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US ELECTIONS: Panelists say Biden win would benefit renewables investments

Highlights

Coronavirus caused negative credit ratings for industry

De-carbonization transformation is well underway

California markets focusing on resource adequacy

Houston — A Biden presidency would help drive renewable investments, boost energy storage and support offshore wind policy after the industry's credit rating went negative when the coronavirus pandemic hit the US, participants in a power markets' panel discussion said Oct. 28.

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The Democrat's proposal to accelerate clean energy is not new, Gabe Grosberg, senior director of North American Regulated Utilities at S&P Global Ratings, said Oct. 28 during the "Financing and the power markets" panel of S&P Global Platts' 22nd annual Financing US Power Virtual Conference.

The renewable industry has reduced greenhouse gases 30% in the last decade and this pace will continue regardless of the administration in place, Grosberg said, adding the reduction on greenhouse gases was not driven by federal mandate.

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"This industry has done an incredible job transforming itself and we expect that transformation to continue," he said. "Accelerating the pace is what the voters want and what the industry wants."

Congress has been supportive of tax credits for the power sector, said Charlie Wilson, managing director of structured finance at Duke Energy, while the Trump administration has been phasing out those tax credits, although something new could come along under another Trump presidency.

"The real upside will be a Biden administration, especially if they are able to get control of the Senate," Wilson said about the 28% tax rate increase. "It's actually good for the tax equity market ... because of the higher tax base that will be created there."

The de-carbonization transformation is well underway and the government still needs to be an important driver of that change, said Drew Murphy, senior vice president of strategy and corporate development for Edison International.

Biden's clean energy plan will be good for the industry and there is expected to be support for storage and policy support for offshore wind, Murphy said. Long term, the industry expects continuing support and development of renewables.

Coronavirus impact

"The market was very busy leading up to March when COVID hit," Wilson said.

The market froze in place in March as companies focused on what they were already committed to, Wilson said, adding renewable deals are very complicated, take a long time and are very structured. While there was concern of people backing away from deal, Wilson said they were very encouraged to see a large number of deals done.

While there has been a slowdown in clean energy adoptions, such as customers putting off behind-the-meter rooftop solar, "we don't think that continues long term," Edison's Murphy said.

Electric vehicle adoption will transform the transportation industry in the next 15-20 years, Murphy said. While EV sales are flat year on year, "we'll probably see that pick up again once we get more certainty on the financial situation," he said.

Credit ratings

"It's been an incredibly interesting year in credit ratings," Grosberg said.

A year ago, 25% of utilities has a negative outlook, which improved to 18% in the first quarter, Grosberg said, adding that once the coronavirus hit, the entire industry went negative.

Throughout the pandemic, companies decreased operations and maintenance costs, and delayed rate cases, Grosberg said, adding "we're seeing a much worse outlook."

Many factors were at play and in the West that involved wildfires, he said.

"The utilities continue to do a very good job in not being a cause," Grosberg said about a lot of external factors at play.

More and more companies are operating very close to the downgrade threshold, which is not always a bad thing, Grosberg said.

"Strategically, it can make a lot of sense for a company," he said. "So much change is happening within the industry."

California wildfires, resource adequacy

Resource adequacy needs are a focus in California and there is a need for additional capacity around the 2024 timeframe, Murphy said.

"We still think there will be a need for gas generation, some of it will be zero carbon, so hydrogen," he said.

All load-serving entities have to meet their resource adequacy requirements and Public Utility Commission enforcement is critical, Murphy said.

The California Independent System Operator, California Public Utilities Commission and California Energy Commission issued a Preliminary Root Cause Analysis of the August heat wave and outages finding "resource planning targets have not evolved to keep pace with climate change-induced extreme weather events" and outlined actions needed "to mitigate electricity shortages and ensure delivery of clean, reliable and affordable energy."

Murphy agrees there was no one major system failure, but a lot of coincidental issues that occurred at once. The climate change situation is not unique to California, Murphy said, adding a big focus for Edison is how to be more resilient.

The focus long term is to decarbonize the power system, which means reliability resources are needed, with new generation needs around 2024 or 2026, Murphy said, adding it will be a great opportunity to invest in renewables and storage.