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Hydropower largely excluded from burgeoning green bond market


Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Every Industry Is Now A Technology Industry

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Hydropower largely excluded from burgeoning green bond market

Hydropower projects are largely excluded from the green bond market due to environmental and sustainability concerns, but hydropower advocates hope things will change once a standard-setting organization creates new qualification criteria.

A task force of the Climate Bonds Initiative, or CBI, could soon release for public comment sustainability and environmental criteria that investors, utilities and others could use to issue green bonds for hydropower, Sean Kidney, CEO of CBI, a green bond certification and voluntary standards-setting organization, said in early October.

Green bond experts have reported that many green bond issuers and investors are shying away from hydropower altogether due to environmental, reputational and other concerns. The green bond market has been growing since it was initiated in 2007, and in 2017 a record $173 billion in green bonds were issued. But only about 2% of those 2017 green bonds included hydropower compared with about 7% in 2016, International Hydropower Association Senior Analyst Nick Troja said.

Bonds are a form of debt securities used to finance or refinance projects in which an issuer such as a corporation, municipality or a sovereign government borrows money from investors for a defined amount of time at a variable or fixed interest rate. A "green" labeled bond means that the issuer has earmarked the proceeds to go to new or existing projects that meet specific environmental objectives such as offsetting carbon dioxide emissions. But that also means parties to bonds are sometimes cautious about including technologies that may leave them susceptible to being accused of greenwashing.

"No one wants to [experience] getting a green bond raised in the market and having someone else in the market coming along and saying I don't think that should be a green bond," International Hydropower Association Chief Executive Richard Taylor said.

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Leaving hydropower, which supplies more than two-thirds of the world's renewable electricity, out of the green bond financing and refinancing mix could make meeting global decarbonization goals more difficult. The Intergovernmental Panel on Climate Change recently reported that to limit global warming to 1.5 degrees C from pre-industrial levels — an aspirational target under the Paris Agreement on climate change — renewables would need to supply 70% to 85% of electricity globally by 2050. Kidney and others have suggested hydropower could play a key role in that transition if the projects are developed correctly.

"If we're to make the transition [to a] low carbon economy to avoid serious climate change, we need hydro, we need everything and anything that is clean energy," Kidney said. "So the question has to be, is it clean energy, and secondly, is it going to last?"

Hydropower advocates hope the CBI criteria, once finalized, will give issuers and investors the confidence to use green bonds for hydropower.

"At the moment, it's been down the market to decide who ... wants to include hydro and who wants to exclude it," which creates a lot of unpredictability, Taylor said. "That's the last thing a bond market, investors or developers want."

Despite being a zero carbon-dioxide emitting resource, hydropower projects sometimes draw opposition from environmental advocates over concerns new projects may damage local ecosystems, displace indigenous communities, and emit methane into the air. The concerns tend to center around projects of 25 MW or larger that operate using major upstream reservoirs, particularly those in warmer climates.

"There have been some hydropower projects that have been absolutely horrendous in terms of impacts on native peoples and the environment," said Josh Olazabal, a senior ESG analyst with CreditSights. That said, some projects can be "done in a smart way that has very little negative impacts and that clearly have environmentally positive impacts. The more folks look at that and make that distinction and differentiation, the better off it's going to be," he said.

Hydropower already receives more scrutiny than other renewables

Hydropower projects often face more scrutiny than other renewables, and that trend is likely to continue even under the CBI's draft criteria, experts said.

The CBI's hydropower technical working group that is working on the criteria, as of early October, was still debating what future climate scenario hydropower developers should be required to design their projects to withstand, Kidney said. Investors are concerned about the ability for hydropower to operate over the long term if climate change diminishes water supplies and impacts weather patterns, Kidney and others said. In particular, a recent scientific paper found that climate change could pose new challenges to hydropower in the U.S. Pacific Northwest.

IHA's Taylor also worries that the CBI's draft criteria, which has expanded in scope over the past two years, could set a higher bar for hydropower than for wind and solar, which could make hydropower costlier and dampen developer interest. The CBI criteria "is a way forward, but we do think that the transaction cost of complying with that will be quite the deterrent to some parts of the sector," Taylor said.

To help address sustainability concerns, the IHA under the mandate of the Hydropower Sustainability Assessment Council in July launched an Environmental, Social and Governance Gap Analysis Tool aimed at identifying unaddressed sustainability issues at each stage of a hydropower project’s development, from early planning to operation.

Organizations and several analysts who provide second party reviews of the greenness of the bonds in interviews also said they tend to give hydropower more scrutiny than they pay to other renewables.

For example, Cicero, one of the largest green bond second party opinion providers globally, examines how a large hydropower project could impact biodiversity both in the water and along the shoreline. And it reviews whether the use of construction materials and transportation of those materials could create greenhouse gas emissions, Cicero Research Director Christa Clapp said.

Why green bonds matter to hydropower

Because bonds tend to have longer terms, bonds can align with the lifespan of hydropower projects, which in the U.S. can be federally licensed to operate for an initial term of up to 50 years. Outside of the green bond market, CBI reported in September that hydropower projects hold $54 billion in outstanding bonds largely in emerging markets. Moreover, many existing hydropower projects are nearing the end of their normal lifespan and will soon need to be updated and refinanced, Troja said.

As for new builds, about 21.9 GW of hydropower capacity was added globally in 2017, most of which was in East Asia and the Pacific region followed by South America, according to the IHA. And about 75 GW of new capacity for pumped-storage projects that store and release water from massive reservoirs is expected to be added globally by 2030, IHA said.

The hydropower sector appears to have a strong interest in using green bonds going forward, IHA said. In a recent survey by the association, more than 100 heads of organizations and senior decisionmakers in the hydropower sector said they expect to finance or refinance a hydropower project through the green bond market over the next five years. However, more than three-quarters of respondents also said they need greater clarity on the eligibility criteria for hydropower.

While hydropower projects are sometimes included in regular bonds, green bonds add publicity value, provide an indication that the technology is viewed as publicly acceptable, and help attract additional financing for hydropower and green bonds, Taylor said.

From a broad perspective, Eric Glass, portfolio manager of fixed income impact strategies at the global investment management firm AllianceBernstein LP, said green bonds are one of many financing tools that the world will need to address climate change.

"However you want to do it, whether it's through a green bond" or another model, "these are all arrows in the quiver of our society to move us closer to a more equal society and a more environmentally friendly society, which is very important form an overall sustainability perspective," Glass said.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.

Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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Every Industry Is Now A Technology Industry


And every company is now a technology company.

Sep. 28 2018 — As machine learning (ML), artificial intelligence (AI), and robotics become commonplace and enter the operations of mainstream organizations, leadership teams are finding that failure to harness and leverage AI puts them behind the competition. Repeatable tasks are carried out by bots in a fraction of the time and employees are more focused on adding value, which means companies on the forefront of technology can be more reliable, more user-friendly, and faster to market.

In this highly disruptive environment, one traditional truth of business has withstood, or has perhaps even guided, these technological advances: above all, the customer experience is king. More than ever before, businesses have effective technologies at their fingertips to quickly and effectively address customer pain points, while at the same time dramatically improving their internal operations.

At S&P Global Market Intelligence, we strive to get beyond the buzzwords and truly deliver essential insight. And second to this, we strive to adopt real operational efficiencies into our delivery that are paralleled by the workflow efficiencies we promise to our customers. To that end, we are committed to remaining on the cutting edge of emerging technologies, first through optimization, then automation.

Download a recent analysis of how we’re applying new technology like natural language processing to structure data, robotic process automation to deliver insights faster, and predictive analytics to stay ahead of the market.

You can also view this analysis in Spanish, Portuguese, Mandarin, and Japanese.

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Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming


The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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