Labour win spells more regulatory clarity for UK utilities, JPM says

(Reuters) – British utilities are expected to benefit from an increase in investment and regulatory clarity after the centre-left Labour Party’s victory in the parliamentary election, analysts at JP Morgan said on Friday.

The FTSE utilities index was up 0.6% by 0921 GMT, with gains led by British Gas owner Centrica and power plant operator Drax.

British utilities had fallen sharply after the election was called in May due to fears of potentially tougher regulatory intervention. However, most of the downside has been priced in, analysts at Jefferies said in a note.

The Labour Party’s government will likely be “pragmatic” around further support for Drax Power Station, especially as it relates to security of supply, JP Morgan said.

“The less noise we hear about biomass power generation, the more positive we are that politicians will be supportive (or at least pragmatic) when considering future subsidies for Drax,” the analysts said.

Shares of Drax, which received approval for a carbon capture plan in January, were up 1%.

The brokerage also said that there is scope for more buybacks at Centrica due to further visibility on capital allocation. Its shares rose 2%.

Policy differences from the Conservative regime may be narrow, and a generally more expansive and interventionist policy framework could be supportive for UK utilities in terms of faster grid investments, the analysts said.

For water firms, the upcoming regulatory determination on July 11 is expected to solidify the sector’s growth story, with more investment needed for environmental performance to improve, JP Morgan analyst Pavan Mahbubani wrote.

Water regulator Ofwat had postponed the publication of its consultation on price review 2024 to next week because of the elections.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Varun H K)


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