The sector outlook follows similar warnings from fellow rating agencies Moody’s and Standard and Poor’s which have both cited challenging market conditions as reason to monitor the energy sector as well as its biggest companies, Centrica and SSE.
“The outlook revision is, in particular, driven by poor forecast profitability of thermal generation and increased political and regulatory risk, demonstrated by the recent Competition and Markets Authority (CMA) investigation into the industry,” Fitch said.
Political pressure and “customer attrition” have put pressure on the companies, while the generation side of the sector faces continued difficult market conditions.
Profitability for gas-fired power generators has been under steady pressure over recent years, with some temporary respite over the most recent summer, and Fitch profitability for coal-fired generators is now also beginning to decrease.
Although the sector outlook is negative the ratings outlook remains stable due to ‘the diversified business profiles’.