EU's Power Price Cap at EUR 180/MWh Leaves Runway for Earnings Growth; We Prefer RWE and Engie

In a state of the union speech on Sept. 14, President of the European Commission Ursula von der Leyen confirmed all proposals made on Sept. 7 to tackle the energy crisis, except a price cap on Russian gas. Proposals include a mandatory reduction of electricity use at peak hours with the aim of reducing overall electricity demand by 10% until March 2023 and a power price cap at EUR 180/megawatt-hours on "inframarginal" electricity producers, that is renewables, nuclear, and lignite. The commission also intends to reform the electricity market design.