Having dropped the ratings from ‘A/A-1’ to ‘A/A-2’, S&P added that the outlook for EDP’s ratings was negative. EDP’s ratings had been under review – ‘CreditWatch’ – with negative implications since late March. While the outlook remains negative, following the ratings action S&P has removed EDP from its active review category.

Part of the reason for the downgrade was EDP’s ‘substantial’ capital expenditure programme totalling Euro 11.7B (US$16.2B), which includes extension of hydro power concessions, to 2010. A further key factor is the purchase of the Horizon Wind Energy company for Euro 3.4B (US$4.7B), particularly as the new subsidiary will contribute little in earnings and cash flow initially.

Recently, EDP signed a JV deal with Eviva Energy to develop hydro on the Vouga and Palva river catchments in Portugal. The move is part of EDP’s strategy of boosting hydro assets by almost 20%, or 1GW, by 2015.

The utility is also active in hydro in Brazil through Energias do Brazil, which have more than 1GW of assets in the country. Earlier this year it was authorised by the federal electricity regulator Aneel to carry out feasibility studies for new hydro projects with total capacity of 330.5MW.

EDP’s ratings broadly continue to be underpinned by its dominant position in the power market in Portugal, where electricity demand growth is higher than the EU average, S&P stated. It is the country’s only vertically integrated utility.