Economic environment 1)Sources: IMF (International Monetary Fund): World Economic Outlook, October 2020. IHS (Institute for Advanced Studies): Forecast of the Austrian Economy, 9 October 2020. WIFO (Austrian Institute of Economic Research): Economic Outlook, 9 October 2020 and Economic Data, URL: www.energieag.at/2020-110, 20 October 2020.
Following what can still be termed moderate economic development in the first six months, the second half of Energie AG Oberösterreich's (Energie AG's) 2019/2020 fiscal year (1 October 2019 to 30 September 2020) was fraught by the global COVID-19 pandemic and, in the context of it, by a significant slump in economic growth. Further geopolitical uncertainties, such as international trade conflicts and trouble spots, Brexit and climate change, receded into the background in view of the COVID-19 pandemic but will continue to characterise the economic environment in the future. Uncertainty about the future course of the COVID-19 crisis limits the reliability of forecasts by economic research institutes on the extent of the economic downturn and the speed of the expected recovery.
In its World Economic Outlook in October 2020, the International Monetary Fund (IMF) published slightly more optimistic forecasts than in April and June and anticipates a drop in global economic output by -4.4% in 2020. This slightly more optimistic assessment compared to the spring is primarily based on the extensive economic stimulus packages and monetary policy support in the major economies. Economic experts anticipate global growth of +5.2% once again in 2021.
Economic growth and inflation
YoY real change (in %)
Sources: IHS, IMF, WIFO
The IMF expects economic output to decline by -8.3% in the euro zone in 2020 (2019: +1.3%). By contrast, IMF experts expect a recovery with expected economic growth of +5.2% in 2021.
While the Austrian economy showed moderate growth of +1.4% in 2019, domestic economic research institutes have massively downgraded their forecasts for 2020 in the course of the reporting period, which had anticipated growth at +1.2% and +1.3% before the pandemic. For 2020, the Austrian Institute of Economic Research (WIFO), the Institute for Advanced Studies (IHS) and the IMF all predicted a decline in economic output of -6.7% to -6.8% in their forecasts from the beginning of October. However, they anticipated positive economic growth in the region of +4.4% to +4.7% for the 2021 calendar year. A further large-scale lockdown will probably lower these figures by -2.5 to -4.0 percentage points. The assumption for the inflation rate is +1.4% on average for 2020 (2019: +1.5%).
For the Czech Republic market, also relevant to Energie AG, a decline in the gross domestic product of between -6.2 and -7.5% is forecasted for calendar year 2020 (2019: +2.4%), while a significant recovery amounting to +5.0% is expected for 2021. Further downward corrections due to the intensifying COVID-19 situation in the last few months of the 2020 calendar year are also realistic for the Czech Republic.
Energy and climate policy environment
On 11 December 2019, the European Commission published its “Green Deal”, which envisages binding climate neutrality by 2050 throughout the EU as a central objective. In this context, the Commission announced on 16 September 2020 that the EU's greenhouse gas reduction target for 2030 would be increased from 40% to at least 55% compared to 1990. In addition, the Commission announced an upward revision of the target for the share of renewable energies in final energy consumption by 2030 from the current 32% to around 38.5% and an increase in the energy efficiency target by 2030 from 32.5% to around 36%. This will be accompanied by a doubling of the building renovation rate to 2%, a 50% reduction in CO2 emissions from new cars, an extension of the EU emissions trading system to the building and transport sectors, and a tightening of the upper limit for total emissions. The Commission will present concrete legislative proposals by June 2021 to implement the renewable energy and efficiency targets. For Austria this will mean significantly more ambitious energy and climate targets in the coming years up to 2030.
On 11 March 2020, the European Commission presented a new action plan for the circular economy. The new action plan includes legislative and non-legislative measures that cover the entire life cycle of products. All measures of the action plan are intended to contribute towards reducing the EU's carbon and material footprint.
The Coal Exit Act, which provides for a reduction and termination of coal-fired electricity generation in Germany, came into force on 14 August 2020. In combination with the nuclear phase-out by 2022, some 48 GW of power plant capacity will be taken off the grid by 2038 at the latest. The coal phase-out in Germany can therefore be expected to also have a significant impact on the Austrian electricity market and its prices.
Starting in 2021, the German government will introduce a national CO2 pricing system for the heating and transport sectors. The income will partly be used to relieve the levy under the Renewable Energy Sources Act as well as the burden on long-distance commuters. A double burden for industrial plants which already take part in the European emissions trading system has also been ruled out.
In due time at the end of 2019, the Austrian transitional government submitted a revised integrated national energy and climate plan 2030 to the EU Commission, taking into account the Commission's recommendations. Besides reducing greenhouse gases, the plan's objectives are massive expansion of renewable energies, increasing energy efficiency and reducing dependence on imports of fossil fuels. Information released by the Commission on 17 September 2020 relating to an EU-wide assessment of national energy and climate plans concluded that the current EU targets for greenhouse gas emission reductions and the share of renewable energies will be achieved by 2030, but that there is a lack of ambition in the field of energy efficiency.
The first federal coalition government between the Austrian People's Party and the Greens launched its government programme 2020 – 2024 for Austria on 2 January 2020. Both a more stringent national energy and climate plan and an ecological and social tax reform are envisaged as contributing factors to achieving climate neutrality as early as the year 2040. The building sector must also avoid the combustion of heating oil, coal and fossil gas for space heating and water heating in future. For coal and oil, the phase-out in new buildings will begin in 2020 and is due to be completed for all boilers by 2035 at the latest. In terms of the expansion of green electricity, the very ambitious balance-sheet target of 100% renewable energy (measured in terms of Austrian electricity consumption) is envisaged for 2030.
On 16 September 2020, after protracted negotiations, the draft of the Renewable Energies Expansion Act package was submitted for review. The comprehensive legislative package provides for a massive expansion of energy generation from renewable sources in Austria and, by implementing new market players such as “renewable energy communities”, will lead to increased competition and reinforces the trend towards a decentralised energy supply. By 2030, gradual expansion is expected to achieve an increase in installed capacity of about 17,000 MW and thus generate an additional 27 TWh of renewable electricity in 2030, which corresponds to almost 50% of current generation from renewable energy sources. In addition, the draft evaluation report contains numerous other provisions, for example, simplified grid access for small renewable generation plants and new transparency requirements for grid operators. Provisions on grid reserve management have also been included, and there are regulations to end the double tariff burden on newly constructed pumped storage power plants and provide for procedural simplifications in the law on high-voltage electricity transmission. In the course of the review phase, national expert groups and industry associations introduced clarifications and amendment requirements relating to individual topics to the discussion process.