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Rating action

Scope Ratings GmbH (Scope) has today affirmed the A-/Stable issuer rating on Norwegian integrated utility Å Energi AS (Å Energi). Concurrently, Scope has also affirmed the A- rating on senior unsecured debt and the short-term debt rating at S-1.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

The A- issuer rating of Å Energi reflects a standalone credit assessment of BBB+ and a one-notch rating uplift for the company's status as a government-related entity.

Business risk profile: BBB+ (unchanged). Å Energi's business risk profile reflects its position as one of Norway's leading utilities. It benefits from the company's diversified business model, with low-cost and carbon-free hydropower (ESG factor: credit positive) forming the entire power generation portfolio, access to hydro reservoirs, exposure to regulated power distribution, and sizeable downstream operations. Challenges include the large exposure to volatile power prices and the exposure to changing framework conditions in a single country.

Å Energi's operating profitability and efficiency remain solid overall. Despite being diluted by the sizeable downstream operations, the Scope-adjusted EBITDA margin* has averaged 23% over the last five years. The margin for Å Energi’s combined upstream and midstream exposure is expected to remain high, at around 50% or above, supported by the company’s cost-efficient hydropower generation. At the same time, the return on capital employed is expected to stabilise at around 15% (2024: 17%).

In 2024, Å Energi's EBITDA was NOK 6.5bn (2023: NOK 8.4bn) based on the company’s preliminary results for the year, which was slightly above Scope's forecast of NOK 6.3bn. The decline from 2023 was mainly driven by normalising earnings in Nordic Electricity Retailing in addition to lower power prices in south Norway, which drove down earnings in Hydroelectric Power.

In Scope's forecast, group EBITDA is expected to range between NOK 6.8bn and NOK 7.5bn in 2025-2027. This is based on power prices in south Norway (NO2) remaining at around NOK 600/MWh (2024: NOK 582/MWh), Å Energi’s hedging strategy, and EBITDA growth in Glitre Nett amid the current capex plan. In addition, Scope expects that Å Energi’s acquisition of Fredrikstad municipality's 51% stake in Fredrikstad Energi AS (FEAS) in November 2024 and the planned acquisition of hydropower plants from Orkla ASA (Orkla) later in 2025 will be accretive to the company’s operating results.

Financial risk profile: BBB+ (revised from A-). Å Energi’s financial risk profile has been revised downwards by one notch. This is due to increasing debt amid discretionary spending on acquisitions and extraordinary shareholder remuneration above Scope’s forecast from May 2024.

Based on the preliminary 2024 results, debt grew to NOK 16.9bn at YE 2024 from NOK 13.3bn at YE 2023, mainly due to the FEAS acquisition and the payment of an extraordinary dividend of NOK 1bn in Q4 2024. For 2025-2027, Scope expects that operating cash flow will be largely utilised for Å Energi's capex plans. Scope therefore anticipates that the planned acquisition of hydropower plants from Orkla and the maintenance of the dividend policy will require external financing, resulting in a further debt increase during 2025. As a result, Scope projects that leverage (debt/EBITDA) could increase to around 3x in the coming years, from 2.6x in 2024, and that interest coverage could decrease to below 10x.

Scope notes that Å Energi's rating headroom has shrunk given the higher debt. Rating pressure from rising financial risks could materialise if operating results weaken compared to Scope's forecast, or if capex or discretionary spending are higher than planned, resulting in a sustained debt/EBITDA of around or above 3.5x.

Liquidity: adequate (unchanged). Å Energi’s liquidity is adequate. While liquidity sources at YE 2024 are not expected to fully cover refinancing and forecasted negative free operating cash flow in 2025, this is mitigated by the company’s good access to external financing, as evidenced by its track record of regular financing with banks and in the domestic bond market.

Supplementary rating drivers: +1 notch (unchanged). Scope defines Å Energi as a government-related entity in accordance with its rating methodology for government-related entities. This is based on the majority ownership by municipal entities and the essential public services provided by the company, which include power distribution and large-scale hydropower generation. Based on the bottom-up rating approach set out in Scope's Government Related Entities Methodology, Scope assesses the public owners' ability ('high') and willingness ('medium') to provide financial support as unchanged, thus maintaining a one-notch uplift to the standalone credit assessment.

One or more key rating factors are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope's expectation that Å Energi will generate robust operating results that will support a debt/EBITDA of around 3.0x in the coming years through the company's investment and dividend plans, leaving some, albeit reduced, headroom to the negative rating trigger.

The upside scenario for the ratings and Outlook is:

1. Debt/EBITDA sustained below 2.0x.

The downside scenarios for the ratings and Outlook are (individually):

1. Debt/EBITDA at well above 3.0x on a sustained basis.
    
2. Loss of GRE status (remote).

Debt ratings

The senior unsecured debt rating has been affirmed at A-, in line with the issuer rating.

Scope has also affirmed the S-1 short-term debt rating. This based on the underlying A-/Stable issuer rating and reflects the company’s better-than-adequate access to bank and capital markets financing, which helps to mitigate the worse-than-adequate short-term debt coverage forecasted for 2025.

Environmental, social and governance (ESG) factors

Å Energi has a large exposure to cost-efficient hydropower generation. Unlike CO2-intensive power generation technologies, hydropower has low transition risks related to decarbonisation, which Scope considers a credit-supportive rating driver. In addition, the company's large hydropower assets must be at least two-thirds publicly owned, underpinning its government-related entity status.

All rating actions and rated entities

Å Energi AS

Issuer rating: A-/Stable, affirmation

Short-term debt rating: S-1, affirmation

Senior unsecured debt rating: A-, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; European Utilities Rating Methodology, 17 June 2024; Government Related Entities Rating Methodology, 10 December 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Per Haakestad, Specialist
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 22 August 2017. The Credit Ratings/Outlook were last updated on 16 May 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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