The credit ratings agency believes that a supply cut is unlikely and would have only a muted impact on utilities if the disruption occurred for a period of 6 months or less.
But should a supply disruption last for between 6 months to a year Moody’s predicts market prices for gas could soar by as much as 50%, which in the UK would drive wholesale power higher too.
For fixed-cost generation sources such as nuclear and renewables, operators would benefit from selling power into a market which has increased in value.
Similarly, coal-fired power generators could increase their profit margins due to the persistently low cost of coal relative to potentially rising gas-led power prices.
Moody’s sees some risk for gas suppliers operating in the UK, notably Centrica and SSE. The ratings agency says that political concerns over affordability may make it difficult to pass through rising gas prices, which could squeeze profit margins.
But overall neither utility is expected to face a negative impact from a prolonged Russian gas cut. SSE could expect a ‘neutral impact’, while the effect on Centrica would be ‘positive’, according to Moody’s.
“Increased gas prices could put downward pressure on supply margins the competitiveness of SSE’s gas fired generation is likely to be further reduced. However renewable and coal based assets are likely to benefit from higher wholesale power prices,” Moody’s said.
Of Centrica, Moody’s said that supply margin pressure would be offset by higher profits from its gas exploration and production business, while pressure on its gas-fired power assets are likely to be offset by higher returns from nuclear assets.
Wider implications of a prolonged gas supply disruption through Ukraine could include a “re-think” of the controversy surrounding shale gas exploration and a renewed push for renewable energy to help boost security of supply, Moody’s said.