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Verbund AG: Europe's Green Energy Giant Hidden in Plain Sight
Introduction & Episode Roadmap
High in the Austrian Alps, where glacial meltwater cascades down from peaks exceeding 3,000 meters, sits one of the most remarkable energy stories in Europe—one that began not in a boardroom, but in the rubble of post-war reconstruction. Picture the scene in 1947: Austria, a nation divided among four occupying powers, faced chronic electricity shortages. Factories sat idle. Homes went dark. Into this desperate moment, legislators passed the Second Nationalisation Act, creating Österreichische Elektrizitätswirtschafts-AG—the tongue-twisting precursor to what the world now knows as Verbund AG.
Today, Verbund AG is Austria's largest electricity provider, covering around 40 percent of electricity demands in Austria and generating 90 percent thereof from hydropower. This is not your grandfather's utility company—though, quite literally, it may have powered your grandfather's home if he lived in Central Europe. As of December 31, 2024, the company operated hydropower plants with a capacity of 8,468 megawatts (MW); wind farms with a capacity of 874 MW; solar power with a capacity of 308 MW; and two thermal power plants.
The numbers tell a story of scale that defies the company's relatively modest profile outside Europe. Revenue reached €8.2 billion in 2024, with EBITDA of €3.48 billion—a decline from the extraordinary 2023 figures of €10.4 billion and €4.49 billion respectively, yet still representing financial performance that would make most utilities envious. The company employs approximately 3,800 people—a remarkably lean workforce for an organization of this impact.
The largest shareholder, at 51%, is the Republic of Austria. This isn't simply a legacy shareholding that the government has been slow to divest; it's a constitutional requirement, embedded in Austrian law. This makes Verbund a peculiar creature in the modern utility landscape: majority state-owned yet publicly traded, constrained by political considerations yet generating returns that put purely private competitors to shame.
The central question this deep dive will attempt to answer: How did a post-WWII nationalized utility become one of Europe's greenest and most profitable energy companies—and what does it teach us about building century-long moats in regulated industries?
The themes that emerge are ones any long-term investor should study: infrastructure as national identity, the EU liberalization transformation that nearly destroyed the company, the 2022 energy crisis windfall that supercharged its balance sheet, and the renewable pivot that positions Verbund for the next energy transition. This is a company whose hydropower plants, built with Marshall Plan dollars in the 1950s, still generate cash flows today while simultaneously serving as giant batteries for the intermittent wind and solar power of tomorrow.
Post-War Origins & The Marshall Plan Era (1947–1970s)
Founding Context: A Nation Rebuilding From Ruins
In the bitter winter of 1947, Austria faced an existential challenge. The war had devastated infrastructure, displaced millions, and left the country partitioned among American, British, French, and Soviet occupation forces. Electricity—the lifeblood of any industrial economy—was desperately scarce. It was in this crucible that Austrian legislators made a decision that would shape the nation's energy future for generations.
When Verbund was founded in 1947 as 'Österreichische Elektrizitätswirtschafts-AG' under the 2nd Nationalisation Act, electricity was in short supply in Austria. Verbund was given the task by the legislator of rebuilding and expanding Austria's electricity system.
The company name itself—Verbund, meaning "interconnection" or "network"—reflected its founding mission: to create a unified electricity grid in a fragmented nation. In the post-war years, the company's most urgent task was the planning, construction and operation of large power plants as well as the operation of the supraregional power grid. At the same time, special purpose vehicles (SPVs) were established to promote the construction of large hydropower and thermal power plants.
What followed was one of the most ambitious infrastructure buildouts in European history, financed by one of history's most successful foreign aid programs.
The Strategic Bet on Hydropower: Mountains as Moats
Austria's geography presented both challenge and opportunity. The alpine terrain that made the country difficult to traverse also provided something invaluable: steep river valleys capable of generating enormous amounts of hydroelectric power. Austrian engineers and policymakers recognized that the nation sat atop an energy goldmine—if only they could mobilize the capital to exploit it.
With the help of the Marshall Plan, important projects such as the Kaprun and Ybbs-Persenbeug hydropower plants were realised in the first few years. With enormous effort and financial help from the Marshall Plan, the storage power station in Kaprun was completed in 1952.
The Kaprun hydropower complex, nestled in the Hohe Tauern mountains near Salzburg, became the symbol of Austria's reconstruction. Construction began under the Nazis. It was finished by America after the war with Marshall Plan funding. A faded European Recovery Program shingle still dangles at the head of the dam. The project's scale was staggering for its time: massive concrete dams holding back alpine reservoirs that could power turbines capable of generating electricity for hundreds of thousands of homes.
52 per cent of the ERP funds were invested into the nationalised industry, most of all into the electricity industry and there most into the Kaprun construction site. The American investment was strategic—ensuring reliable power for the Western occupation zones and, by extension, for an Austria that would serve as a bulwark against Soviet influence in Central Europe.
It was ultimately completed in 1955, with substantial means provided by the "Marshall Plan". Because of the immense physical and mental dedication of the "Men of Kaprun" and its gigantic size, the power station quickly became a symbol of the Austrian reconstruction.
The "Men of Kaprun" entered Austrian folklore—hardy workers who labored in brutal alpine conditions to build monuments to postwar renewal. The project became a founding myth for the Second Austrian Republic, a story of national redemption through engineering prowess and collective sacrifice.
The Nuclear Crossroads: Austria's Defining Moment
By the 1970s, the global energy landscape had shifted dramatically. The 1973 oil crisis sent shockwaves through economies worldwide, and governments scrambled for alternatives to petroleum dependence. For many European nations, the answer was obvious: nuclear power.
Austria seemed poised to join the nuclear club. Construction of the first Austrian nuclear power plant in Zwentendorf on the Danube, about 30 kilometres upstream from the capital, Vienna, began in 1972. Zwentendorf Nuclear Power Plant was designed as a boiling water reactor with a capacity of 700 MW(e), that was expected to generate about 10% of the Austrian electricity production.
This commitment to nuclear energy was further cemented by the 1973 oil crisis and growing energy consumption, which led the Austrian government under Chancellor Bruno Kreisky to strengthen its nuclear stance. In Austria, three nuclear reactors were planned to be built, with the plant at Zwentendorf being the first. After the first permit was issued, construction started immediately on the boiling-water plant rated at 730 MW.
Then came one of the most consequential referendums in European energy history.
Nuclear power promised a way out of the energy crisis of the 1970s, but it was never connected to the grid in Austria. As soon as the Zwentendorf nuclear power plant was completed, the population decided against its commissioning in a referendum in 1978.
The start-up of the Zwentendorf plant, as well as the construction of the other two plants, was prevented by a referendum on 5 November 1978, in which a narrow majority of 50.47% voted against the start-up. The margin was razor-thin—just 30,000 votes out of more than 3.2 million cast. But the consequences were permanent.
Politicians and the electricity industry quickly decided in favour of greater energy security through the expansion of hydropower. In the 'Seventies', three hydropower plants were built on the Danube, including the largest in Altenwörth (Lower Austria) and the Malta storage power plant (Carinthia) with the highest dam in Austria.
This single referendum locked Austria—and by extension, Verbund—into a green energy path decades before "ESG" became an investment acronym. While neighbors like France embraced nuclear power (generating roughly 70% of its electricity from atoms) and Germany built coal plants alongside reactors, Austria doubled down on the renewable resources it had in abundance: running water.
The decision looks prescient today. Austria never faced the nuclear waste dilemmas that plague other nations. It never experienced a Chernobyl or Fukushima-style crisis. And when climate change became the defining challenge of the 21st century, Austrian utilities found themselves with generation portfolios already dominated by carbon-free hydropower. Sometimes the path not taken—forced by democratic choice rather than strategic foresight—proves to be the wisest path of all.
For investors, the Zwentendorf episode offers a crucial lesson about regulated utilities: political and social license matters as much as technical efficiency. A utility that builds the wrong infrastructure, no matter how economically rational, can face stranded assets and existential regulatory challenges for decades.
The IPO & Pre-EU Era (1988–1995)
Partial Privatization: Opening the Ownership
For four decades, Verbund operated as a fully state-owned enterprise, its corporate destiny tied entirely to Austrian government priorities. Initially, Verbund - pursuant to prevailing legal principles - was one hundred percent nationalized. This structure provided stability but also constraints—capital was limited to what the state budget could provide, and strategic decisions were inevitably colored by political considerations.
The transformation began in 1987, when Austrian legislators recognized the need for private capital to fund the next phase of infrastructure expansion. In mid-1987, the second nationalization act was amended to the extent that Verbund could be partially privatized, as long as 51 percent remained in government hands.
1988 was an important year for Verbund, as 49% of the company was privatised in the course of an IPO and Verbund took over the federal government's shares in the special companies (e.g., Donaukraft).
The IPO represented more than a capital raise—it was a philosophical shift. Private shareholders would now demand returns, scrutinize management decisions, and impose the discipline of capital markets. At the same time, Verbund acquired the shares of the Republic of Austria in the special purpose vehicles (Österreichische Donaukraftwerke AG, Österreichische Draukraftwerke AG, Tauernkraftwerke AG, Verbundkraft Elektrizitätswerke GmbH, Ennskraftwerke AG, Donaukraftwerk Jochenstein AG and Österreichisch-Bayerische Kraftwerke AG).
This consolidation of the SPVs created a more unified corporate structure, bringing the scattered hydropower assets—each previously held in separate legal entities—under direct Verbund control. The company that emerged from the 1988 restructuring was leaner, more focused, and better positioned to compete in what would soon become a radically different market.
Building the Infrastructure Empire
Verbund operates 20 storage power plants and 88 run-of-river plants in Austria; these plants are located in the alpine regions of Salzburg, Tyrol, Carinthia and Styria, as well as along all major rivers such as the Inn, Danube, Enns and Drau rivers.
The distinction between storage and run-of-river plants is crucial for understanding Verbund's business model. Run-of-river plants generate electricity continuously as water flows past their turbines—they provide baseload power but have limited flexibility. Storage plants, by contrast, hold water in reservoirs behind dams, releasing it when electricity is most valuable. This "dispatchable" generation acts as a natural battery, smoothing out supply and demand imbalances.
The Tyrolean pumped storage facilities created the basis for the system of base load and peak load generation that guarantees the security of the electricity supply.
Pumped storage takes this concept further. During periods of low electricity demand (and prices), these facilities use excess grid power to pump water uphill into reservoirs. When demand spikes, the water rushes downhill through turbines, generating power at precisely the moment it commands premium prices. He's helped rig the facility to generate power at a moment's notice, using a network of winding tunnels and reservoirs built into the side of the country's tallest mountains. The station functions as a giant battery, by using energy when it's abundant—and cheap—to pump water to a mountaintop reservoir. There it sits in the bluest of blue Alpine lakes until power demand spikes. At that moment traders 250 miles away in Vienna open the dam, spilling that same water downhill to spin those turbines, and selling the resulting electricity at higher prices.
This infrastructure, built over decades and largely depreciated on the balance sheet, represents one of Verbund's most enduring competitive advantages. New market entrants cannot replicate seventy-year-old dams; they cannot buy the geographic blessings of alpine topography; they cannot manufacture the water rights and environmental permits accumulated over generations.
For investors, the 51% state ownership mandated by constitutional law creates an unusual situation. On one hand, it provides extraordinary stability—no activist investor can accumulate a controlling stake, no hostile takeover is possible, no private equity firm can load the balance sheet with debt. On the other hand, it means private shareholders are permanent minority holders, dependent on state priorities aligning with shareholder returns. The Austrian government's dual role as regulator and majority owner creates inherent conflicts that sophisticated investors must weigh carefully.
INFLECTION POINT #1: EU Accession & Market Liberalization (1995–2005)
The Existential Threat
January 1, 1995, marked a turning point that threatened to upend everything Verbund had built. The most significant break in Verbund's history occurred in 1995 – this was the year that Austria entered the European Union, which, one year later, launched the deregulation of the electricity market.
For decades, Verbund had operated in a protected environment where competition was limited, prices were regulated, and market share was essentially guaranteed. The EU's electricity liberalization directives changed everything. Suddenly, customers could choose their power suppliers. Borders became permeable to electricity trade. The cozy world of national champions faced invasion by foreign competitors with lower costs or better technology.
The most significant break in Verbund's history occurred in 1995 – this was the year that Austria entered the European Union, which, one year later, launched the deregulation of the electricity market. In order to better prepare for this complete opening, Verbund concentrated on the core business of electricity and restructured the Group, a result of which was that the activities were consolidated in a strategic holding company with the business divisions of generation, trade, transmission and equity interests.
The Strategic Transformation
Verbund's leadership recognized that survival required reinvention. The company embarked on a wrenching transformation that would reshape every aspect of operations.
In 1999, VERBUND was the first company to fulfil the new EU competition rules by separating the grid subsidiary under company law. This unbundling—separating generation from transmission—was mandated by EU regulations designed to prevent vertically integrated utilities from discriminating against competitors seeking grid access. Verbund's proactive compliance positioned it as a good corporate citizen in the new regulatory environment.
EU regulations required unbundling of generation and transmission of power as stipulated by company law. At the same time, the company promoted its international activities, beginning with Germany in 1999. Also, by 2003, more than half of the personnel had been let go without notice.
That last statistic deserves emphasis: more than half the workforce eliminated in the span of a few years. This was not gradual attrition—it was corporate surgery, painful and necessary. The protected monopoly had grown fat; competition demanded lean operations. Jobs that existed to serve bureaucratic processes rather than customers or shareholders were eliminated without sentiment.
Cross-Border Leasing: Financial Engineering Under Pressure
To finance the restructuring and expansion required by the new competitive environment, Verbund's management turned to creative financial engineering. In order to finance the restructuring and expansion of the Verbund Group, eight Austrian Danube power plants were leased in the period from 1997 to 2000 as part of a cross-border leasing agreement with an American financial company and leased back without property transfer. In 2009, the backtransaction of virtually all leasing transactions was decided and, for the major part, implemented that same year.
Cross-border leasing was a tax arbitrage strategy popular among European utilities in the 1990s. The mechanics involved leasing assets to American investors who could claim depreciation deductions under U.S. tax law, then leasing them back at lower effective rates. Verbund retained operational control of its power plants while extracting upfront cash from the tax benefits.
The strategy worked—for a time. But by 2009, changing tax rules and increased regulatory scrutiny made the structures less attractive, and Verbund unwound most of the arrangements. The episode illustrates both the creativity and the risks that accompany utility transformation: management must find capital for necessary investments, but complex financing structures can create ongoing liabilities and reputational concerns.
Ownership Consolidation
The liberalization era also brought a wave of cross-ownership and strategic positioning among Austrian utilities. In the 1990s, Austria's energy industry became the setting for a large number of mutual participating interests; thus, for example, the provincial energy providers TIWAG (Tyrol) and EVN (Lower Austria) and the Wiener Stadtwerke increasingly acquired shares in Verbund.
These regional utilities—many with their own political backing from provincial governments—recognized that Verbund's transmission grid and large-scale generation capacity were essential to their own operations. Rather than compete directly, they acquired minority stakes, creating a web of interlocking ownership that stabilized the industry while complicating governance.
For investors analyzing Verbund today, this ownership structure matters. Provincial utilities and regional governments have interests that don't always align with minority shareholders seeking maximum returns. The relationships provide stability and reduce competitive intensity, but they also mean that strategic decisions involve balancing multiple stakeholder constituencies.
The liberalization transformation ultimately succeeded: Verbund emerged from the EU accession period leaner, more focused, and better positioned for international competition. The company that had been formed to rebuild a war-torn nation had reinvented itself for a borderless European energy market.
International Expansion & Diversification (2005–2015)
Entering the Retail Market
With the wholesale business transformed, Verbund's leadership recognized an opportunity in Austria's retail electricity market. In mid-2005, Verbund established the business division of Sales and became active in Austria's end customer market selling electricity. Within but a few years, the company had advanced to the fifth largest end customer provider in Austria.
This vertical integration—generating power and selling it directly to homes and businesses—offered higher margins than wholesale trading alone. In addition to household and commercial customers, Verbund has also been supplying the Austrian industry since the beginning of 2006 with energy (market share of 25%).
The retail business also provided a natural hedge: when wholesale prices fell, retail margins often improved, and vice versa. This countercyclical dynamic smoothed earnings volatility, a valuable attribute for a utility stock.
The E.ON Acquisition: Becoming a European Player
The defining transaction of this era came in 2009, when Verbund seized an opportunity to dramatically expand its hydropower portfolio. In mid-2009, Verbund acquired a power plant chain on the Bavarian river Inn from energy company E.ON and, hence, advanced to fourth largest hydropower producer in Europe.
In mid-2009, as a result of Verbund's acquisition of 13 run-of-river plants on the river Inn in Bavaria, Germany, power generation rose by 7%; together, the Bavarian Inn power plants have a peak capacity of 312 megawatt and an annual generation of 1.85 billion kW hours.
The acquisition made strategic sense on multiple levels. First, it expanded Verbund's generation base without the regulatory complexity of building new facilities. Second, it gave the company a significant presence in Germany, Europe's largest electricity market. Third, the Inn River plants complemented Verbund's existing Austrian portfolio, providing diversification in hydrology—when Austrian rivers ran low, Bavarian rivers might still flow strongly.
In 2010, VERBUND swapped its Turkish holdings for the traditional hydropower plant on the Inn River in Bavaria. This asset swap—exchanging speculative emerging market exposure for proven European hydropower assets—reflected a disciplined focus on core competencies.
European Joint Ventures: The Limits of Diversification
Verbund's international ambitions extended beyond Germany. In Italy, Verbund had a 44.8 percent share in power company Sorgenia, which was founded as a joint venture with the CIR Group in 1999. In France, Verbund held a 44.8 percent share in energy provider Poweo. In Turkey, Verbund had a 50 percent share in energy provider EnerjiSA since 2007. Since 2008, all of Verbund's foreign equity interests and projects are bundled in Verbund-International GmbH.
These ventures represented attempts to export Verbund's expertise beyond its Alpine home market. The results were mixed. The Italian and French businesses struggled with market conditions and competitive pressures. The Turkish investment, while initially promising, exposed Verbund to currency risk and political uncertainty in an emerging market.
Over time, management retreated from these peripheral positions, refocusing capital on markets where Verbund held genuine competitive advantages. The lesson for investors: even well-managed utilities can struggle when they venture too far from their core competencies and geographic comfort zones.
Wind Power Pivot: The First Steps in New Renewables
In 2007, Verbund expanded its activities to include additional renewable energy sources and began to undertake large investments in especially wind power.
This pivot acknowledged an important truth: even Austria's abundant hydropower resources had limits. The best dam sites had already been developed. Environmental regulations made new large-scale hydro projects increasingly difficult. If Verbund wanted to grow its renewable generation capacity, it needed to diversify into wind and eventually solar.
The expansion of pumped storage power plants, such as Limberg II, enables the balancing of electricity from wind and sun. Here was the strategic insight that tied together Verbund's legacy assets and its renewable future: pumped storage facilities that had been built to smooth out baseload generation could equally well smooth out intermittent wind and solar power. The same alpine infrastructure that served the 20th-century grid would prove essential for the 21st-century energy transition.
INFLECTION POINT #2: The Russia-Ukraine Energy Crisis & Windfall Profits (2021–2023)
The Perfect Storm
On February 24, 2022, Russian tanks rolled across the Ukrainian border, triggering the largest land war in Europe since 1945. The immediate geopolitical consequences were obvious; the energy market implications were revolutionary.
Particularly the war in Ukraine caused significant distortion in Europe's energy markets that led to rocketing prices and extreme price volatility, along with marked shifts in supply and demand structures. Prices for primary energy sources shot up during the course of the year, with gas prices in particular being hugely affected by changes in gas supply volumes and the off-take structure. European wholesale prices for electricity likewise continued their upward trend fuelled by soaring global market prices for primary energy and the increasing market risks, reaching fresh highs as the year went on.
Russia's invasion of Ukraine triggered a global energy crisis, leading to sharp increases in oil, natural gas and coal prices. As a result, electricity prices in Europe have risen drastically because natural gas-fuelled plants remain the price-setter in the wholesale market.
Here was the peculiar mechanics of European electricity pricing working in Verbund's favor. Under the marginal pricing system, all generators—regardless of their production costs—receive the price set by the most expensive plant needed to meet demand. When that marginal plant is a gas-fired facility paying €300 per megawatt-hour for fuel, even zero-marginal-cost hydropower commands €300.
Verbund's Windfall
For Verbund, the company's hedging strategy has increased its profits, as it was able to obtain an average sale price of EUR 112.5/MWh in H1 2022, boosting its electricity revenue considerably and raising its EBITDA, 111% from the previous year.
While VERBUND's earnings were diminished by the effects described above, they received a significant boost from the sharp increase in wholesale electricity prices on the futures and spot markets in particular. The average sales prices obtained for VERBUND's own generation from hydropower rose by €60.3/MWh to €111.6/MWh.
The numbers were staggering. EBITDA climbed by 100.2% to €3,160.7m. The Group result surged by 96.6% to €1,717.0m compared with the same period of the previous year. In a single year, Verbund had nearly doubled its profitability—not through operational improvements or brilliant strategy, but through the simple fact that gas-dependent competitors faced cost structures that had become untenable.
Record Results Despite Challenges
VERBUND generated a record result. In 2023, the Group earned more than 2.6 billion euros. This is the highest result in the company's history.
The 2022-2023 results shattered every previous financial record in Verbund's 75-year history. Revenue, EBITDA, net income, cash flow—every metric reached unprecedented levels. The company's market capitalization soared as investors recognized that windfall profits would persist as long as gas prices remained elevated.
Yet the bonanza came with complications. The reduced volume of electricity generated from hydropower had a pronounced negative impact on the development of earnings (EBITDA effect of around €640m in Q1–3/2022). The underproduction of hydroelectricity made it also necessary to purchase large volumes of electricity so that the electricity volumes that had already been sold on the basis of the long-standing hedging strategy could be delivered. Due to the market conditions, some of these purchases had to be made at exceedingly high prices, which put additional pressure on earnings.
This illustrates a crucial operational risk in hydro-dependent businesses: Verbund's hedging strategy involved selling forward a certain volume of power at fixed prices. When drought conditions reduced actual generation below hedged volumes, the company had to purchase replacement electricity in the open market—at precisely the moment prices were spiking to historic highs. The hedging strategy that protected against price declines became a liability when generation fell short.
The Windfall Tax Response
Governments across Europe faced an impossible political situation. Energy companies were reporting record profits while consumers struggled to pay utility bills. The policy response was swift and aggressive.
In October 2022, the European Council passed a regulation on an emergency intervention to address high energy prices. The regulation proposes windfall-profit levies on fossil fuel producers through a temporary solidarity contribution, and on electricity generators (or inframarginal electricity producers) that have lower marginal costs than the price-setting gas units.
Electricity generated from flexible pumped storage power plants, as well as flexibility products (control power products), which are necessary for grid stabilisation and therefore for security of supply, are among the activities that are exempt from the levy on profits. Revenues above the price cap were levied at 90% once the above exceptions were taken into account.
The taxation of windfall revenues of inframarginal power generators in Austria and Germany from December 2022 and corresponding windfall profits in Romania and Spain had a negative impact on the Group's result.
The windfall taxes represented an unusual regulatory action—essentially clawing back profits that arose from market dynamics rather than company performance. For investors, this raised uncomfortable questions about the sustainability of utility returns: if governments can impose 90% marginal taxes when profits are "too high," what does that imply for the risk-reward profile of the sector?
Special Dividend: Sharing the Windfall
Verbund's management recognized that retaining all windfall profits would invite further political backlash. A dividend of €3.60 per share for financial year 2022 was proposed to the Annual General Meeting on 25 April 2023. This dividend breaks down into a regular dividend of €2.44 per share plus a special dividend of €1.16 per share. The payout ratio (regular dividend plus special dividend) calculated on the basis of the reported Group result amounts to 72.8% for 2022.
The special dividend served multiple purposes: rewarding shareholders for an exceptional year, reducing the company's cash balances (and thus its windfall profit "optics"), and demonstrating that Verbund shared gains with the Republic of Austria—its 51% majority shareholder—and thus indirectly with Austrian citizens.
For minority shareholders, the elevated payout ratio represented a welcome distribution, though it also limited reinvestment in growth opportunities. Management faced the classic capital allocation tension: exceptional short-term profits versus long-term infrastructure investment needs.
INFLECTION POINT #3: The Normalization & Strategy 2030 (2024–Present)
The Post-Crisis Recalibration
As 2024 unfolded, the extraordinary conditions that had supercharged Verbund's profits began to normalize. Following extraordinarily earnings in financial year 2023 earnings declined in financial year 2024 due to lower wholesale prices.
Revenue fell 21.1% to €8,224.6m, EBITDA declined 22.5% to €3,480.3m, and the Group result dropped 17.2% to €1,875.3m. Earnings per share fell from €6.52 to €5.40.
As of December 2024, we reached an average achieved contract price for hydro generation of EUR 118, dramatically below 2023. As of thirty-one December twenty-twenty-four, we had sold 66% of our own generation volumes for 2025 at a price of EUR 117.5 and for 2026 we had sold 38% of the generation volumes at a price of 79.3.
The forward hedging numbers reveal the trajectory: prices locked in for 2025 remained relatively elevated at €117.5/MWh, but 2026 hedges at €79.3/MWh were approaching pre-crisis levels. The windfall era was definitively ending.
Ongoing Regulatory Pressures
If there was any doubt that governments viewed the windfall profits as a political problem requiring permanent solutions, the Austrian legislation made it clear.
The Federal Act on the Electricity Energy Crisis Contribution remains in force and, according to the current version, the most recent EKB-S collection period came to an end on 31 December 2024. Along with the revision of various parameters, the act has now been extended for five additional collection periods from 1 April to 30 March of the following year for the years 2025 to 2030. In principle, the act sets a cap of €90/MWh on electricity revenue generated by existing plants and €100/MWh for new plants (commissioned from 1 April 2025). Revenues above the price cap are levied at 95%.
Based on current information and depending on the development of electricity prices, the hydro and new renewables coefficients and the deduction of investments, VERBUND expects windfall tax in the range of €50m to €100m to be levied for financial year 2025. This amount is covered by the above outlook for financial year 2025.
The windfall tax extension through 2030 creates permanent regulatory overhang. Any future price spikes—whether from geopolitical crisis, weather events, or market dynamics—will see marginal revenues taxed at 95%. This fundamentally caps the upside potential for Verbund shareholders while leaving downside risks (drought, market collapse) largely intact.
Mission V: The 2030 Strategy
Against this challenging backdrop, Verbund management launched "Mission V," an ambitious strategic transformation program designed to position the company for the next phase of the energy transition.
As one of Europe's most sustainable energy producers, we are using our expertise and investing €5.9 billion in the expansion of generation, grids and storage from 2025 to 2027.
With Mission V, we are pursuing a clear strategy with three strategic priorities, while at the same time creating the conditions to keep VERBUND fit for the future with our corporate transformation.
This program is based on the VERBUND Strategy 2030 with its three pillars: Strengthening the integrated home market, expanding renewable energies in Europe and establishing itself as a European hydrogen player.
On the basis of the VERBUND Strategy 2030, the generation of renewable energies in 2030 should account for up to 25% of the Group's total generation. This represents a fundamental shift: moving from near-total dependence on legacy hydropower to a diversified renewable portfolio including wind, solar, and green hydrogen.
Green Hydrogen Initiative
The third pillar of Strategy 2030—establishing Verbund as a European hydrogen player—represents the company's most ambitious bet on future energy systems.
The project is expected to produce around 200,000 tonnes of green hydrogen per year in the initial phase, with the potential to increase production in southern Tunisia to 1 million tonnes per year.
The project will have access to the European market through the "SoutH2 Corridor", a hydrogen pipeline project connecting North Africa to Italy, Austria, and Germany, which is expected to be commissioned around 2030. TE H2, together with VERBUND, will be leading the development, financing, construction, and operation of the integrated project from production of green electricity to production of green hydrogen. In addition, VERBUND will coordinate the transport of the produced hydrogen towards Central Europe.
Michael Strugl, CEO of VERBUND AG, added: "Tunisia is a particularly important upstream region in terms of scalability and competitiveness, as well as a key component of VERBUND's hydrogen plans."
The Tunisia project exemplifies Verbund's strategic thinking: rather than compete to develop expensive domestic green hydrogen production, leverage superior solar and wind resources in North Africa and use pipeline infrastructure to deliver clean fuel to European industrial customers. If the SoutH2 Corridor reaches commissioning around 2030 as planned, Verbund would have secured a first-mover position in what could become a multi-billion-euro annual market.
The Business Model Deep Dive
Generation Portfolio: The Alpine Fortress
As of December 31, 2024, Verbund operated hydropower plants with a capacity of 8,468 megawatts (MW); wind farms with a capacity of 874 MW; solar power with a capacity of 308 MW; and two thermal power plants.
The generation mix tells a story of competitive advantage built over decades. The 8.5 GW of hydropower represents the irreplaceable core—assets that competitors cannot duplicate at any reasonable cost or timeframe. The 874 MW of wind and 308 MW of solar represent the growth edge, with rapid expansion planned through 2030.
VERBUND has achieved numerous milestones in the new renewable energy areas of wind and photovoltaics. In Spain, a 50 MW solar park and a 28 MW wind power plant were commissioned, bringing VERBUND's renewable electricity generation capacity in Spain to a total of 707 MW.
Verbund has consolidated its presence in Austria, Germany, and Spain, markets where it already operates more than 1.2 gigawatts of wind and solar energy. Additionally, the company has 2 GW of projects under development. In Spain alone, the company has 700 megawatts in operation and 40 megawatts under construction, with plans to add another gigawatt of new capacity in the coming months.
Grid Infrastructure: The Hidden Gem
Austrian Power Grid AG, a 100% subsidiary of Verbund AG, disposes of the largest and strongest high-voltage grid in Austria comprising the voltage levels 380 kV with the 380 kV high-voltage ring, as well as the 220 kV and 110 kV levels and several grid facilities. Moreover, Austrian Power Grid AG (APG) is responsible for the technical management of control area APG, which includes all Austrian federal provinces except Vorarlberg. With a transmission route length of 3,471 km and the corresponding transmission lines measuring a total length of 6,763 km, APG's transmission grid forms the backbone for Austrian electricity supply.
The transmission grid business, while less glamorous than generation, provides steady regulated returns largely independent of commodity price volatility. As Austria invests in grid modernization to accommodate renewable energy growth, APG's capital expenditure program will likely expand, driving rate base growth and corresponding earnings increases.
The St. Peter – Tauern Line is a 380kV underground line with a length of 128km from St. Peter, Salzburg, Austria, to Tauern, Salzburg, Austria. The project, which is currently under construction, is expected to be commissioned in 2025.
Trading & Sales: The Interface
More than half of the power sales are executed abroad, outside Austria. Verbund is active in more than 20 countries, the largest sales markets being Germany, France and Italy.
The trading operation serves multiple functions: optimizing Verbund's generation portfolio by selling power when and where it's most valuable, providing liquidity management across European markets, and generating trading profits from market movements.
For investors, the trading business introduces earnings volatility that pure generation companies don't face. Skilled trading can enhance returns significantly in volatile markets—as demonstrated during 2022-2023—but also creates the potential for unexpected losses if positions move against the company.
Playbook: Business & Investing Lessons
The Regulated Monopoly Advantage
Verbund's history illustrates a fundamental truth about infrastructure investing: the best moats are often regulatory rather than technological. The 51% state ownership requirement, enshrined in Austrian constitutional law, provides a protection no amount of financial engineering can replicate.
This structure creates stability—Verbund cannot be taken over, cannot be broken up by activist investors, cannot be leveraged into financial distress by aggressive debt financing. Management can plan with decades-long time horizons, investing in infrastructure that may not generate returns for ten or twenty years.
But stability comes with constraints. Minority shareholders must accept that they will never control corporate strategy. Dividend policy, capital allocation, and major strategic decisions will ultimately reflect Austrian government priorities—which may or may not align with maximizing shareholder value.
Infrastructure as Generational Assets
The Kaprun hydroelectric station may be 70 years old, but Helmut Biberger's job is to ensure it can handle the rapid swings in modern electricity markets.
Seventy-year-old dams still generate cash flows. This extraordinary asset longevity distinguishes infrastructure companies from businesses in technology, retail, or manufacturing, where assets depreciate rapidly and must be constantly replaced.
The implication for valuation: traditional metrics like P/E ratios or enterprise value to EBITDA may understate the value of a business whose assets will continue generating returns for another fifty or hundred years. Book value, which reflects historical cost less accumulated depreciation, bears little relationship to replacement value or earning power.
The Hedging Strategy: Double-Edged Sword
Verbund's hedging practices—forward-selling electricity at fixed prices—illustrate the tradeoffs inherent in commodity risk management. In normal markets, hedging smooths earnings and provides visibility. During the 2022-2023 crisis, hedges locked in above-market prices, delivering windfall gains.
But when generation falls short of hedged volumes—as occurred during drought conditions—the company must purchase replacement electricity at whatever price the market demands. Hedging that protects against price declines becomes a liability when physical delivery obligations exceed actual production.
Investors should monitor the hedge book carefully: percentage of generation hedged, weighted average hedge prices, and tenor of hedging positions all affect forward earnings visibility and risk exposure.
First-Mover on ESG: Accidental Advantage
The 1978 nuclear referendum, rejected by Austrian voters as a matter of safety concerns and democratic principle, created an accidental ESG advantage decades before environmental considerations entered mainstream investment discourse.
Today, as capital increasingly flows toward companies with strong environmental credentials, Verbund's near-100% renewable generation portfolio commands premium valuations. The company didn't build its green profile through expensive retrofitting or virtue signaling—it simply followed the path Austrian democracy chose forty-seven years ago.
The lesson: sometimes regulatory constraints or political defeats force companies into positions that prove strategically advantageous decades later. What matters is not the origin of competitive advantages but their durability.
Capital Allocation in Utilities
An ordinary dividend of €2.80 per share for financial year 2024 will be proposed to the Annual General Meeting on 29 April 2025.
VERBUND's planned payout ratio for financial year 2025 is between 45% and 55% of the Group result of between around €1,350m and €1,750m, after adjusting for non-recurring effects.
The targeted payout ratio of 45-55% reflects the classic utility tradeoff: shareholders expect substantial dividends from regulated businesses, but management must retain sufficient capital for infrastructure investment. The €5.9 billion capex program through 2027 will require substantial reinvestment; funding this entirely from operating cash flow while maintaining dividends challenges even a company of Verbund's financial strength.
Porter's 5 Forces & Hamilton's 7 Powers Analysis
Porter's 5 Forces
Threat of New Entrants: LOW
The barriers to entering Verbund's core hydropower business are nearly insurmountable. New dams require decades of permitting, environmental review, and construction. Under constitutional law, 51% of the share capital of VERBUND AG must remain in the ownership of the Republic of Austria—effectively preventing hostile acquisition as an entry strategy. Water rights accumulated over seventy years cannot be replicated. Alpine geography suitable for pumped storage exists in finite supply.
Wind and solar generation present lower barriers, but Verbund's scale advantages—procurement power, grid access relationships, trading expertise—provide meaningful protection even in these more contestable markets.
Bargaining Power of Suppliers: LOW
Verbund's primary "input" is water—free, renewable, and controlled through long-term concessions. Equipment suppliers (turbine manufacturers, grid components) face a concentrated buyer with significant procurement volumes and engineering expertise. Labor markets in Austria provide skilled workers without unusual cost pressures.
Bargaining Power of Buyers: MODERATE
Large industrial customers have some ability to negotiate power purchase agreements, and retail customers can theoretically switch suppliers. However, Verbund's cost position—based on depreciated hydropower assets—allows it to offer competitive pricing while maintaining healthy margins. The company's reputation for reliability and green credentials commands some price premium.
Threat of Substitutes: MODERATE (but changing)
Historically, electricity had few substitutes for most applications. Electric vehicles, heat pumps, and industrial electrification are increasing electricity demand while making alternatives (internal combustion, gas heating) less attractive. Long-term demand growth for carbon-free electricity should be structurally positive for Verbund.
However, distributed generation (rooftop solar, community wind) represents a form of substitution—consumers generating their own power rather than purchasing from utilities. This "behind-the-meter" generation could erode volumes over time, though transmission infrastructure would remain necessary.
Competitive Rivalry: MODERATE
The alliance includes Statkraft, EDF, Enel Group, Iberdrola, EDP, Vattenfall, Fortum, VERBUND AG, Uniper, and ENGIE, who together represent a total installed hydropower capacity of over 110GW.
European utility competition is intense in wholesale markets but tempered by geographic factors, regulatory differences, and the collaborative infrastructure investments necessary for grid stability. Verbund competes with giants like Enel (€99 billion revenue) and RWE (€29 billion), but its core Austrian market remains protected by incumbent advantages and regulatory relationships.
Hamilton Helmer's 7 Powers Analysis
Scale Economies: STRONG
Verbund's hydropower portfolio benefits from substantial scale economies. The fixed costs of dam maintenance, grid management, and regulatory compliance spread across massive generation volumes. Smaller competitors face proportionally higher overhead burdens.
Network Effects: MODERATE
The transmission grid business exhibits some network effects—a more comprehensive grid serves more customers and generators, creating value for all participants. However, these effects are regulated rather than market-driven, limiting their competitive implications.
Counter-Positioning: STRONG
Verbund's renewable-only portfolio represents counter-positioning against fossil fuel utilities. Incumbents like RWE, with substantial coal and gas assets, cannot easily pivot to Verbund's model without writing off legacy investments. This hesitation creates strategic space for renewable-focused players.
Switching Costs: MODERATE
Industrial customers with long-term PPAs face moderate switching costs. Retail customers theoretically can switch easily but demonstrate substantial inertia in practice. Grid infrastructure creates implicit switching costs for generators seeking transmission access.
Branding: MODERATE
Verbund's green credentials and long operating history create brand value, particularly among environmentally conscious consumers and ESG-focused investors. The "power of water" positioning differentiates from commodity electricity providers.
Cornered Resource: STRONG
Alpine water resources and long-term hydropower concessions represent cornered resources that competitors cannot access. The geographic and regulatory requirements for new large-scale hydro development effectively close the market to new entrants.
Process Power: MODERATE
Seventy-plus years of hydropower operations have created institutional knowledge and operational processes that enhance reliability and efficiency. However, hydropower generation is well-understood technology without substantial proprietary process advantages.
Key Performance Indicators to Monitor
For investors tracking Verbund's ongoing performance, three KPIs deserve particular attention:
1. Hydro Coefficient
The hydro coefficient measures actual water availability relative to long-term averages (1.0 = average). The hydro coefficient—a measure of water availability relative to long-term averages—dropped to 0.76, 36 percentage points below 2024's level. This single metric explains much of Verbund's year-to-year earnings volatility, as generation volumes directly impact revenues while costs remain largely fixed.
2. Average Achieved Electricity Price (€/MWh)
As of December 2024, we reached an average achieved contract price for hydro generation of EUR 118, dramatically below 2023. This metric reflects both market pricing conditions and the effectiveness of Verbund's hedging strategy. Comparing achieved prices to spot market benchmarks reveals value creation or destruction from trading activities.
3. Renewable Capacity Addition (MW)
As Verbund pursues its 2030 goal of 25% generation from new renewables, tracking annual capacity additions in wind and solar provides visibility into strategic progress. Execution against the €5.9 billion capex program will determine whether the company successfully diversifies beyond hydropower dependence.
Risk Factors and Regulatory Concerns
Regulatory Risk: The windfall tax extension through 2030, with 95% marginal rates above price caps, fundamentally alters the risk-reward profile. Any future price spikes will be largely captured by governments rather than shareholders. Future regulatory changes—additional environmental requirements, water usage restrictions, grid access rules—could further constrain returns.
Hydrological Risk: Climate change may alter precipitation patterns in the Alpine region, potentially reducing average water availability over time. Extreme weather events (droughts, floods) create short-term earnings volatility that cannot be fully hedged.
Political Risk: The 51% state ownership creates ongoing political influence over strategic decisions. Changes in Austrian government priorities—whether toward dividend maximization, employment preservation, or industrial policy objectives—will affect minority shareholder returns.
Execution Risk: The Strategy 2030 transformation involves substantial capital deployment in wind, solar, and hydrogen technologies where Verbund has less operational experience than in legacy hydropower. Cost overruns, project delays, or technology failures could undermine returns on growth investments.
Accounting Considerations: Hedge accounting treatment significantly affects reported earnings. Investors should focus on cash flow and underlying operating performance rather than GAAP earnings, which can be distorted by mark-to-market effects on derivative positions.
Competitive Positioning and Industry Context
Within the European utility landscape, Verbund occupies a distinctive niche. Top 20 European integrated utilities include A2A, Acea, EnBW, Enel, Centrica, CEZ, EDF, Enel, Engie, E.ON, Fortum, Hera, Iberdrola, Orsted, RWE, Statkraft, Suez, Vattenfall, Veolia, Verbund.
Compared to peers, Verbund's advantages include: - Near-100% renewable generation (versus mixed portfolios at most competitors) - Strong balance sheet (Net Debt/EBITDA of 0.6x versus 4-6x at many peers) - Alpine hydropower assets unavailable elsewhere in Europe - Protected home market with 51% state ownership
Disadvantages relative to competitors include: - Smaller scale limits bargaining power and diversification - Geographic concentration in Austria exposes to country-specific risks - Windfall tax regime caps upside in bull markets - Limited natural gas or nuclear flexibility during renewable intermittency
Conclusion: The Mountain Fortress in a Transforming Energy World
Verbund AG represents something increasingly rare in modern markets: a company whose competitive advantages were built over three-quarters of a century and cannot be replicated at any price. The alpine dams constructed with Marshall Plan dollars in the 1950s continue generating cash flows today. The nuclear path rejected by Austrian voters in 1978 created an accidental ESG advantage decades before investors cared about such things. The EU liberalization that threatened to destroy the company instead forged a leaner, more competitive organization.
The 2022-2023 windfall profits demonstrated both the potential and the limits of Verbund's business model. When commodity markets spike, low-cost renewable generators capture extraordinary rents—but governments will inevitably claw back much of those gains through taxation and regulation. The extension of Austria's windfall tax through 2030 institutionalizes this reality: heads, shareholders participate modestly in upside; tails, they bear full downside risk.
Yet the long-term thesis remains compelling. Europe's energy transition will require massive investment in renewable generation, grid infrastructure, and storage capacity. Verbund's pumped storage facilities—those giant alpine batteries—become more valuable, not less, as intermittent wind and solar penetration increases. The hydrogen strategy, if executed successfully, positions the company for an emerging market that could rival electricity in scale.
For patient investors comfortable with utility-sector returns, Verbund offers exposure to Europe's energy transition through one of the continent's most sustainably positioned companies. The dividend provides current income. The growth investments provide optionality. The alpine fortress provides protection.
The men who built Kaprun after World War II created more than a power station—they created an enduring competitive advantage hidden in the mountains, waiting for investors wise enough to recognize infrastructure as the ultimate moat.
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