Address the Challenges of Credit Risk Management in the Power Industry
The power industry is facing a growing number of risks and uncertainties. As the industry continues to scale globally at a rapid rate, leaders across all areas of the energy industry are looking to reassess the demands of their credit management practices.
Empowering Credit Risk Management in the Era of Energy Transformation
In the rapidly evolving landscape of the energy sector, the imperative to improve credit risk management has never been more pressing. Accelerating electricity demand, coupled with a myriad of transformative initiatives such as infrastructure upgrades, renewable energy integration, decarbonization endeavors, and supply chain disruptions, underscores the need for a proactive and adaptive approach to risk assessment.
Navigate the challenges of the energy industry with Credit Risk Management Solutions.
Against this backdrop, credit risk teams are faced with additional challenges, including the need to:
Monitor with a volatile and unpredictable macroeconomic environment.
Evaluate risk across diverse counterparties, including small- and medium-sized enterprises (SMEs) and asset classes lacking data coverage.
Spot potential defaults before they happen.
Strategically assess numerous large-scale construction projects for possible pitfalls.
Undertake scenario analysis to determine climate-related risks.
It is essential that credit risk teams shore up their capabilities to handle a growing list of complex market dynamics and analytical challenges.
Credit Risk Capabilities Must Be Built for Today’s Challenges
Credit risk teams need to be prepared to act quickly to manage their exposures and minimize potential losses. Market realities call for a modernized approach for assessing risk that provides:
A sound macroeconomic backdrop to account for changes in trade flows, foreign exchange, and transaction costs
A single source of truth that delivers all the information needed for a holistic assessment of risk, including data on SMEs
The right tools for managing and monitoring extensive counterparties in a timely manner
An approach to deal with low default situations that limit the ability to train models
Customizable risk benchmarks and thresholds by sector, region, and industry
Assessments of construction projects based on expert judgement to capture the associated risks from contractual information
Standardized risk measures to compare or aggregate information
Scenario analysis to evaluate climate-related risks and the impact on counterparties
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Evaluate the Macroeconomic Backdrop
Evaluate the Macroeconomic Backdrop
In a world of transition, understanding the economic outlook and how it impacts different countries, industries, and companies is critical for power companies.
Economic Indicators and Forecasts provide a clear 360-degree perspective that brings global risks into focus, providing:
- Top economic predictions for the year ahead.
- An analysis of economic fault lines, geopolitical reordering, supply chain resilience, and resource security.
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Zero in on Counterparty Risk
Zero in on Counterparty Risk
Global defaults have been on the rise, with 118 corporate defaults in 2023, nearly double the previous year's level. Continuing the trend, the default rate for speculative-grade corporate issuers is projected to increase across Europe and the U.S.
RiskGauge™ enables users to easily assess the credit risk of 50+ million public and private companies, delivering:
- A single source of consistent data for rated/unrated counterparties and one company-wide methodology for credit risk assessment.
- A RiskGauge Score based on a company’s fundamental credit risk and market-based signals, complemented with robust private company data, firmographics, relative performance benchmarks, and insightful commentary.
Supplier Risk Indicator™ consolidates multiple dimensions of risk data and analytics into a single, integrated indicator that captures each supplier's unique risk profile.
ProSpread™ helps users save time and reduce manual errors by leveraging Natural Language Processing combined with Optical Character Recognition to automatically extract and spread relevant data from PDF financial statements for analysis.
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Get Early Warning Signs of Default
Get Early Warning Signs of Default
Most firms tend to experience an increase in their probability of default (PD) in times of market volatility, but that does not mean they will all default. It is critical to determine which are genuinely at risk from those that will manage to weather the storm.
Early Warning Signals (EWS), powered by RiskGauge, is designed to pinpoint entities that may default, showing:
- Colored flags that indicate riskiness based on a firm’s probability of default (PD) level and change from a previous period combined with a set of dynamic thresholds that account for the economic cycle.
- Red flags that signal the need for a deeper dive on financials, news, and key developments to confirm the signal and potentially reduce exposure.
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Understand Project Risks
Understand Project Risks
The investment needed to usher in the energy transition is staggering, according to the International Energy Agency. As capital goes towards traditional energy delivery assets and new assets, such as renewables and storage, there is a growing need for robust capabilities to assess the financial counterparties at each site.
Credit Assessment Scorecards encompass multiple sectors, including project finance, utilities, SMEs, and corporates, all incorporating ESG factors. They employ an industry-leading methodology that integrates the interrelationships between qualitative and quantitative factors.
- A way to predict the likelihood of default across 100+ different project types, from preliminary stage through the entire lifecycle of a project.
- An off-the-shelf “glass box” approach for situations with limited comparable default data revealing all inputs and outputs, with outputs calibrated to PDs from S&P Global Ratings proprietary default data accumulated since 1981.
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Quantify Climate Risk
Quantify Climate Risk
Climate change and its associated costs are one of the biggest issues facing the power industry, requiring credit risk teams to understand how different climate scenarios might affect their company’s financial performance.
Climate Credit Analytics enables counterparty- and portfolio-level analysis of climate-related financial and credit risks for thousands of companies across multiple sectors, supporting:
- An in-depth assessment of climate-induced transition and physical risks under alternative scenarios.
- An evaluation of the impact of transition and physical risks on the creditworthiness of suppliers, customers, and business partners.
- Climanomics® makes it easy for companies and investors to measure the climate risk of their assets and portfolios.
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