Blog Post

I haven’t updated this blog lately, and I apologize, at least to all
the poor souls out there who like to read my disconnected thoughts.

Covestor opening up to the world and a friend’s blog kept me busy.

I’m here now and ready to entertain you with some more random rumblings.

Last week’s Economist had a piece about the perilous situation of energy and electricity companies in Spain.

If you’re looking for a dog to short, this is definitely it.

Electricity prices in Spain have been reasonably low and their
growth has been somehow independent from inflation. The reason behind
this odd behaviour is that the tariffs private company can impose are
regulated by the government.

Spain has often come under attack by the European Commission for its
policies and this issue has almost always been central in all debates.

This is all fine and dandy so long as production costs and inflation
remain within forecasted patterns. Nowadays with petrol prices
rocketing ever upwards and the Euro area economy moving forward - or
rather backwards - this is not proving to be efficient.

The difference between what costs energy companies to produce the
electricity Spaniards use and what they can charge for it has now
ballooned to a whopping €14 billion ($22 billion), according to the
Spanish National Energy Commission (CNE).

The Economist was kind enough to do the math for us:

Just to stop the deficit from getting bigger would mean
raising prices by 20%, according to Unesa, the Spanish power-industry
association. To repay it will mean increasing prices still further.
Paying it back over the next 15 years would require price rises of
nearly 35%.

Unless the government moves to deregulate this industry quickly
they’ll find themselves with a ticking bomb in their hands. Considering
the usual slowness of bureaucrats I’d say this is definitely something
worth exploiting.

We can spot a definite pattern on these two charts I nicked from Yahoo! finance UK. Iberdrola and Endesa are Spain biggest energy companies (that I know of) and they have been going steadily down as oil prices took off.

Update: Since this post was published Endesa has gone own almost 2€!