from the impact of the pandemic. Revenue growth rates are applied at company level and typically range from -5% to -10% for the first year, depending on the level of contracted capacities.

The nature of the pandemic has cautioned us to estimate revenue growth rates with heavy reliance on economic indicators. Although projections indicate a V-shape economic recovery in most merchant Port companies, the COVID-19 could potentially have a lasting impact on consumerism, which could alter the shape of trading behaviour. Given this new ‘normal’, we do not shut out the possibility of an adjustment to an L-shape trajectory in Q4.

Rules applied:

The table below details the degree by which EDHECinfra has reduced revenue forecasts for the affected IC6030 constituents, following consideration at the asset level:

Countries Year Basis
Australia, Spain, France, the UK, Netherlands, New Zealand and Philippines 2020 Decrease forecast projection by 25%
2021 Decrease forecast projection by 10%

Similar to the projections set out in Q2, our projections for Q3 draws from the New Port Economic Impact Barometer, which showed that Port companies have experienced an average decline of 25% in container volumes (Notteboom, 2020).

Furthermore, the World Trade Organisation (WTO) assumes a material downturn of global trade in 2020 of between 13-32%, which averages about 22%. This finding agrees with our assumption of 25% (Bekkers, Keck, Koopman and Nee, 2020).

Although volumes at China terminals have recovered significantly given the easing of factory lockdowns, lockdown conditions are still apparent in importing countries, curtailing demand (Qiu and Woo, 2020). Thus, we maintained the forecast we set out in Q2 with an estimate that port companies will remain affected by global trade as recovery will take some time. Hence, an additional reduction of 10% has been applied in each company’s subsequent year.

4.3       IC6040/60 Rail and Urban Commuter Companies

Q3 latest: Rail and Urban commuter companies continue to take a hit from the slump of traffic flow triggered by government measures to control the spread of the virus. The easing of lockdown in some countries has resulted in positive traffic flow, and this will reduce the impact on revenue for this sector over the third quarter. However, the number of passengers commuting to work is still well below pre-Covid-19 lockdown levels as people are now more inclined to work from home or travel to work by car. Further, European countries began seeing a resurgence in infection numbers at the end of Q3 and began re-imposing some stricter measures.

In the UK, the Department of Transport (DfT) has extended the Emergency Measures Agreement (EMA) which expired in September this year until June 2021. The EMA protects train operators from negative impact to revenue and allows operation continuity (Briginshaw,2020).

Thus, we have adjusted basis made in Q2 for some constituents considering the lifting of lockdown measures in Q3 and positive data from mobility report.

Rules applied:

The table below details the amount by which EDHECinfra has reduced revenue forecasts for our affected IC6040/60 constituents, following analysis at the asset level:

Countries Year Basis
Australia, France, the UK and Sweden 2020 Decrease forecast projection by 12-46%
2021 Decrease forecast projection by 6-23%



In the UK, following the strict lockdown imposed by the government in March, various transport services have experienced slumping traffic flow, especially rail and urban commuter companies. The London underground, which usually transports 1.35 billion passengers annually, saw a 19% drop compared with levels a year before. It also forecasted that passenger income would decrease by as much as £500m (BBC, 2020).

In addition to extending emergency agreements with some of the nation’s rail operators, the DfT has reduced the fixed and predetermined management fee for the operators. The reduction is based on their performance in terms of factors including punctuality and passenger satisfaction.

Our calculations assume that constituents who signed up for the agreements will experience reductions of 40% in the year 2020. Some companies that did not sign up to the agreements may have actually expected smaller declines of 36%, given that the government started to lift lockdown restrictions enabling people to commute to work from July (Macswan, 2020). However, public caution persists, and the survey notes that a majority of workers are uncomfortable with taking public transport.

Similarly, in France, the government has recently also begun to ease the restrictions on access to public transports, with people able to start commuting to work in early June. We have estimated a 12% reduction in the year 2020 based on actual compiled data from the mobility report by Apple Maps (Apple, 2020).

We have a relevant constituent in Sweden, an airport rail link connecting Stockholm Central Station with Stockholm Arlanda airport. In this case, we have estimated the revenue fall based on the passenger traffic flow, which parallels Swedavia’s release of traffic flight data.


Similarly, reductions for the revenues of our Australian constituent, which is also an airport link, follow the forecast made to Australia constituents in the Airport sector.


We have reduced our decrease estimates for 2021, in keeping with the time estimated taken to recoup from the pandemic impact.

4.4       IC6050 Road Companies

Q3 latest: in Europe, with have changed our expected decrease in revenue for 2020 by an additional 4% compared to Q2. This is mainly due to the surge in Covid-19 cases seen in countries such as Spain (Badcock, 2020b) and France (CNA, 2020) from August as a result of the relaxed travel and movement restrictions (Badcock, 2020a). Consequently, many of these countries are either reintroducing tighter measures or plan to do so. With stricter rules imposed, traffic flow is expected to decrease, adversely affecting revenue generation.

Even so, road concessionaires with revenue models on availability or performance-based mechanisms are assumed to face minimal impact from Covid-19. Merchant road companies generate revenue from toll or shadow toll collection, which is positively correlated to traffic volume. The traffic flow has been adversely impacted by movement restrictions imposed by the government because of the pandemic. That said, many concessionaires have suffered from a severe decline in revenue based on recent data, and Fitch envisaged that the risk of decline may persist until the middle of 2022 (Fabrizio, 2020).

In the US, our expected decrease in revenue for 2020 has gone down by a further 5% compared with Q2. Instead of experiencing a second wave, as appears to be happening in Europe, the first wave has yet to end, and the daily number of new confirmed cases remains stubbornly high. Traffic flow in Q3 did not increase as much as forecasted, and hence, our expectation for Q4 has also been lowered.

In the Victoria state of Australia, we have added an additional 20% to our expected decrease in revenue for 2020 compared with Q2. Much Europe, this is mainly due to the second wave of Covid-19 hitting the region. However, for Australia, the resurgence is even worse than the first wave. The local government has re-enforced lockdowns (Nally, 2020) and imposed curfews (Murray-Atfield and Dunstan, 2020) in many affected areas. Traffic flow, as a result, has again decreased significantly.

For the rest of the affected countries, revenue forecasts remain the same as changes in government measures and evolvement of Covid-19 situation are in line with our expectation.

Rules applied:

The table below details the amount by which EDHECinfra has reduced revenue forecasts for our affected IC6050 constituents, after consideration at the asset level:

Countries Year Basis
Austria, Germany, Spain, France, the UK, Ireland, Italy, the Netherlands, Norway, Poland and Portugal 2020 Decrease forecast projection by 6-34%
2021 Decrease forecast projection by 3-25%
2022 Decrease forecast projection by 0-10%
US 2020 Decrease forecast projection by 23%
2021 Decrease forecast projection by 10%
Australia, Brazil, Chile, Solvakia, the Philippines and Malaysia 2021 Decrease forecast projection by 16-50%
2022 Decrease forecast projection by 5-35%
2023 Decrease forecast projection by 0-25%


We have obtained recent traffic data from Covid-19 Community Mobility Reports by Google Map (Google, 2020). Through the study of the relationship between current movement restriction measures imposed by the government and traffic volume movement, as well as the analysis of the extent of the impact, we have estimated the future traffic volume based on new government measures released.

We have calculated the average traffic volume movements using Google data for the respective existing phases of government controls. Using the calculated rates, we forecasted the traffic volume change for the future period based on news of movement restrictions, taking into consideration the duration and intensity of each phase. The impact on revenue is then determined by the forecasted change in traffic flow.

5.     IC70 Renewable Power

Q3 latest: With lockdown restrictions lifted in many countries, and the renewable energy sector is expected to bounce back. It benefits from growing demand and more stable energy prices in the market. Therefore, no further revision of the revenue forecast is required in Q3.

That said, GlobalData reported that global energy demand for Q1 2020 fell by more than 3.5% compared with Q1 2019 (GlobalData, 2020). Global demand is expected to decrease by 6% in 2020 overall compared with 2019. IEA analysis of data for 30 countries through to mid-April showed that the level of energy demand is driven by the length and severity of lockdowns imposed. Hence, in Q2, we revised the revenue forecast for impacted firms in our index to reflect this.

Across the world, this year has been characterised by a downtrend in demand for power due to the lockdown measures imposed by governments. It resulted in the ceasing of production and also halted provision on services like public transport. The fall in oil prices also drove down the price of electricity.

Renewable energy appears to be more resilient to this backdrop of low demand and falling prices, aided by the fact that producers have priority access to electricity grids over electricity produced by fossil fuels, as well as long-term binding contracts and power purchase agreements (PPA) which insulate them from market prices (Financial Times, 2020).

However, the above does not cover all renewable assets, and those with a merchant business model are dependent on market demand and the spot price. Furthermore, the PPA in some assets does not cover 100% of their revenue. A portion of their power is sold in the market on short-term contracts.

Industrial Classes in this TICCS® Segment
Code Name
IC7010 Wind Power Generation
IC7020 Solar Power Generation
IC7030 Hydroelectric Power Generation
IC7040 Other Renewable Power Generation
IC7050 Other Renewable Technologies

Rules applied:

The table below details the amount by which EDHECinfra has reduced revenue forecasts for our affected IC70 constituents, after consideration at the asset level:

Countries Year Basis
Germany, UK, Norway, Sweden, Brazil, Australia and Philippines 2020 Decrease forecast projection by 2-9%


A majority of European constituents are classified under the contracted business model. Their PPA includes a long-term agreement with feed-in tariffs (FIT) or fixed feed-in premium (FIP) that ensures revenue is protected from shocks – especially from this unprecedented event we are currently facing.

For constituents classified under a merchant business model, falling energy prices and the drop of market demand affects these constituents. However, we conclude that only a mild downtrend is expected because renewables power has priority access to the European power grid. Thus, we have estimated a 2-5% drop in revenue for merchant assets.

Finally, for constituents in Spain (regulated business model), power generation from renewable sources had been primarily promoted by FIT and a premium tariff mechanism is in place until 2012 when it will be replaced with a regulated remuneration scheme which guarantees a fixed rate of return for assets under this scheme. It ensures stability and predictability for renewable companies in Spain and revenue will not be impacted by current shocks.


In Brazil, all electricity consumption has to be backed by Power Purchase Agreements (PPAs) (Energiewende, 2020). These financial instruments are tied to a “physical guarantee” that limits the amount of electricity (per technology type) that can be sold via PPAs. The physical guarantee thus represents the amount of energy that can be delivered under a pre-defined degree of reliability. The energy produced are sold in two different contractual environments: the regulated market (ACR) and the free market (ACL).

The contract only guarantees the output quantity and not the price. As a result, renewable assets in Brazil are exposed to the spot price in the market and “physical guarantees” only cover up to a certain percentage of generator’s total output, with the remaining portion of the output subjected to market demand. Currently, it would appear that they are over-contracting and may end up suffering losses when they clear up the surplus energy in the short-term market at the Settlement Price for the Differences (PLD) (Soares and Barreto, 2020).

Thus, we have estimated revenue declining of between zero to -9%.

Australia and Philippines

Constituents in Australia and Philippines almost all follow a contracted business model. However, a few constituents follow partially contracted business model and these names are exposed to market conditions. Thus, revenue for these constituents will be impacted slightly. We have forecasted a range of zero growth rate to 5% reduction, dependant on the portion of revenue that are exposed to market conditions.

6.     IC80 Network Utilities

Q3 latest: EDHECinfra’s estimates of Covid-19’s impact on the utilities sector published in Q2 2020 still largely holds as of this quarter. Throughout Q3, there have been repeated spikes and waves of Covid-19 infections in many countries. For electricity distribution, the forecasted negative impacts on the economy continue to suggest that power demand will be dampened and remain below pre-Covid levels for at least the rest of this year. Extended periods of low demand potentially exert downward pressures on electricity prices, which further reduces the utilities’ revenues, especially if the providers have not insured their positions. According to McKinsey, regulators may also mandate lower utility prices across the board for an extended period, in the interests of users (Booth, 2020).

Similar to Q2’s observations, many governments in continents such as Europe and South America, where EDHECinfra’s utilities constituents are largely based, have also continued to grant tariff exemptions and suspend service cuts and late fees for low-income utility users (Schwartz et al., 2020). By comparison, electricity transmission networks are less impacted in terms of revenue compared with distribution networks due to the more contractual nature of transmission businesses. Hence, we are of the view that the revenue growth for utilities will be below pre-Covid levels up until mid-2021, before a slight normalisation with increasing growth following a discounted historical median revenue growth rate.

Across the countries that make up our index, a common trend can be observed in the network utilities names so far in 2020. Traditionally, this sector enjoys a consistent revenue stream. However, the pandemic has brought in a dynamic change to consumption patterns. As a result of the lockdown measures imposed by governments, there has been an apparent increase in household consumption but decrease in non-household usage, which normally contributes to a greater share of network utilities consumption. This combination resulted in an overall reduction in network utilities’ consumption.

The increase in the unemployment rate and accumulated losses from the temporary closure of commercial businesses have also led authorities to introduce relief measures, which include allowing for deferred utilities settlements for a significant range of businesses and households.

Industrial Classes in this TICCS® Segment
Code Name
IC8010 Electricity Distribution Companies
IC8020 Electricity Transmission Companies
IC8040 Water and Sewerage Companies

 6.1       IC8010/20 Electricity Distribution/Transmission Companies

Rules applied:

EDHECinfra has used the below calculations to generate revenue forecasts for the IC8010/20 constituents affected, at asset level considerations:


Countries Year Basis
UK 2020 Decrease forecast projection by 14%
2021 Decrease forecast projection by 12%
Australia and New Zealand 2020 Decrease forecast projection by 2-14%
2021 Decrease forecast projection by 4%

 Europe – UK

According to Fitch Rating (2020), Covid-19 has changed the utility consumption patterns of different customer groups. Most commercial businesses, education faculties and industrial factories have to close temporarily when the virus outbreak escalated. Many countries including the UK have imposed social distancing measures, including encouraging the maximum extent of working from home. As a result, although there is a slight increase in household consumption of electricity, this has been offset by the greater fall in consumption by non-household groups. In addition, non-household suppliers are temporarily allowed to defer up to half of the wholesale charges for their utility bills. However, we have applied an estimate of -14% given that various countries in Europe have begun to lift the restriction measures.

Furthermore, National Grid Electricity System Operator Limited expects the decline in electricity demand to range between 4% and 20% depending on the severity of the impact (National Grid Eso, 2020). This would result in a mean decline of around 12% which fairly coincides with our own estimate.

Australia and New Zealand

In Australia, the demand varies according to different regions where we have applied different reduction rates to revenue. Our estimate applied is in parallel with the updated demand outlook.

However, in New Zealand, the government has since lowered its Covid-19 alert system level and many social and business activities have resumed. Thus, we have applied a less drastic drop in revenue for the subsequent months.

6.2       IC8040 Water and Sewerage Companies

Rules applied:

EDHECinfra has used the below calculations to generate revenue forecasts for the IC8040 constituents affected, following consideration at the asset level:

Countries Year Basis
UK, Spain, and Italy 2020 Decrease forecast projection by 14-23%
Brazil 2020 Decrease forecast projection by 15-30%


Ofwat, the UK’s water services regulator, has introduced deferred payments schemes for business customers, including retailers (Ofwat, 2020). In the short term, deferment in customer payments will increase the potential for bad debts which would create liquidity issues and shortfalls in revenue, particularly in the current year of 2020. Concerns are apparent as the payment settlement mechanism has yet to be produced by the regulator (Ofwat, 2020). As of the current quarter, based on the limited information available for the water utility sector, we have an estimated decrease of 14% in the year of 2020.

For Italian constituents, we have estimated a reduction rate at 23% based on average consumption rates of electricity given our view that both types of utilities are likely to follow the same consumer usage pattern and with limited water utility data available.


In Brazil, the Covid-19 pandemic has created a severe economic impact on water utility consumers. As a result, there are ever-increasing defaulters and a lack of payments, which will in turn negatively affect the revenue generated by Brazilian constituents. In specific states, including Sao Paulo, the government introduced compulsory water supply continuity and stopped the suspension of water supply to consumers until end July as many consumers found themselves unable to settle overdue bills (Simoes, 2020). We have estimated a reduction of 30% for the year 2020.

Dividend outlook on Covid-19 impacted infrastructure investments

Under normal circumstances, infrastructure companies would pay their shareholder dividends annually with the source of fund typically coming from their reserves, and sometimes current year profits. However, in this unprecedented period where many infrastructure investments companies in the pandemic impacted sectors are trying to keep themselves afloat, are less inclined to distribute the same level of dividends as per previous years. Thus, dividend cuts and suspensions are inevitable.

Some of the listed infrastructure companies observe dividend cuts. For instance, both EDF and Engie are French infrastructure companies have announced that there will be dividend cuts in 2020 due to government pressure where they will not be eligible to receive the financial support (Black,2020). Both the France and Germany governments have highlighted that they will not provide financial aid to companies still paying dividends (Jennen, 2020). Therefore, we have estimated zero dividend pay-out in 2020 by those of our constituents that are situated in these two countries.

Furthermore, there has been limited information announced by unlisted companies regarding their dividend pay-out decisions for 2020. However, for IC6040/60 Rail and Urban Commuter Companies, specifically in the UK, the constituents are very much unlikely to issue any dividends in 2020. They face a crisis in sustaining their operations given that their revenue is substantially driven by passenger traffic flow. Many have signed up to the government measures for support, which will temporarily take over any profit or loss made by the constituents (Pickard, Powley and Plimmer, 2020). Thus, we have estimated zero dividends being paid out in 2020 by these constituents to be conservative, assuming all have low level of reserves and will be at financial risk should they chose to pay out dividends.

IC6040/60 Rail and Urban Commuter Companies
Country No. of Companies Basis
France 1 Zero dividend in 2020
UK 3

Turning to IC6010 Airport Companies, we have also forecasted that there will be zero dividend pay-out for some of these Airports. These Perth International Airport, which has announced that it  will pay no dividend in 2020 and cut the pay-out in 2021 too (Drummond, 2020). Also, Auckland International airport has announced its intention to suspend its interim dividend payment due to the economic crisis it is facing from the pandemic (Reynolds and Middlebrook, 2020).

IC6010 Airport Companies
Country No. of Companies Basis
Australia 1 Zero dividend in 2020 & 2021
UK 1
New Zealand 1 Zero dividend in 2020
France 1
UK 6
Germany 1
Chile 1

While for IC6050 Road Companies, there is one road company, Bonaventura Straßenerrichtungs, in Austria where we have applied zero dividend pay-out to three years subsequent from the current year. The company is currently in a distribution lockup and it is facing a potential event of default, with Moody’s expecting the company will not able to distribute dividends until after 2030 (Roumpis, 2020).

IC6050 Road Companies
Country No. of Companies Basis
Austria 1 Zero dividend in 2020, 2021 & 2022
France 10 Zero dividend in 2020
UK 1 Zero dividend in 2020