Energy shares soar as Conservatives set to win

Shares in big UK power generators soared on Friday morning as general election results pointed to a Conservative government.

Centrica led the way, trading about 9 per cent higher.

Markets were reacting with relief to the political news. Centrica, SSE and the subsidiaries of European utilities that make up the rest of the UK's big six power suppliers would have been hit with freeze on energy prices until 2017 if the opposition Labour party had won. Ed Miliband, the party's leader, had proposed forcing the companies to split their power generation and supply businesses and to open their books.

Moreover, Labour planned a new regulator that would have the power to cut bills from winter 2016 and strip energy groups of their licences if consumers were harmed. As such, a Conservative victory is the most benign outcome and a relief rally was under way, not just in energy company shares but in banks, gambling, tobacco and pub groups too.

Macquarie said: "This election result is extremely positive for UK utilities as the Labour base position of a price freeze could, in extremis, have caused financial distress for UK retail companies."

According to Bank of America Merrill Lynch, Centrica has avoided a possible 14 per cent hit to earnings per share by 2016, SSE 7 per cent and RWE, which owns RWE npower, a 9 per cent hit.

The expectation now is that the Competition and Markets Authority, which is undertaking a probe of the energy market, "will do its job without political interference", said BofA.

Analysts at Exane BNP Paribas, who saw a 5 per cent gain in Centrica shares, said: "It is clear that we will today see a relief rally in the shares of Centrica."

Iain Conn, new Centrica chief executive, will unveil a strategy revamp with the group's first-half results on July 30.

"2015 should also be an earnings trough."

City analysts said they expected a Conservative-led energy department - Liberal Democrat Ed Davey, the previous energy minister, lost his seat - to be less friendly towards renewables than Labour or the Lib Dems. The Conservatives have proposed a moratorium on onshore wind power.

Nevertheless, the Tories are keen to promote competition in energy supply. They are backing the introduction of smart metering by 2020 as a way for households to control their costs. Like the Lib Dems, they plan new rules that would force energy groups to allow customers to change their supplier within one day.

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