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S&P Ratings forecasts moderate green bond market growth in 2019

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

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Power Forecast Briefing: Natural Gas And Coal Dynamics, Pressure On Nuclear, And Southwest Capacity

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Coal Forecast Surging Export Volumes Aid Coal Production As Gas Competition Tightens


S&P Ratings forecasts moderate green bond market growth in 2019

The green bond market may grow a modest 8% in 2019 despite slowing global issuance in bonds overall, S&P Global Ratings said in a Jan. 29 research note.

Strong market fundamentals and a continuous stream of new issuers and financing instruments may push annual green bond issuance to around $180 billion in 2019 from the previous year's record $167 billion, the note said citing data from the Climate Bonds Initiative. Issuance from financial institutions was the primary driver of growth in 2018.

"We expect financial institutions in particular to continue to increase their share of green bond issuance in the coming years, as investment needs for the transition to a low-carbon economy increase," the note said.

The analysts also said increasing investor interest in environmental, social and governance, or ESG, investment strategies has prompted growth in sustainability-related fixed-income products. The analysts expect the rise in the issuance of sustainability bonds to continue in 2019 because of the ESG movement.

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The gradual tightening of monetary policies in Europe and the U.S. is "triggering a shift in the credit cycle" and contributed to a 3% to 4% decline in global absolute fixed-income issuance, the note said. This also impacted green bonds but did not keep them from growing slightly — but far less than initially projected — by 3% in 2018 compared to the rapid growth of 85% seen in 2017.

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.

The note recalled that U.S. municipalities slowed their issuance of green-labeled bonds after the tax code was revised in 2017, "which significantly reduced issuers' ability to refinance their existing debt."

Although nearly 40% of new green-labeled issuance from financial institutions in 2018 came from China, most of last year's growth came from financial institutions in Western Europe and North America thanks to new issuers coming to the market.

The analysts expect Europe will remain the dominant region for green bond issuance with the majority of the proceeds allocated to the energy, transportation and building sectors.

And for a growing number of sovereign issuers, green-labeled bonds have become a new tool to finance the country's green strategy. In the past two years, sovereign issuance grew by more than 60%.

The S&P Global Ratings' note can be found here.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.


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.

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Coal Forecast Surging Export Volumes Aid Coal Production As Gas Competition Tightens

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Higher export volumes aid coal production as gas competition tightens domestically

Jul. 20 2017 — Coal production made gains through June as modest electricity demand to open the summer was offset by stronger exports. Weekly shipments for June came in 24% higher than the same period last year, continuing the improved production results for 2017. However, easing natural gas prices during June provided little headroom for thermal coal prices. The NYMEX CAPP eased by $0.25/ton (0.5%) for the month, while the NYMEX PRB gained $0.24/ton (2.2%).

Natural gas prices traded lower during June than in May, with low electricity demand doing little to clear surplus storage. After opening the month at $3.05/mmBtu, Henry Hub spot prices varied during mid-month from $2.85-3.12/mmBtu, before closing at $3.07/mmBtu. Natural gas remains in a moderate surplus, with June injections trailing modestly below historical averages. Storage levels as of June 23 stood at 2,816 Bcf, 182 Bcf above five-year averages. The surplus restrained natural gas markets during the month, with warmer weather the last week of June kicking off the cooling season and providing a boost to prices.

Coal inventories remain in surplus as well, with April stockpiles growing to just over 166 million tons, 9.3% above normal. The growth in inventory corresponds to estimated displacement of coal from natural gas generation resulting from Henry Hub prices declining by 20 cents per mmBtu. Looking ahead to the summer season, robust cooling demand could add 1.5 million tons per week to production, which would drive coal production to levels not seen since the summer of 2015. For the four weeks ending June 24, coal shipments averaged 15.5 million tons, as demand into the summer season picks up. Production levels continue to improve overall, about 24% higher than the same period last year. Inventories remain above normal, and low electricity demand shoulder season may do little to clear them, tending to keep a lid on prices.

Higher natural gas prices have boosted coal demand for the first half of 2017, especially compared to the dramatic loss of demand that occurred during the first half of 2016. However, surpluses linger in both the coal and natural gas markets going in to summer. If electricity demand remains low, growth in coal production could taper during the peak season.

On the improved demand picture for the year, the CAPP and NAPP coal regions are projected to beat 2016 production levels. A firmer natural gas strip, easing coal retirements during the year, and stronger seaborne metallurgical markets all contribute to the improved outlook. The markets for Illinois Basin and Southern PRB are also projected to rebound by 44 million tons this year on improved price competitiveness.

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