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.
With ample desert space and swathes of sunshine all year round, the countries of the Gulf Coorporation Council (GCC) are well placed to benefit from renewable technology advancements and lowering costs in the solar industry. Rachel Goult, Director at S&P Global Ratings, explores developments in the region in Power Energy Solutions Solar.
To read the full article, please click here.
During her speech to the Conservative Party conference on October 4th, Prime Minister Theresa May announced plans to cap standard variable tariffs (SVT) to boost energy competition in the UK. Beatrice de Taisne, director for EMEA Utilities at S&P Global Ratings, explains that while the
“Big Six” – Centrica (British Gas), SSE, EDF, Scottish Power, Innogy and E.ON – are exposed, they may weather the advancing storm.
The full article can be read in Energy Voice here.
The last five years has seen significant growth in climate-related infrastructure financing, but the election of Donald Trump raises new questions to that expansion. In the first of a new series of articles for InfraNews, S&P Global Ratings’ Head of Environmental and Climate Risk Research, Michael Wilkins, explains how, despite obstacles, environmentally-friendly infrastructure investment can continue to evolve.
Although global climate finance flows have increased by almost 15% since 2011-2012, a potential shift in the environmental agenda from the world’s largest project finance debt issuer, the US, certainly raises fears for progression. The Clean Power Plan (CPP) – introduced in 2015 with the aim of reducing carbon emissions from US-based power plants — is the primary energy infrastructure policy under threat. Should the plan pass, it would greatly benefit renewable investment and an unprofitable nuclear fleet – which remains a competitor to carbon-emitting coal and gas. However, the CPP remains unimplemented as it awaits Supreme Court review, the outcome of which will be influenced by Trump’s appointment of Supreme Court Justice.
Despite Trump, many US states will continue to have an appetite for building renewable energy infrastructure, for which much of the financing is expected to come from green bonds (bonds whose proceeds must be for sustainable use). As green energy build continues, investors will look for a more standardised method of reporting and certifying bonds’ “greenness” – one that accurately evaluates the environmental impact of projects over time. For this reason, S&P Global Ratings has developed an assessment which rates green bond governance, and the environmental benefits to be derived.
Read the article (with a subscription) at InfraNews.
The US executive office is soon to have a leader with environmental aims significantly different from those of his predecessor. While the Obama Administration’s energy policies strived to address global warming, President-elect Trump has presented himself as agnostic to the idea of climate change.
In Business Green, S&P Global Ratings’ Michael Ferguson details how energy generators may both positively and negatively fare given Trump’s potential energy agenda.
Trump has notably promised to revive the coal industry, which suffered employment loss throughout the Obama years. However, Ferguson notes that declining coal employment is due to competing gas prices, rather than federal policy – and suggests that while coal may perform better than it would have done under an environmentally stricter Clinton Administration, it is unlikely that Trump will cut gas production to allow coal to compete.
Ferguson also explains that, until the Trump Administration outlines a more defined energy policy, energy producers that would benefit from greater carbon regulation, like nuclear and renewables are expected to fare worse in terms of credit quality and profitability.
Ferguson adds that, although renewables investment is safe in the short-term, renewable developers could face cash-flow issues in the longer term – that is, should Congress renew federal Investment Tax Credit (ITC) and Production Tax Credit (PTC) incentives as they wear off past 2020. Such tax credits were once considered the ‘bridge’ to the Clean Power Plan (CPP), the federal policy that aims to reduce energy generators’ carbon emissions; the CPP itself remains to be ratified by the Supreme Court and depends on whom Trump will elect as Supreme Court Justice after the passing of Justice Antonin Scalia.
The full article can be read here (a subscription is required).
S&P has released the December edition of IFR Outlook, the newsletter of key infrastructure and project finance-related research and rating news.
In the front-page feature, Michael Wilkins, head of environmental and climate risk research, assesses global trends in climate finance. Looking back at the year since the Paris Agreement, he explains that continued development of the global green bond market is needed to convert politics into action and secure a low-carbon future. Continuing the environmental theme, director Miroslav Petkov explains S&P’s methodology behind evaluations of infrastructure projects intended to adapt to the effects of climate change.
In the wake of the US election, director Michael Ferguson explores the likely credit impacts of a Trump administration on the country’s energy sector, assessing everything from renewables and ethanol to coal and fracking. Also in the energy sphere, credit analyst Vittoria Ferraris outlines the next steps for Germany’s second-largest utility, RWE and its subsidiary Innogy, following Europe’s largest initial public offering (IPO) since 2011. In another feature on utilities, director Pierre Georges weighs in on the pension benefit obligations of Europe’s top 20 companies.
In other news, S&P has revised its outlook on UK-based road operator Autolink Concessionaires to positive, rated Spanish Redexis Gas ‘BBB’ with a stable outlook, and assigned a ‘BB+’ corporate credit rating to Saudi Arabian utility company ACWA Power Management and Investments One Ltd, with a preliminary ‘BBB-’ rating to the company’s proposed senior secured bond issue.
To view these articles and more, please see the full version of the newsletter in PDF or e-book format
In January 2017, the world will see a significantly different energy policy set in place from the one instituted by President Obama. In a new report released shortly after the election, S&P Global Ratings’ Head of U.S. Energy Infrastructure, Michael Ferguson, analyses what a Trump Administration might mean for U.S. energy generators and their credit ratings.
In the comprehensive review, ‘Trump & Energy: The Credit Implications Of The 2016 Election’, Ferguson suggests that the coal industry may fare less well than Trump has implied in his campaign – due to the fact that coal’s decline is more an effect of low gas prices and increased fracking, rather than simple federal regulations set in place by Obama. Ferguson also notes that Trump’s choice of Federal Supreme Court Justice will ultimately determine the fate of the Clean Power Plan (CPP) – a policy proposed by the Obama Administration which aims to lower the nation’s carbon emissions. Without this plan, Ferguson explains, fulfilling the nation’s commitment to reduce its carbon emissions by 26-28% under the Paris Agreement will more than likely be unreachable by 2025.
The renewables industry, meanwhile, may see more substantial change in the long-term, as Trump has promised to roll back environmental regulations and incentives, such as the Investment Tax Credit (ITC) and Production Tax Credit (PTC) subsidies that aim to enhance states’ renewable standards. Ferguson shows that, unless these are renewed past 2020, renewable developers could experience longer-term cash flow issues.
More news of the report can be read in CleanTechnica, Project Finance International, E&E News, Business Green, and Blue & Green Tomorrow (a subscription may be required).
A recent trend of fiscal reform throughout the Gulf Cooperation Council (GCC) region has had implications for the infrastructure sector – and in some fields more than others.
S&P Global Ratings’ Karim Nassif explains to Infrastructure Intelligence that low oil prices are encouraging governments to implement higher taxes and lower subsidies for the oil and gas, telecommunications and utilities sectors to relieve financial burdens from the state.
These sectors are experiencing economic headwinds, and some types of companies are faring better than others. Large government related entities (GREs) that receive special mandates are expected to perform best throughout government fiscal reform and the region’s weakened economic status. However, smaller private players that are not leaders in their respective fields, have not adopted conservative funding strategies and are dependent on government subsidies are expected to remain highly exposed.
On a more positive note, alternative financing methods are expected to develop as government revenue and cheap bank funding continue to dry out. S&P expects this to take the form of deepened capital markets, sukuk (Islamic bonds) and the increased utilisation of public-private partnerships.
The full article can be read here.
Energy markets in the U.S. are facing what seems to be major structural changes. While the Obama Administration attempts to pass the carbon-reducing Clean Power Plan (CPP) through the U.S. Supreme Court, nuclear generation – which is mostly carbon free – faces plant closures due to competing gas prices and rising unprofitability.
In an article for Energy World, S&P Global Rating’s Michael Ferguson explains that nuclear generation’s high fixed and maintenance costs contribute to its decline in profitability, especially when competing with low gas prices – which have been low since the shale gas boom of the early 2000s. States’ various energy policies also affect nuclear in various ways, some more positively than others. For instance, Ferguson notes that in order to help achieve its own low-carbon goals, the state of New York grants nuclear subsidies to prevent nuclear closures in the state, whereas Illinois does not, prompting several nuclear plant closures in the state within the last year.
Ferguson explains that, should the CPP pass through the legal challenge, nuclear generation will be needed to help achieve low-carbon standards. Therefore, states’ nuclear-sustaining policies now will help determine their success achieving low-carbon goals later.
The article can be read here (subscription required).
The fate of nuclear energy in the US is being decided, in part, by the Supreme Court’s decision to ratify President Obama’s Clean Power Plain (CPP) as well as states’ legislation to preserve a dying nuclear industry through subsidisation and accommodating policies.
For Energy Intelligence, S&P Global Rating’s Michael Ferguson discusses why nuclear energy will become an increasingly valuable asset to states should new federal carbon standards be introduced. This is because nuclear is the only energy source that can be produced on a base-load scale that is carbon free.
However, Ferguson notes that nuclear generation has become quickly unprofitable competing against low gas prices since the shale gas boom. Additionally, renewable energy sources have been given priority on energy grids, also contributing to a lesser demand for nuclear energy production.
For nuclear to survive, its profitability will need to be heightened through carbon regulation and a decline in gas and coal production. However, it may take several years for this to happen. In the meantime, Ferguson argues, it is up to states to support their nuclear assets to see their profitability rise in the future.
The full article can be read here (a subscription is required).