Bank of America Lifts European Power Price Forecasts on Bullish Gas Outlook

Bank of America has raised its European power price assumptions following a significant upward revision to its natural gas forecasts, prompting higher earnings estimates across the utilities sector and a number of analyst rating changes. The bank's revised estimates for several integrated utilities and power generators now stand roughly 6-9% above market consensus for 2027 earnings.

Bullish Gas Outlook Drives Revisions

The adjustment is rooted in a more bullish forecast for natural gas from BofA's commodity research team. Analysts at the bank now see the average 2027 European TTF natural gas price at €55 per megawatt-hour, a substantial increase from the previous forecast of €39/MWh. The forecast for the fourth quarter of 2026 was also lifted to €100/MWh from €73.

Bank of America attributed the higher gas price outlook to several factors:

• Ongoing disruption to Qatari LNG exports via the Strait of Hormuz.
• Record-low European gas storage levels.
• Increasing demand for LNG from Asia ahead of the winter season.

Analysts view the price outlook as "finely balanced," noting that a mild winter could see prices fall to €50/MWh, while a cold snap could cause a spike to levels not seen since the 2022 energy crisis.

Impact on Utilities and Power Generators

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Reflecting the higher gas prices, BofA lifted its European power price assumptions by an average of €9/MWh, or about 9%, for 2027, and by €4/MWh (5%) for 2028. The bank expects utilities to capitalize on these higher prices through existing hedging strategies and gradual retail repricing, which it anticipates will drive earnings and guidance upgrades for the 2027-28 period.

While acknowledging the risk that EU governments could reintroduce price caps or windfall profit taxes, BofA stated that achieved prices are unlikely to reach levels that would interfere with its estimates, outside of markets where such caps are already in place.

Analyst Rating and Stock-Specific Calls

As a result of the revised outlook, BofA made several rating changes and highlighted specific companies poised to benefit.

• Verbund and ERG were upgraded to Neutral from Underperform, with the bank citing more than 15% upside to consensus earnings estimates for both firms.
• EDP and Endesa were flagged as having potential for significant earnings upgrades.
• SSE and RWE are expected to post strong results, with BofA seeing 7-8% upside to 2027 consensus earnings, partly due to their operations in regions with lower policy intervention risk and the benefit of inflation-linked assets.