In its “Industry Top Trends 2019” reports for North America’s regulated utilities and merchant power, S&P Global Ratings found that the utility sector’s credit outlook is stable – with both regulated providers and independent power producers likely to see low levels of growth next year.
The reports also found that North American utility industry weaker credit measures from tax reform will likely persist in 2019, reflecting tax-related rate reductions carryovers. However, some utilities will likely offset this reduced revenue with further equity infusions or asset sales.
Following Moorgate’s outreach, Utility Dive covered the news
In September 2018, now-outgoing California Governor Jerry Brown signed SB100: a mandate to keep California on a path to deriving 100% of its power from clean sources by 2045. In an article for Utility Dive, S&P Global Ratings’ Michael Ferguson explains how this may mean significant credit implications for the state’s power generators.
Undeniably, SB100 is a boon for renewable energy assets in California. But it’s a mistake to consider these benefits to be mutually interchangeable — instead some assets stand to benefit more than others.
Ferguson writes: “While SB100 will naturally benefit existing solar and wind power, less obvious is by how much and when. Both asset types represent most renewable installations in the Golden State. Yet they are by no means immune from risk.”
Read the article here.
S&P Global Ratings has published two comprehensive studies of defaults and recoveries in the infrastructure sector.
The first report found that infrastructure sector experienced net positive rating movements in 2017, with 114 upgrades and 87 downgrades – reversing the negative trends seen in 2015 and 2016.
The second report, which explores defaults and recoveries between 1995 and2016, found that the 10-year cumulative default rate for unrated project finance bank loans was 6.3%, though this figure drops to 5.85% when only core sectors are considered. The default rate is lower still for public-private partnership (PPP) projects, including the U.K.’s PFI scheme (5.6%), which according to S&P demonstrates these schemes’ comparatively lower-risk nature.
The same report also concluded that the annual default gap between OECD and emerging markets has narrowed over the past decade – a probable result of the financial crisis, which affected advanced economies more.
Following Moorgate’s outreach, Global Capital, Project Finance International, and TXF covered the news (these items sit behind paywalls).
On October 29th the U.K. government announced that the Private Finance Initiative (PFI) model for future projects will no longer be used – potentially making a significant shift for the means through which public projects are funded.
However, a new report published by S&P Global Ratings suggests that any resultant financing routes are unlikely to be game changing. Instead, they believe PFIs could still be used, albeit under a different guise.
Following Moorgate’s outreach, FT advisor , TXF News, and Public Finance covered the news.
In September, California Governor, Jerry Brown, unveiled a new gold standard for renewable energy in the U.S. – a mandate requiring the state to go 100% “green” by 2045. Yet for all the bill’s praise, a report published by S&P Global Ratings suggests that numerous technological and political challenges lie ahead.
As California edges towards its renewable goal, the economics of gas-fired generation promises to worsen. On the flip side, renewable energy will of course benefit though the extent of this will depend on the asset type. The durability and reliability of hydro and geothermal power, for instance, put these assets in pole position. Question marks remain over solar and wind, however: the intermittent nature of these resources will, according to some estimates, necessitate a 200-fold increase in battery storage. Development in this sector has yet to truly take off.
Following Moorgate’s outreach, Climate Change News, Infrastructure Investor, Energy Manager Today, Energy Manager Today, NA Clean Energy, and Environmental Finance covered the news.
On the recent November ballot, Colorado’s citizens voted against measures that would have changed the nature of the state’s oil and gas development. Before the vote’s defeat, S&P Global Ratings published a report outlining the possible risks for energy exploration and production (E&P) companies, should the proposal be made law.
Proposition 112 would have required that E&P companies extend well setbacks (the permissible distance between a wellhead and surrounding structures) from 500 feet to 2,500 feet. This distance would have, in effect, rendered 85% of the state unusable for oil and gas drilling. By some estimates, this could have decreased the state’s GDP by some US$26 billion annually by 2030.
Michael Grande, director, S&P Global Ratings, said: “Passage of Proposition 112 is clearly a credit negative for the energy companies we rate, and it will affect some companies more than others.”
Following Moorgate’s outreach, Upstream (behind a paywall), Oil Voice, and Oil Gas Journal covered the news.
The U.K. government’s recent budget marks the beginning of the end for the Private Finance Initiative (PFI) and Private Finance 2 (PF2). While the government plans to honour all existing contracts, the model will not be used going forward.
But is this likely? In an article for Construction News S&P Global Ratings’ associate director, Joest Bunse, explains how the end of PFI may not create markedly different financing options, after all.
Following Carillion’s collapse PFI contracts have come under heavy fire. But, the public sector allocating risks to the private sector makes sense, argues Bunse. This is especially true in the U.K., which boasts the largest and arguably most efficient public-private partnership (PPP) market in Europe. As a result, PFI – the U.K.’s PPP model – will likely continue albeit in a different form and under a different name.
Read the article here (behind paywall).
The United Nations (UN) estimates that meeting its 17 Sustainable Development Goals (SDGs) will require global investments of between US$5tn and US$7tn every year until 2030. But how will this be funded?
In an interview with Business Green, S&P Global Ratings’ Michela Bariletti, analytical manager for infrastructure, suggests that, in order for governments to deliver on the UN’s targets, private capital must play a far greater role in green projects throughout the developing world.
Although private capital waiting to be deployed into infrastructure investments is at a record high, investors are less interested in projects in low income countries – which require the lion’s share of funding to meet the SDGs. Bariletti says: “to engage the private sector on a larger scale, it’s important to build a project pipeline to justify the costs of entering a new market or segment. ”
Read the article here.
Anne Selting, analytical manager, infrastructure and renewables, S&P Global Ratings, discusses the ongoing concerns surrounding U.S. infrastructure maintenance in Partnerships Bulletin.
Following the devastating collapse of the Morandi Bridge, Italy, ageing infrastructure around the world has attained a highlighted focus. In 2016, 56,007 bridges across the U.S. were deemed structurally deficient, yet state and local governments are deferring maintenance on critical infrastructure assets “due to a lack of standardized reporting”, according to S&P Global Ratings.
Despite cross-party support, Selting believes that a coherent federal infrastructure plan is absent. And, though maintenance budgets are set at a federal level, a disconnect exists because infrastructure is predominately maintained at the state, local and municipality level.
Selting says: “The economy has recovered. So if we now have a recessionary environment, it will be tough to have this conversation. We are somewhere at the end of the credit cycle and have not really seized the moment to come up with an infrastructure plan. We have missed a window.”
The full article can be read online here
In 1991, rated corporate and project finance infrastructure issues totalled 355. By 2016, that number had grown to 1,440 – with both project finance and corporates continuing to attract ever greater amounts of financing. In a commentary for Infrastructure Investor, Mar Beltran, S&P Global Ratings’ senior director and infrastructure lead, EMEA, explains the evolution of infrastructure credit over the past three decades or so.
In addition to market growth Beltran believes that infrastructure credit has become more robust, too. Over the past two decades, S&P Global Ratings’ cohort of rated infrastructure credits has enjoyed lower default rates and rating volatility, and higher recovery prospects than non-financial corporates (NFCs), or those involved in the production of goods.
Read the article here (behind paywall).