S&P’s Simon Redmond and Elena Anankina analyse the pandemic’s effect on the energy transition in Euractiv

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.

 

In Sustainable City Network, S&P Global Ratings’ Michael Ferguson considers the growth of the U.S. municipal green bond market

As market interest continues to mount in renewable energy, energy efficiency, and water conservation measures, U.S. cities and states are witnessing substantial reductions in their carbon footprints, as well as an ongoing mass transformation of the energy generation grid. As such, many municipalities are taking advantage of the “green bond” as a way to finance the transition.

In Sustainable City Network, Michael Ferguson, Director, Infrastructure, S&P Global Ratings examines the representation of cities in America’s green bond market and how increasing numbers of municipal green bonds could help support sustainable goals.

To read the full article, please click here.

Michael Wilkins, S&P Global Ratings, discusses the transformation of the energy market and the increasing penetration of renewables for InfraNews

The global energy market is in flux. In the face of power supply gluts and low commodity prices – fossil fuel producers, integrated utilities and merchant generators have shifted their business strategies. What’s more, the growing presence of renewables is disrupting the grid’s status quo – with increasingly favourable regulatory policy and technological improvements aiding renewable energy’s growth prospects.

Exploring reasons for the changes in InfraNews, Michael Wilkins, S&P Global Ratings’ Head of Environmental and Climate Risk Research, explains how renewables are proving disruptive within the energy market

To read the full article, please click here (subscription required).

Brexit risks and the energy transition are hot topics at the S&P Global Ratings Annual Infrastructure Finance Seminar

S&P 0730The S&P Global Ratings Annual Infrastructure Finance Seminar kicked off last week at Haberdasher’s Hall in the City of London. Journalists, investors, bankers, analysts and politicians alike gathered to engage in two of the most important discussions affecting the UK infrastructure sector today: the ongoing energy transition – from carbon intensive processes such as coal-burning, to cleaner energy resources, such as gas and renewables – and more pressingly, the risks of a British exit, or ‘Brexit’, from the EU.

Susan Gray, S&P’s global head of infrastructure, opened proceedings, welcoming a special guest address from Damian Hinds, MP and Exchequer Secretary to the Treasury. Hinds took to the podium to set out the government’s priorities for approaching the twin challenge of fighting climate change and preserving the country’s energy security at the same time.

Conversation quickly turned to the likely impacts of a Brexit on UK infrastructure development. On one side of the debate was Andrew Hilton, director of the think tank Centre for the Study of Financial Innovation, who suggested that fears over the effects of leaving the EU have been exaggerated and that Britain would unlikely see any great impact, at least within the first few years. On the other side was S&P’s chief economist for EMEA, Jean Michel Six, who explained that macroeconomic turbulence, currency depreciation and a possible sovereign rating downgrade were all strong near-term possibilities following a ‘leave’ vote. In addition, S&P’s managing director of infrastructure finance and head of environmental risk research, Michael Wilkins, discussed findings from a recent S&P survey of 51 institutional investors on the topic.

As a result of Moorgate’s media campaign, the event and its key takeaways were covered across the national and specialist press, including Bloomberg (subscription required), IJGlobalEnvironmental Finance (here and here) and BusinessGreen.

Siemens Financial Services’ CEO of Global Energy Finance takes to LinkedIn Pulse to explain why natural gas and renewables make the perfect couple

Kirk Edelman SFSThe UN Climate Change Conference in Paris, or COP21, hosted last December, has pushed the issue of clean energy to the top of the global political agenda – with a number of key governments making strong carbon-cutting pledges to reduce global warming by stepping up investment in renewable energy projects.

But with a global energy mix comprising only renewable sources likely unattainable in our lifetime, Kirk Edelman, CEO of Global Energy Finance at Siemens Financial Services (SFS), takes to LinkedIn to explain that to support renewables is not to reject fossil fuels entirely. In fact, he argues that natural gas-fired generation is the perfect partner for renewables – not only is it relatively climate-friendly, but modern gas-fired power stations can also operate flexibly, allowing them to respond to fluctuations in renewable energy output. Specifically, he discusses the Temple I, Temple II and Sherman, natural gas-fired power plants in Texas, U.S., for which SFS will provide financing by committing debt capital.

Ultimately, he hopes that these types of clean, flexible power plants will facilitate the development of renewable energy projects – such as onshore and offshore wind farms – without compromising the reliability of transmission and supply. Overall, this will support the goal of COP21 to cap global warming to 2°C between now and 2100 – above which, scientists predict would have irreversible consequences for the environment.

To read the LinkedIn Pulse post, click here.

S&P writes for Business Green about why policy clarity for the UK’s ‘Contracts for Difference’ scheme is vital for a greener future

electricity2The contracts for difference (CfD) scheme, which awards subsidy contracts for green energy developers, is a vital tool when it comes to reforming the UK’s electricity market and reducing the country’s carbon footprint, argues Michael Wilkins, head of environmental research at Standard & Poor’s in an opinion piece for leading sustainability magazine, BusinessGreen. Because of these contracted subsidies, he explains, investors are incentivised to become more involved in projects with low carbon emissions.

Yet, as Wilkins highlights, it has not been plain sailing recently. A lack of clarity over when the next round of contracts will be awarded – as well as uncertainty as to the scheme’s inclusion of certain projects, specifically onshore wind farms – has caused project delays and even cancellations. Wilkins argues that the CfD scheme can only help to safeguard the UK’s low-carbon energy future with a clearer and more concise policy framework.

Please read the full article here (note: a subscription is required).

S&P writes for FTSE Global Markets on why the transition to a greener global economy hinges on strong financial incentives

Mike Wilkins_headshotWriting for FTSE Global Markets, Michael Wilkins, Head of Global Environmental & Climate Research at Standard & Poor’s, points out that while the United Nations’ COP21 conference held in December committed world leaders to do more in the battle against climate change, ultimately it will be up to the private sector to deliver the bulk of the financing for new renewable power projects and improved energy efficient technology.

Underpinning this energy transition, he explains, will be financial incentives such as emissions trading systems and carbon taxes, both of which require companies to pay for excess greenhouse gas emissions. By putting a price on carbon, it is likely that investors will shift focus towards greener, cleaner projects.

Another result is that fossil fuel-dependent assets, such as coal-fired power stations, will be at an increased risk of ‘stranding’ (i.e. considered to have little or no economic value). And according to Wilkins, financial institutions – ranging from rating agencies to institutional investors and banks – are increasingly considering the impact of climate change in their analyses as a result.

For more details, please read the full article here.

April’s S&P Infrastructure Outlook reveals that the private rental sector has a new spring in its step

IFRAPR2016The issue of accelerating demand for housing in the U.K. and the fact that the private rental sector (PRS) is now the fastest-growing form of housing tenure is at the core of Standard & Poor’s most recent issue of Infrastructure Outlook, its monthly newsletter summarising key infrastructure and project finance-related research and rating update news.

In a prominent two page spread, S&P analysts Rachel Goult and Nicole Reinhardt explore why the U.K. PRS is now viewed as one of the most desirable assets for European institutional investors and how their attitudes to investment are changing. For example, investors are keen to get involved from initial procurement phases, whereas traditionally the early high-risk construction stages meant investors shied away until buildings were fully functional, and consequently, less likely to default. Additionally, investors are increasingly keen to hold onto such assets for the longer term, not wishing to sell up immediately but reap high-returns through renting. S&P’s research suggests that this trend is spurred on by a burgeoning demand for more flexible lifestyles, especially in urban areas and with the young working professional generation, otherwise known as “generation rent”.

In general, the project finance sector is showing signs of improvement. Diane Vazza, a managing director based in New York, explains in a separate feature that project finance defaults have remained depressed in recent years. In fact, Vazza reveals that S&P only experienced two defaulted issues in 2014, and none at all in 2013. She also looks towards future developments, citing low commodity prices and a move towards renewable energy as the key drivers behind these expected attitude shifts to project finance globally.

solar-panelsIndeed, the energy transition is covered in depth this month, with managing director and head of global environmental & climate risk research, Michael Wilkins, explaining why the U.K. government’s ‘Contracts for Difference’ scheme will play a vital role in securing the country’s low-carbon energy future. And in a guest opinion piece from Martin Fraenkel, global head of content at Platts, we see why what goes up must come down in the commodity market.

In other news, S&P has issued new ratings on two Spanish toll roads; the Autopista del Sol project in the south-east was given a ‘BBB’ rating, while Autovia del Noroeste in the same region achieved ‘BB+’.

Elsewhere in Europe weak power prices and enhanced regulatory risk triggered multiple negative ratings actions for a number of utility companies

To view these articles and more, please see the full version of S&P’s April infrastructure newsletter in PDF or e-book format.

Berlin Summit 2016; S&P’s Mike Wilkins talks renewables and real estate in event video

Berlin16_450x270At this week’s Berlin Summit 2016, hosted by Infrastructure Investor, Mike Wilkins, Managing Director, Infrastructure Finance Ratings at Standard & Poor’s, joined a panel of industry experts to discuss the current market conditions for project financing, the outlook for the sector in 2016, and what we can expect to see from S&P in terms of new research.

Following the panel discussion, and thanks to Moorgate outreach, Wilkins was invited to participate in a short video interview, which can be viewed below.

Here, Wilkins talks about developments in the global energy transition – from fossil fuel based resources to low carbon and renewable generation projects. He also explains that the private rented sector in the UK is displaying ever more ‘infrastructure like’ characteristics when it comes to project financing and institutional investor involvement.

 

First 2016 edition of Standard & Poor’s Infrastructure Outlook hits desks

photoAs the dust settles on the COP21 climate change summit, held in Paris last December, Standard & Poor’s latest edition of Infrastructure Outlook – a monthly newsletter rounding up all the key ratings updates, news and commentaries relevant to infrastructure and project finance – asks whether we are seeing a new dawn for tackling climate change, or is it just more of the same?

In the front page feature, Michael Wilkins, Managing Director of Infrastructure Finance Ratings and Head of Environmental Research, says the resulting COP21 ‘Paris Agreement’ will most likely speed up the global energy transition, from carbon-intensive fossil fuel energy projects to cleaner, greener alternatives and improved energy efficiency equipment. That said, serious doubts linger over the agreed strategies and whether they will be enough to reach the ambitious targets set; to decarbonise all economies by the end of the century and limit global warming rises to the critical 2 degree Celsius benchmark.

Of course, the energy transition will need considerable financing. As such, another prominent feature of this month’s issue focusses on the “Capital Market Solutions For Climate Finance” event, which was held alongside COP21. The industry experts in attendance stressed that understanding how climate risks will be integrated into sovereign, corporate and insurer creditworthiness is key to unlocking the necessary capital for low-carbon project investment.

In other news, Sarah Harkins examines how U.K. water regulator Ofwat’s continuing focus on affordability in its proposed regulatory framework for 2020-2025 could see utilities displaying lower profitability and weaker credit metrics.

The transport sector, in particular, saw significant rating action recently. European low-cost airline easyJet was rated ‘BBB+’ at the start of the year – the first ever airline rating by S&P. In addition, U.K.-based limited company High Speed Rail Finance (1) and Irish Limerick Tunnel Operator ratings were affirmed at ‘BB-’ and ‘A’ respectively.

To view these articles and other key ratings movements, please see the full version of S&P’s February infrastructure newsletter as a PDF here, or as an e-book (which includes a short video) here.