The Trump administration's new order for the federal government to dismantle or review its climate rules will have "no material positive credit implications" for major coal-fired generators, Moody's said in a March 31 report.
Low natural gas prices and declining renewable energy costs will plague coal markets in the next three to five years regardless of the climate order, providing immaterial credit benefits for coal-heavy generators such as FirstEnergy Solutions Corp. and GenOn Energy Inc., Moody's said.
The White House's March 28 order directed federal agencies to review all existing regulations that "potentially burden" production and use of domestic oil, gas, coal and nuclear energy. The mandate required the U.S. EPA to pull its Clean Power Plan for review, likely leading to elimination or easing of the rule, which sought to limit carbon emissions from existing fossil fuel-fired power plants.
The order will "moderate the pace of [coal plant] retirements in the next decade," Moody's said, but many coal-fired facilities will still need financial support to survive. Despite those headwinds, companies that face plant shutdowns, including Dynegy Inc. and NRG Energy Inc., have "no concrete proposals for such support," according to Moody's.
U.S. electric generators have said President Donald Trump's election would not alter plans to retire a substantial amount of coal capacity. According to the latest analysis by S&P Global Market Intelligence, 44.1 GW of coal capacity is or was scheduled to retire between 2013 and 2021, with about 10.9 GW closing between 2017 and 2021. Much of the closures are due to market forces including competitive gas generation, as well as non-climate-related rules such as EPA's Mercury and Air Toxics Standards.
Some upside does exist, however, for coal generators. Policy uncertainty at the federal level could bring states more to the forefront on energy and climate planning. That shift is a credit positive for utilities such as American Electric Power Co. Inc., which will have more time to transition their generation mix to cleaner sources, Moody's said.
Although Trump's order could give muted relief to the coal sector, renewable energy growth will slow in the absence of stronger carbon constraints. The executive order is a "long-term credit negative" for companies such as NextEra Energy Inc. and Avangrid Inc., Moody's said. However, it expected federal tax credits for large-scale wind and solar power to ensure strong growth for renewables through 2020.