By Susanna Twidale, Isla Binnie and Stephen Jewkes

LONDON/MADRID/MILAN (Reuters) – Several European power firms have been shut out of bumper revenues from record high gas and electricity prices as their sales are largely locked in at lower prices, and face extra pressure from governments acting to protect consumers.

The power generators fear that government intervention may prevent long-term investments necessary to support the bloc’s energy transformation plans. Smaller retail suppliers with less capital could also go bankrupt, limiting consumers’ options.

Low stock levels, high demand for gas in Asia, as well as infrastructure problems have all contributed to the rise of European benchmark gas prices. These factors, along with low prices, have caused power prices to soar to unprecedented heights throughout Britain and Europe.

Generators that use nuclear, renewable, wind, or hydrogen should find it profitable, as they are able to take advantage of the increased wholesale prices while also not having to incur higher costs for coal and natural gas.

Generators are claiming that they have not been able to reap the benefits of having hedged their forward sales. However, government actions in Spain have sparked outrage.

According to Spain’s electricity suppliers association AELEC (EDP, Endesa Iberdrola (OTC):), 100% of the generation companies sold their base (hydro/nuclear and renewable) forward in 2021, while 75% of 2022 production was sold months before, at significantly lower spot prices.”

Endesa, a unit of Europe’s biggest utility Enel (MI:) blamed the impact of soaring gas prices for a 3% drop in earnings for the first half of the year.

The Spanish government intervened to protect generators and reduce perceived excess profits.

Analysts at Barclays (LON:) forecast the impact on Iberdrola, Spain’s largest power generator, which both generates electricity and has retail customers, at more than 450 million euros for 2021.

Iberdrola spokeswoman said that the current regulation in Spain had made it more difficult to address rising electricity and gas prices. This was at an important time when multi-billion Euro investment plans are being implemented to cut emissions.

The intervention in Spain won’t solve these problems… The spokesperson stated that this reaction would only cause more problems for customers over the coming months and years.

Madrid’s actions have thrown off shares of power companies. Enel trades at more than 6.6% lower than Monday’s, and Iberdrola sees more than 8.8% of its value removed from the market this week.

“ABSOLUTELY FLABBERGASTING”

The move has raised the spectre of possible interventions in other countries.

Germany is currently discussing energy prices in the lead-up to Sept. 26 elections.

Two sources claim that Italy is considering reexamining the calculation of electricity bills in order to reduce prices. Retail power prices have been rising by 40%.

Equita in Italy said that while the 1 billion euro worst-case effect on Endesa core earnings is worrying, it’s actually the worsening regulatory and fear about similar moves being made elsewhere.

“It is absolutely flabbergasting that countries randomly break into the market and confiscate revenues, making it impossible for companies to make the necessary modernisation improvements for those generation assets that are going to carry the security of the grid,” said Kristian Ruby, Secretary General of Eurelectric, Europe’s electricity industry federation.

The price effect has been felt in Britain by some small suppliers of energy, who are less capable of hedging their needs.

According to Dan Starman of Cornwall Insights, Head Assets and Infrastructure, “Small suppliers have lower operating capital and less ability to hedge forward. This means that any unhedged position will be harder to meet the current spike in wholesale price,” Starman said.

Just this month, four smaller British power companies that had more than 600,000.00 customers each stopped trading. More could be coming. [nL1N2QG1CT}

Ofgem earlier this week issued independent supplier Arvo Energy, which has round 40,000 customers, with an order requesting further details on its financing. Reuters was unable to contact Arvo Energy for comment.

Britain already has a cap on the amount suppliers can charge for their standard tariffs set by regulator Ofgem. This is set to rise to an average of 1,277 pounds ($1,762.90) a year but industry sources said on current prices the average would be more than 1,500 pounds a year.

Another price cap review will be announced next February with most analysts predicting another rise to come.

($1 = 0.7244 pounds)