Credit quality for the North American regulated utility industry weakened in 2020, which saw downgrades outpace upgrades for the first time in a decade. However, the industry generally performed well throughout the pandemic and S&P expects it will continue to mostly manage through the remaining COVID-19-related risks. Despite a negative 2021 industry outlook, S&P expects a modest improvement to credit quality over the next 12 months.
Speaking to Utility Dive, Gabe Grosberg, Senior Director at S&P Global Ratings, discusses the challenges the sector has faced in the past year, and its prospects moving forward.
Read the full article here.
Clean hydrogen is expected to become increasingly prominent in the energy transition over the next decade. Indeed, according to the Hydrogen Council, the fuel could account for 15% of global primary energy supply by 2050.
Writing for The Energy Industry Times, Massimo Schiavo, Director at S&P Global Ratings, looks at how and when a truly hydrogen-based economy might take shape, and how key factors – including policy support, falling production and electrolyser costs and renewables capacity growth – will be necessary to bringing such ambitions within reach.
Read the full article here.
S&P Global Ratings has today published the latest edition of Infrastructure Finance Outlook, the newsletter bringing together in-depth sector analysis and research from across the Infrastructure practice.
This edition focuses on the energy transition and the growing importance of ESG, as well as how the COVID-19 pandemic has accelerated existing trends in the sector. The economic disruption caused by the pandemic is also likely to prompt a new cycle of sustainable infrastructure investment, especially now that the outcome of the US election has become clear.
Read the full newsletter here.
The COVID-19 pandemic has had a profound impact on the energy sector. Writing in Euractiv, Simon Redmond and Elena Anankina, Senior Directors at S&P Global Ratings, analyse the contrasting effects of the outbreak on the oil and natural gas sectors, and the implications for the wider energy transition.
Oil has suffered the most pronounced short-term impact of all energy sources, with demand falling by over 20 million barrels a day in March and April 2020 alone. On the other hand, gas has remained relatively resilient to the immediate impacts of the pandemic.
The downside for gas, rather, is expected to be longer term: its role as a “bridge fuel” is set to be shortened by an expedited transition to renewables. And, while oil demand has taken a short-term hit, its long term trajectory is set to be largely unchanged. The full article, in Euractiv, can be found here.
On 24th July, the EU approved a new plastic waste levy as part of the bloc’s seven-year recovery package. Buried deep inside the plan, the “Bottle Deposit Law” set the levy at €800/tonne and will come into force in January 2021 – despite the fact that recycling infrastructure in the EU is insufficient to provide an adequate alternative.
Markets were muted in their response, most likely unaware of this key detail, but non-profit financial think tank Planet Tracker’s latest report examines how the move will push the industry to expand recycling and embrace circular economy principles.
Speaking to the FT, Gabriel Thoumi, Director of Financial Markets, Planet Tracker commented: “It’s a very clear signal that markets need to pursue circular economy objectives and outcomes, and they’re going to get financially supported to do so.”
The full article was published in FT Moral Money and is available here.
Widespread coronavirus-related lockdowns and general economic downturn have had an unprecedented effect on global air traffic, which is projected to be down 55% in 2020. Writing in Aerotime, Julyana Yokota, Senior Director, Infrastructure, at S&P Global Ratings, takes a look at the implications for the global airport sector.
While airports generally enjoy stronger liquidity positions than airlines, they are now facing significant credit stress – especially given the uncertainty surrounding aeronautical revenue. With aviation charges likely to be lower due to a weakened airline sector, airports must make an effort to diversify their revenue streams. Some level of structural change in the airport sector is inevitable, however the asset class’ infrastructural significance is means it is likely to survive the turbulent times ahead.
The full article can be found here.
Writing in Infrastructure Investor‘s August edition, S&P Global Ratings’ Trevor D’Olier-Lees, Senior Director, Infrastructure, North America and Dhaval Shah, Director, North America, discuss the way in which domestic and international bans on travel have dealt an unprecedented blow to both traffic levels and P3 toll roads’ revenues in North America.
Certainly, the region’s toll roads have been heavily affected by the pandemic-related lockdown, coming under significant pressure from a credit perspective. Despite this, the impact has been less severe when compared with other transportation assets and, based on the current trajectory, a full recovery is expected – though the time it will take to reach this remains uncertain and will vary from region to region.
The full story in Infrastructure Investor may be found here, or on page 36 of the August print edition.
Across the globe, political uncertainty is increasingly becoming the rule rather than the exception. Meanwhile, trade tensions continue to define relationships between major players – such as China the U.S. and Europe. Both factors may induce caution among infrastructure investors.
Writing for Institutional Investing in Infrastructure, S&P Global Ratings’ Karl Nietvelt, Head of Research in Global Infrastructure, agrees that geopolitical events are influencing the market.
Indeed, infrastructure is “an asset class with typically lengthy lifespans that, therefore, beneﬁts from political and regulatory calm,” according to Nietvelt. Yet today’s uncertain political climate, underpinned by elections in 2019, could dampen market confidence.
Another influential trend is the rising impact of environmental, social and governance (ESG) concerns throughout the infrastructure sector. Organisations prioritising these issues “have achieved reduced costs, mitigated risk potential, and created revenue-generating opportunities,” continues Nietvelt.
Read the full article in Institutional Investing in Infrastructure here.
According to S&P Global Ratings, the long-term investment prospects for U.K. water companies remain adequate despite the forthcoming introduction of AMP7 from April 2020.
While many industry professionals perceived the U.K regulator Ofwat as taking a tougher stance on water companies, director for EMEA Utilities at S&P, Matan Benjamin, recently told Utility Week that the new targets reflect the “requests of society” on environmental, social, and governance (ESG) concerns.
Benjamin says: “This remains a strong industry. On the one hand, things are becoming more challenging for [water] companies because the regulator aims to make them work more efficiently. But that efficiency is good for society.”
Read the full article here.
In a challenge to the traditional power market model, large corporations are increasingly entering long-term contracts to buy power directly from energy producers – rather than from utilities. While these arrangements – known as corporate power purchase agreements (PPAs) – could pose new risks for producers and consumers, these should be largely manageable, says Trevor d’Olier-Lees, S&P Global Ratings’ senior director, Infrastructure North America.
Commenting on the model’s increasing uptake in an interview with Power Technology, D’Olier-Lees says: “Given the strong demand from corporate corporations to buy renewable power, [this model] will continue to grow. And there’s always innovation around mitigation.”
Read the article in Power Technology here.