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Environmental, Social and Governance: ESG Industry Report Card: Power Generation

Chart 1


Analytic Approach

Environmental, social, and governance (ESG) risks and opportunities can affect an entity's capacity to meet its financial commitments in many ways. S&P Global Ratings incorporates these considerations into its ratings methodology and analytics, which enables analysts to factor in short-, medium-, and long-term impacts--both qualitative and quantitative--to multiple steps of their credit analysis. Strong ESG credentials do not necessarily indicate strong creditworthiness (see "The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis," published Sept. 12, 2019).

Our ESG report cards qualitatively explore the relative exposures (average, below, above average) of sectors to environmental and social credit factors over the short, medium, and long term. For environmental exposures, chart 2 shows a more granular listing of key sectors and (in some cases) subsectors reflecting the qualitative views of our analytical rating teams. This sector comparison is not an input to our credit ratings and not a component of our credit rating methodologies; it is based on our current qualitative, forward-looking opinion of credit risks across sectors.

In addition to our sector views, this report card lists ESG insights for individual companies, including how and why ESG factors may have had a more positive or negative influence on an entity's credit quality compared to sector peers or the broader sector. These comparative views of environmental and social risks are qualitative and established by analysts during industry portfolio discussions, with the goal of providing more insight and transparency.

Environmental risks we considered include greenhouse gas (GHG) emissions, including carbon dioxide, pollution, and waste, water and land usage, and natural conditions (physical climate, including extreme and changing weather conditions, though these tend to be more geographic/entity-specific than a sector feature). Social risks include human capital management, safety management, community impacts, and consumer-related impacts from customer service and changing behavior to the extent influenced by environmental, health, human rights, and privacy (but excluding changes resulting from broader demographic, technological, or other disruptive industry trends). Our views on governance are directly embedded in our rating methodology as part of the management and governance assessment score.

Chart 2


The list of entities covered in this report is not exhaustive. We may provide additional ESG insights in individual company analyses throughout the year as they change or develop, with companies expected to increasingly focus on ESG in their communication and strategy updates.

Environmental Exposure

We believe the power generation sector has well-above-average exposure to environmental risks and climate change, even if the industry has been at the forefront of the energy transition with the rise of renewable generation over the past decade. We expect this trend will continue to transform the industry, with stricter regulations and higher costs for carbon emissions. As a result, coal-based power generation has the highest exposure because it emits roughly double the amount of carbon dioxide (CO2) compared to gas-fired generation. Environmental policies will likely vary between regions, and we expect that coal-fired fossil fuel power generation will continue to represent over 25% of all electricity generated globally over the next decade. This also takes into account the need for consistent, nonintermittent base load generation, large existing coal-fired generation in the U.S. and China, and security of supply, as several countries (notably China) have abundant domestic coal supplies.

Coal-fired generation

We see coal power plants as most exposed globally to environmental risks. The industry has taken steps over the past decade to reduce many non-CO2 pollutants, but the pace has not uniform. We nevertheless view the coal power sector as vulnerable to cost escalations (e.g. a higher carbon tax) or increasing regulatory constraints, combined with direct governmental policies (requiring the phase-out or shuttering of the most-polluting coal plants while increasing the share of renewables). However, we expect the exposure will vary greatly based on regional emissions standards. For example:

  • We estimate that high emissions costs in the form of a carbon or environmental tax could ultimately reduce EBITDA by as much as 10% for U.S. coal generators. A major step has been the industry's effort to retrofit several of its coal-fired conventional generation units to accept natural gas (coal-to-gas conversion).
  • We expect state-mandated emissions limitations and coal combustion residual guidelines to further affect coal generation in the U.S.
  • The U.K. instituted a specific carbon tax of £16 per tonne for 2019, hitting coal-fired plants hardest since their carbon intensity is over twice as much as gas-fired plants. Germany just announced its strategy to phase out lignite power plants by 2036. Even if political support for coal-plants in several Eastern European countries remains (supported by the importance of their domestic coal mining industries), it's very likely there could be a shift in sentiment or direct constraints coming from Europewide objectives over the next decade.
  • In China, coal generation still accounts nearly 70% of power generation, but it's already been decided that the most-polluting assets will be taken offline because renewable and nuclear new builds have become the national priority. China's national emissions trading scheme, launched in December 2017, aims to cover emitters across the coal power sector at the outset. Until the ramifications are finalized and trading kicks start, the impact on generators remains to be seen.
  • Chile--where the installed capacity is 21% coal-based and 12% diesel--started to apply a green tax of US$5.00 for every tonne of CO2 pollutants emitted (under Law 20.780/2014).

We believe gas-fired power's environmental exposure stems mainly from the fact that it creates CO2 emissions, and switching from and coal to gas will be insufficient to achieve a 2-degree Celsius scenario (see chart 2). That said, we differentiate gas from coal because gas emits half the emissions and we believe gas-fired generation is a vital bridge to a carbon-neutral environment, notably to handle the intermittency of renewable generation. This is especially the case in North America given its plentiful shale gas reserves. Depending on the region, gas-fired power generation may face headwinds from the rapid rise of renewable capacity and from higher carbon pricing/taxes. Longer-term risks could stem from potential targets for zero CO2 emissions, as well as cheaper battery storage or electrolysis processes (to produce green hydrogen), which would support further growth in renewables.


We perceive nuclear generation as comparatively less exposed than gas-fired generation given its zero-carbon impact, even if it's exposed to the energy transition because public policies will likely favor renewables. For example, nuclear plants generated nearly 20% of the U.S.'s overall electricity and 63% of its carbon-free electricity. It thus remains the largest producer of zero-carbon electricity in the U.S., avoiding over 545 million metrics tons (mt) of GHG emissions in 2017, which would have been emitted if all nuclear generation been produced at the national average emissions rate. This compares to hydroelectricity, which avoided 200 million mt, wind (175 million mt), and solar (about 40 million mt).

In addition, other major environmental risks for nuclear generation center on the long-term nuclear waste storage and high water usage. For example, we expect advancing 316 (b) water rules in the U.S. to affect estuarine located nuclear units. The limited visibility on the technical (and financial) impact of nuclear storage remains an important credit risk, in our view, with high amounts of asset retirement provisions on company balance sheets (unless transferred to the state, in some countries). Given nuclear plants' extreme safety requirements, risks stemming from physical climate change (including rising sea levels) may be a low probability, longer-term risk factor.


Renewable power generation implies low environmental risks, as it helps to decarbonize the power industry. Some areas of concern can stem from methane emissions for large hydro (in tropical areas), while land use and its effect on biodiversity also is a growing focus. Generally, hydro, wind, and solar use exponentially more land mass to produce the same amount of electricity as electricity from fossil fuels or nuclear. But substantial land use can significantly alter the ecosystems and hurt the environment. This risk has been reduced by increasing the use of land in non-greenfield areas, as well as offshore wind.

Social Exposure

We assess social exposure as above average compared to most industries. This incorporates the important role that this sector plays within communities as a provider of an essential service that must remain affordable and reliable. Any disruption of these services, as well as steep price increases, could trigger local criticism from communities or political pressures. On the other hand, these sectors are generally invested in having significant community engagement because the company may be a large local employer (that sometimes has unionized staff) and significant contributor to the local property tax base.

Renewables/hydro may have somewhat better social acceptance given the environmental benefits. Still, the planning of wind farms is increasingly sensitive to local community acceptance, while large hydro can face severe opposition if it disrupts the peoples' lifestyles or the landscape.

On the other hand, we believe nuclear plants have higher social exposure given the sensitivity around safety and long-term challenges around underground nuclear waste storage. A less likely but high-impact severe nuclear incident could jeopardize a company's license to operate. Although we believe the nuclear industry has made positive strides to improve operations and security, the 2011 Fukushima nuclear incident underscores the severity of the financial effects and abrupt changes to national social and energy policies. Communities' and politicians' evolving sentiment in favor of renewables may imply less supportive policies for nuclear power, although the latter's key benefit (apart from zero emissions) remains its stable baseload characteristic. Future cost and technological advances of renewables, batteries, and smart grid management could reduce the need for baseload, with a lesser need for gas-fired back-up capacity.

ESG Risks In Power Generation

Europe, Middle East, And Africa

Table 1

Company/Rating/Comments Analyst
Atomic Energy Power Corp.(BBB-/Stable/A-3)  
We believe Russian 100% state-owned AEPC has an environmental profile broadly comparable with the industry. Being a pure nuclear generator, AEPC (similar to direct peers like EDF) boasts a very low carbon footprint. Under Russian law, AEPC is only responsible for nuclear liabilities incurred after 2012, leading to relatively fewer liabilities than peers (RUB145.3 billion, or US$2.1 billion at year-end 2018). However, these positives are challenged by environmental risks related to radioactive material handling and waste treatment. Though AEPC is a big global player in the potentially expanding nuclear waste storage and decommissioning business, we think that this is a long-term and inherent risk for nuclear power, which weighs on AEPC's business risk profile. AEPC's exposure to social factors is in line with the industry. While nuclear activities have a higher sensitivity, Russia's energy policy favors nuclear, and most of AEPC's international projects are in nuclear-supportive countries like Turkey, India, and China. Tighter safety and environmental regulations in the global nuclear industry could affect AEPC's international projects.. Sergei Gorin
Centrica PLC(BBB/Stable/A-2)  
As the largest supplier of household electricity and gas in the U.K., Centrica is more exposed than peers on social risks. The energy supply sector is experiencing the consequences of a political environment for social equality. Following a governmental pledge to keep energy bills down via the Domestic Gas and Electricity (Tariff Cap) Act, last year the regulator Ofgem implemented an official price cap for its first dual fuel cap level effective for standard variable tariffs customers. The introduction of the tariff cap has undermined U.K. energy suppliers', such as Centrica's, business prospects in the shorter term leading to material declines in EBITDA. Centrica is facing additionally some environmental risk since it is engaged in power generation via its 20% interest in eight nuclear power stations in the U.K. and in oil and gas E&P (about 50 million barrels of oil equivalent a year), although at a much smaller scale than 10 years ago. Centrica's strategy is focusing on its consumer-facing businesses. Over the past few years, Centrica has put significant emphasis on decarbonization, leading to the disposal of two major gas-fired generation plants, and a plan to divest the shareholding in the U.K. nuclear and E&P operations. If completed, the transactions will further reduce Centrica's exposure to environmental risks. Matan Benjamin
Eesti Energia AS(BBB-/Stable/--)  
We view Estonian 100% state-owned Eesti Energia's fuel generation mix as environmentally unfriendly and thus more exposed than peers to environmental risks. Of Eesti Energia's power output, 85% stems from oil-shale-based fuel, exposing it heavily to rising CO2 emission costs. As environmental standards tighten, Eesti Energia plans to stop some of its oil-shale plants. This will reduce the volume of electricity these plants generate by more than 30% before 2022. Eesti Energia's strategic goal is to produce 45% of electricity from renewable and alternative sources by 2023, which will require heavy capex. The acquisition of Nelja Energia back in December 2019, increased Eesti Energia's green energy generation capability to 15% of the total from 4%. Social factors are both comparatively more negative and positive. As a major employer, the company has a social mandate to run some of its oil-shale plants and mines, even though they are environmentally unfriendly. On the other hand, its role as a major employer and main provider of an essential service are positive credit drivers that contributed to our assessment of a moderately high likelihood of extraordinary government support. Renata Gottliebova
Electricite de France S.A. (A-/Negative/A-2)  
The main ESG risk for French 84% state-owned EDF stems from weaker governance than peers that we assess as only fair. Governance risk mostly relates to EDF's board oversight and its ability to manage risks and avoid cost overruns at multibillion EPR new-build nuclear projects. The company has embarked on two new EPRs of about £21.5 billion-£22.5 billion in the U.K. (Hinkley Point C) for which it has announced cost revisions of about £3.4 billion-£4.4 billion. Additionally, cost overruns for its first-in-kind EPR in France, FLA-3, currently total €9.5 billion with a €1.5 billion cost inflation announced in October 2019 following the ASN's decision to require repairs to the eight welds inside the containment building. Positively, we highlight the supportive financial stance of the French government. With one of the world's largest nuclear generation fleets (73-GW capacity and 76% of output) EDF's carbon footprint is markedly advantageous. Profound structural changes are needed, however, to eventually reposition the economics of EDF's French nuclear fleet. We see positive signals: the necessity for sustainable remuneration for baseload energy has been recognized--as has a potential departure from the ARENH's pricing mechanism--by the recent consultation the government launched on the regulation of EDF's existing French nuclear fleet. This zero carbon emission advantage with potential favorable regulation is offset, however, by environmental and social risks relating to long-term nuclear waste storage. We capture EDF's large end-of-cycle liabilities (€50 billion gross or €12.3 billion when netted by dedicated assets in 2018), of both decommissioning and nuclear waste storage, in our asset retirement obligation debt adjustment, but the amount continues to be subject to some uncertainty. The ambitious strategic goals of renewables capacity embedded in the Cap 2030 and Solar Plan (30 GW capacity by 2035) support EDF's focus on diversifying its energy mix and concentrating on low-carbon sources. Overall, the environmental score of EDF is in line with the industry. Social factors are important to our assessment of EDF's standing vis-à-vis the French state. We believe there is still support for the nuclear industry in France, given its economic and social stakes. France's updated energy policy, defined by the PPE proposals over 2019-2028, aims to reduce the share of nuclear in the power mix to 50% by 2035 (from 75% today). EDF would need to start decommissioning its plants per the currently approved 50-year life, partly from 2027, progressively until 2035. At the same time, it could require sizable investments in renewables. This strategy will not alleviate pressure on the group's free cash flow from sizable investments planned over an extended period. Claire Mauduit-le Clercq
From an environmental standpoint, we see Enel as in line with most peers, with more than 40% of total output coming from renewables (mostly hydro), though 19% is still from coal. Management is leading efforts to become greener and one of the largest investors in renewables among European utility companies, with plans to spend an estimated €4.2 billion on average per year over the coming three years. The company also aims to reduce its thermal fleet over the same period, notably phasing out 6.3 GW of coal in Italy and Spain, where coal capacity is expected to drop from around 5 GW in 2019 to almost zero in 2022. This should allow Enel to reach its 2030 decarbonization target of CO2 emissions of 125 g/KWh (down from 369 in 2018), though it expressed a commitment to fully decarbonize by 2050. We view this transition as a positive step since it will reduce the group's exposure to volatile merchant power activities (renewable energy operations are either subsidized or long-term contracted) and to the risk of rising carbon prices, notably in Europe. Enel's social risks are in line with peers. The group has large power retail activities, notably in Italy and Spain. High power prices in Italy are due to high system and regulated costs, but Enel's retail profits continue to improve. We assess Enel's governance as strong and more supportive than most peers and Italian corporates. This reflects its extensive expertise and track record of managing regulatory risks, its efforts to simplify its group structure (including reducing sizeable minorities in Latin America), and its strategic focus on the energy transition. One area of higher oversight risk in our view could stem from its significant presence in emerging markets (e.g. Brazil, with 8% of EBITDA). Massimo Schiavo
Energias de Portugal S.A.(BBB-/Stable/A-3)  
From an environmental standpoint, EDP is a world leader in renewable energy generation and is better positioned than peers for the energy transition with 65% of EBITDA from renewable energies. About 74% of its 2018 installed capacity comes from renewables (wind and solar [42%] and hydro ([32%]), and it has a significant investment pipeline of further expansion in the coming years at its subsidiary EDPR. Only 11% of EDP's installed capacity is coal, which we expect the company will gradually phase out in Iberia over the next decade. Consequently, EDP is in the middle of the pack on CO2 emissions in Europe, with 257 tCO2/GWh emissions in 2018. On the other hand, EDP has faced many adverse political actions that narrow the visibility of the company's cash flow profile despite it being the incumbent energy player in Portugal. Massimo Schiavo
Engie S.A. (A-/Stable/A-1)  
Following the sale and/or closure of nearly 60% of its coal-installed capacity since 2015, ENGIE is now in a better position from an environmental perspective and in line with its peers, with a relatively low carbon footprint. Engie's successful transformation includes the disposals of its oil and gas E&P and LNG businesses, stronger focus on renewables generation, and disposal of part of its European and international thermal generation assets--notably coal-fired plants. Engie has hence managed to reduce its CO2 intensity from about 399 tons/GWh in 2015 to 259 tons/GWh in 2018. However, the company's nuclear operations in Belgium pose several challenges related to the future of long-term nuclear waste storage, the government's decision to phase out nuclear power, and severe operational issues. In December 2019, Engie revised up by €2.5 billion its Belgian nuclear provisions to €14 billion following the review of the country's Nuclear Provisions Commission. This can be explained by an increase of about €1 billion for decommissioning provisions and about €1.1 billion for nuclear waste management. We have revised our forecasts accordingly, and our asset retirement obligations added to debt would increase to €12.1 billion in 2019 from about €9.8 billion in 2018. Furthermore, we believe the lack of visibility on the Belgian government's future energy policy will complicate the group's management of its nuclear fleet's withdrawal. Engie held an extraordinary board meeting on Feb. 6, 2020, and decided on the nonrenewal of the CEO's mandate, which was due to expire in May 2020. This dissension between the board and its current CEO might imply some uncertainty on the group's strategic direction and organization, although this change in Engie's executive management is intended to foster its transformation and should maintain its drive to boost renewable energies and client solutions. We will monitor the clarification of Engie's key growth pillars, although we acknowledge this will take some time after a new CEO is appointed. Claire Mauduit-Lle Clercq
E.ON SE(BBB/Stable/A-2)  
Since the successful spin-off of its fossil-based generation business (Uniper SE) in 2017 and the ongoing corporate transformation involving the asset swap with RWE Aktiengesellschaft, we see E.ON's environmental and social risk profile as strongly reduced and becoming more comparable to that of other fully regulated network operators. We estimate that about 70% of the EBITDA of the new E.ON will stem from regulated gas and electricity distribution, with only 5% still coming from non-core merchant power generation, i.e. its retained nuclear power plants, which are to be phased out by end-2022. Nuclear waste storage liabilities were successfully transferred to the German federal government against payment to the German Nuclear Waste Disposal Fund in 2017. While E.ON remains responsible for the decommissioning and dismantling of its nuclear plants, we believe liabilities are reasonably predictable (extending over the 15-25 years following each plant closure). New E.ON's capex focus should adapt to Europe's ambitious energy transition targets; maintaining, expanding and "smartening" distribution system networks in its widespread regulated service area. We expect European distribution system operators' (DSOs') role will shift toward building and operating intelligent networks ("smart grids") using modern technology able to utilize local and regional flexibility and sector coupling (power to heat, power to gas, batteries, micro-gas turbines, for example) to sustain security of supply and avoid costs for expanding network at higher voltage levels (see "Industry Top Trends 2020: Utilities-- EMEA Regulated," published Nov. 13, 2019). We view new E.ON as having an advantage in fulfilling these tasks in comparison with smaller regional operators (such as municipalities) thanks to its lower procurement costs and superior procurement capabilities. Since 2018, E.ON has been aligning its sustainability strategy with U.N.'s Sustainable Development Goals, a key step in promoting transparency and comparability. One of the concrete goals is to reduce its absolute CO2 footprint by 30% by 2030 compared with 2016; which E.ON reduced by 17% in 2018 already (scope 1, 2, and 3). In addition, E.ON is working to halve the CO2 intensity of the electricity it sells. Ben Bjoern Schurich
Eskom (CCC+/Stable/--)  
We see 100% state-owned Eskom's management and governance as weak, making it materially more exposed to governance risks than other South African entities. Our view reflects recent financial and operational mismanagement, misconduct related to the pronounced influence of private interests in procurement processes, and insufficient shareholder oversight. Governance challenges, among others, have resulted in Eskom's severe financial and liquidity weakness. Sweeping board and executive management changes, stronger government oversight and financial support, and better disclosure have modestly improved governance since 2018. Related improvement in investor sentiment reopened local and international debt markets, somewhat reducing liquidity pressures. However, lack of clarity on strategic direction, oversight, and financial viability continue to prompt frequent management changes. In addition, Eskom bears significantly higher environmental exposure than other generators due to its predominantly coal-fired power generation (82% of total; 44 GW). Chronic underinvestment in Eskom's mines, misconduct in procurement, and the depletion of coal stockpiles have resulted in greater use of low-grade coal, leading to increased emissions, less plant reliability, and higher maintenance costs. Environmental risk is heightened by advancing regulations such as South Africa's carbon tax legislation, which became effective on June 1, 2019, as well as regulatory pressure on Eskom to decommission older power stations and shift the energy generation mix toward renewables. The costs incurred to comply will most likely strain the company's already-weak financial profile. From a social perspective, Eskom has extensive state support, considering its vital role as an electricity provider and significant employer (around 46,000 people). Omega Collocott
Fortum Oyj(BBB/Watch Neg/A-2)  
Finland-based Fortum's environmental risks are broadly in line with peers. On the one hand, its European capacity has a zero to low-CO2 emission fleet (mostly hydro and nuclear), generating scope 1 emission of 186 gCO2/GWh in 2018, of which 26 gCO2/GWh generated in Europe. Nuclear risks and waste management, however, represent environmental and financial concerns. At the same time, nuclear companies in Finland are overfunded regarding future waste management and well provided for in Sweden. Its 49.99% (with Fortum expecting to receive the approval to increase its stake to above 70% in first-quarter 2020) ownership of German Uniper also exposes it to more thermal generation and environmental risks in the rapidly evolving German market. We also revised Fortum's management and governance assessment to fair following the Uniper acquisition because we find it difficult to reconcile with Fortum's plan to be one of the leading green generators. This could be mitigated in part by Fortum's increasing scale and diversity, as well as scope for material synergies between the two companies. Massimo Schiavo
Iberdrola S.A.(BBB+/Stable/A-2)  
We view Iberdrola as very well positioned in terms of environmental factors versus its peers. Iberdrola is a fully integrated utility present along the whole value chain with a strong focus on generation and regulated networks. We view the company as one of the first movers in the energy transition among European utilities, with a strong focus on repositioning its generation mix portfolio. Iberdrola created its dedicated renewable subsidiary in 2001, and since then, the company has continued efforts to develop its renewables generation base (60% of its 2018 installed capacity), particularly wind, in which it has become a leader (16 GW wind capacity). The company's strategy is to further increase renewables capacity to 38.4 GW by 2022 from a total of 29.2 GW in 2018, which is consistent with its commitment to be carbon-neutral by 2050. Iberdrola produced 42.4% of its energy in 2018 through renewable sources, with only 1% of energy produced by coal-fired plants. The current CO2 emissions intensity has declined from 301 kgCO2/MWh in 2007 within Iberdrola's global mix to 163 kgCO2/MWh in 2018. This decline has been achieved by expanding the renewable fleet and by gradually increasing the efficiency of Iberdrola's CCGT fleet. From a social standpoint, Iberdrola has a long track record of adequately managing its power grids, be it in the U.K., the U.S, Spain, or Latin America, where we assess the regulatory advantage as adequate or higher and therefore offering significant cash predictability. This supports our ultimate assessment of Iberdrola's business risk as strong. We are monitoring the investigation into Iberdrola’s former head of security and the hiring of services allegedly related to former Spanish police commissioner Jose Manuel Villarejo. We understand no evidence of misconduct related to Iberdrola has been found so far. Gonzalo Cantabrana Fernandez
InterGen N.V.(B+/Stable/--)  
InterGen is more exposed than peers to environmental issues because its generation portfolio is largely merchant and entirely related to thermal sources in the U.K. (three similarly-sized CCGTs and a newly operational OCGT power plants totaling 2.8GW of nameplate capacity) as well as coal sources in Australia (equity stakes in two coal-fired plants adding another 480 MW of capacity). We therefore believe that the company would face challenges if more stringent regulations against carbon emissions were implemented. While Australian regulations have been relatively supportive for coal activities, we believe that risks are high in the U.K., where the bulk of the company's portfolio is located, in light of the U.K.'s pledge to reach carbon neutrality by 2050 and grow renewables penetration. We assess InterGen's management and governance as fair. This reflects that InterGen's future strategy and capital structure remain highly uncertain, as Czech-based power generator Sev.en Energy recently acquired a 50% stake in Intergen. In addition, the U.K. energy regulator (Ofgem) is currently investigating InterGen's physical notifications relating to plant availability. The investigation also relates to other dynamic data that InterGen submitted to the National Grid about the Rocksavage, Coryton, and Spalding power stations in fourth-quarter 2016. Ofgem and InterGen have disclosed little information since the investigations began in mid-2017, and our base case currently does not consider any financial sanctions due to a potential license breach. Julien Bernu
Israel Electric Corp. Ltd. (BBB/Stable/--)  
We see Israel's main power provider, IEC, as facing comparable ESG risk factors to other integrated utilities. As Israel now has an abundant supply of domestic natural gas, ministerial guidance is to increase application of gas at the expense of IEC's older coal-based power plants. In terms of its generation mix, IEC's total generation capacity as of 2018 was based 56% on gas versus 42% in 2015. Coal power generation still represented 36% of production capacity in 2018 and 43% of actual production. The company intends to decommission all coal-fired generation units by 2030 latest in accordance with Ministry of Energy objectives. Matan Benjamin
Austrian Kelag is more favorably positioned on environmental issues than most of its peers because its business model focuses on 100% renewable power generation and supply, besides its district heating activities and regulated distribution. We see this as positive compared to other players because Austria is moving toward a 100% renewable energy base by 2030. Kelag generates power exclusively from renewable sources, namely 74 hydro power plants (about 692 MW) and several wind and solar power parks (about 77 MW) mainly in Carinthia. Gerardo Leal
Landsvirkjun, the main Icelandic power generation company, has more supportive environmental factors than peers, thanks to its 100% low-cost renewable portfolio yielding a very high EBITDA margin of about 72%. In addition, all current and future investments in the company's generation profile consist of 100% renewable energy. Landsvirkjun also prioritizes social and governance factors and has established an ambitious strategy on corporate social responsibility. Daniel Annas
Naturgy Energy Group S.A(BBB/Stable/A-2)  
Spanish Naturgy's generation portfolio compares unfavorably with those of other European integrated utilities due to the relatively low contribution of renewable assets. More than 70% of its output is generated from combined-cycle gas turbine plants (65%) and coal (8%). This implies relatively high CO2 intensity, with scope 1 emission of 342 tCO2/GWh in 2018. The company was awarded 926 MW of renewable capacity to be built before January 2020 in the 2016-2017 renewables auctions in Spain, but it still lags its Spanish and European peers. Its long-term position is linked to the future relevance of gas. We see Naturgy as more exposed than peers to accrued social risks. Naturgy's ownership structure and governance has changed over the past two years, with investment funds (Global Infrastructure Partners and CVC) now majority shareholders, although Criteria is still the largest shareholder. We believe this has increasingly skewed the company's operating model and financial policy toward shareholders. In addition, Naturgy's 140 managers benefit from a new five-year (2018-2022) long-term incentive plan based on total shareholder returns and replaces the previous annual scheme, which depended on operational targets. This new plan might lead management to opt for shareholder remuneration maximization, which involves restructuring the workforce and optimized investment and could impair the company's longer-term cash flow generation. Furthermore, we see increasing scrutiny from the Spanish regulator, which is proposing leverage limitations. Also, in Colombia Naturgy is still in a legal dispute with the government, which decided to take over management of the power distribution company Eletricaribe at the end of 2016; no further credit impact is expected because Naturgy wrote off the investment. Massimo Schiavo
N.V. Eneco Beheer(BBB+/Watch Pos/A-2)  
We believe that environmental issues for Dutch Eneco are more supportive relative to its peers. Eneco's strategy largely focuses on expanding its renewable generation fleet and providing energy solutions oriented toward sustainable energy in its supply segment. Eneco generates most of its power from renewable wind and solar generation and only uses its gas combined-cycle gas turbine plant to compensate and balance for the intermittency of its renewable fleet, which we view as necessary to achieve the energy transition. Eneco's strategy is aligned with broader European directives in transitioning to a green energy generation base, but what makes Eneco's renewable generation portfolio stand out from most of its European peers is that it is fully concentrated in jurisdictions that support the construction of these facilities with regulatory schemes (e.g. subsidies). The alignment of Eneco's strategy with these jurisdictions in terms of the energy transition not only provides a good degree of business viability, but it also implies a stable and predictable source of sustainable returns over the medium to long term. Our management and governance assessment on Eneco is satisfactory, and the ongoing investigation ordered by the Enterprise Chamber has been ceased. The Enterprise Chamber will be requested by those involved to end the inquiry procedure upon closing of the share transaction (privatization of Eneco). Gerardo Leal
Orsted A/S(BBB+/Stable/A-2)  
From an environmental standpoint, Denmark-based Orsted is among the best-positioned European utilities given the overwhelming contribution of renewable assets to its generation portfolio (86% of output in 2019, with an objective of 99% by 2025). Orsted is the global leader in offshore wind energy, with a market share of about 30%. Over the past two years, Orsted has disposed of its oil and gas upstream operations and has turned the page on its thermal portfolio to focus only on carbon-free power generation, supported by a stable remuneration framework. As a result, its greenhouse gas intensity (scope 1-2) was reduced to 65 gCO2e/kWh in 2019, down 86% from 2006. We view Orsted's governance as strong and better than most peers, reflecting its first-mover strategy to successfully develop an offshore wind industry globally. In particular, it has quickly integrated the latest technologies without cost overruns or delays in project delivery. We also regard positively the Danish government's long-standing support, which has allowed the roll out of Orsted's energy transition strategy over the past decade. That said, we have recently noted some misalignments between the company and the state. In 2018, Orsted announced the disposal of its power distribution B2C and City Lights businesses. However, in January 2019, the Danish ministry of finance informed Orsted that there was no longer political support for the ongoing divestments in the current form. Finally, in September 2019, Orsted agreed to divest its Danish power distribution (Radius), residential customer, and City Light businesses to SEAS-NVE. Massimo Schiavo
Public Power Corp. S.A.(B-/Stable/--)  
We see Greek power generator and distributor PPC as more exposed than peers to ESG risks. PPC's fuel generation mix is heavily weighted toward fossil fuels, with 30% of capacity being lignite (sourced from its own mines) and a further 16% oil. Consequently, the company is heavily exposed to CO2 price developments under the European Emissions Trading System. That said, PPC has announced on Dec. 16, 2019, a new business plan that is more aligned with the energy transition. Under the revised plan, it will phase out existing lignite 3.4-GW plants by 2023 and the remaining 0.6 GW of lignite capacity by 2028. The capacity will be replaced by renewables to lower its CO2 emissions. PPC also is more exposed to social factors than peers: it is the last-resort electricity supplier in Greece, providing a public service--including supplying the most vulnerable households--with low social tariffs and supplying island customers at the same tariff as on the mainland. PPC is being compensated for the provision of such services through the Public Service Obligations account. PPC is also of key social and economic importance for the government, being the largest Greek company and employer, with approximately 15,300 employees as of Dec. 31, 2019. Our assessment of PPC's management and governance as weak reflects the historically negative intervention of the Greek government on a number of important decisions regarding PPC's day-to-day decisions, with the Hellenic Republic controlling indirectly 51% of the share capital of the company (through the Hellenic Corp. of Assets and Participations S.A. and the Hellenic Republic Asset Development Fund) and the rest held by institutional investors and the public. Gonzalo Cantabrana Fernandez
Rushydro PJSC(BBB-/Stable/A-3)  
In the environmental context, RusHydro is positioned in line with peers. We think that the company's dominantly hydro-generation asset profile (80% of EBITDA and 64% of production) is CO2-free and environmentally supportive, but challenged by the remaining part of its generation portfolio, which is related to aged thermal generation power plants located in the Far Eastern part of Russia. RusHydro's capex program is burdened by the significant investment needs of these assets in order to improve its efficiency and environmental characteristics. The Russian government has not implemented strict environmental constraints for CO2 emissions at this stage which would disadvantage fossil fuel generators, but RusHydro, similar to other hydro-generators in the country, enjoys priority access to the market and state support aimed at leading renewables generators. The latter is also underpinned by RusHydro's important social role to provide electricity and heating to population in the remote locations of Russia. Another important function of RusHydro is balancing the whole country's electricity system as its hydropower plants are flexible and can change load quickly. From a governance standpoint, RusHydro does not stand out from other government-owned enterprises in Russia. We factor in the exposure to a politicized decision-making process, though balanced by potential government support. Unlike some European utilities, RusHydro's underperformance in the regulated segment is unlikely to trigger any risk of losing its license; rather, it could justify government equity injections or subsidies to cover part of the modernization capex. Sergei Gorin
Saudi Electric Co.(A-/Negative/--)  
We see Saudi 81% state-owned SEC's exposure to environmental risk as weaker than that of its peer group given its heavy reliance on fossil fuels in its generation mix. Almost 100% of SEC's total generation ((53.4 GW) is fossil fuel-based, comprising a high share of more-polluting heavy fuel oil, crude, and diesel (58% versus 42% natural gas). The Saudi government recently announced an ambitious renewables target to deliver 58.7 GW clean energy as set out in Vision 2030, and the company is expected to be one of the key enablers of the plan. However, we expect the mix to remain skewed toward fossil fuels over the next five years. SEC has been pursuing a strategy to diversify its energy mix into cleaner energy, such as natural gas. The company is also working on improving its energy efficiency by reducing fuel consumption. SEC has invested in highly efficient capacity and bolstered its grid connectivity over the past five years, which helped reduce fuel consumption per MWh to 1.69 barrels of oil equivalent (BoE) in 2018 from 2.01 BoE in 2009. We think SEC is better positioned than peers on social factors, and they contribute to our view of strong ongoing and almost certain extraordinary state support. SEC is also one of the largest employers in the country, with 34,599 employees and a very high nationalization rate: 92% of the workforce are Saudi nationals. Furthermore, the company's strategy is well aligned with the country's national energy plan. Sapna Jagtiani
SSE PLC(BBB+/Stable/A-2)  
SSE, one of the largest electricity and gas suppliers in the U.K., is less exposed to environmental issues than other generators in the sector thanks to a large portfolio of renewable assets (mainly wind and hydro) in the U.K. SSE had 2.4 GW of renewable energy capacity in 2010, increased to 3.8 GW as of March 31, 2019, and targets capacity of about 4.0 GW by 2020. Historically SSE was one of the largest electricity and gas suppliers in the U.K. The energy supply sector is experiencing the consequences of a political mandate for social equality. Following a governmental pledge to keep energy bills down via the Domestic Gas and Electricity (Tariff Cap) Act, last year the U.K. regulator (Ofgem) implemented an official price cap for its first dual fuel cap level effective for standard variable tariffs customers. The introduction of the tariff cap has undermined U.K. energy suppliers', such as SSE's, business prospects in the shorter term, leading to material declines in EBITDA. In September 2019, SSE announced an agreement to sell its SSE Energy Services business to OVO Energy Ltd. The transaction was completed in January 2020, and generally reduced SSE's exposure to social risks Matan Benjamin
Statkraft AS (A-/Stable/A-2)  
Statkraft, Europe's largest generator of renewable energy, is in our view stronger than peers in terms of environmental factors thanks to its large hydro-generation. Its renewable asset base represents about 98% of total generation, and together with its renewable growth plans, isolates the company from cost uncertainty stemming from carbon pricing. The company's hydro output is somewhat exposed to climate change and extreme weather conditions, such as long periods of warm and dry weather, even if Norway is less exposed than other regions. Daniel Annas
Uniper SE(BBB/Watch Neg/--)  
We see German Uniper as more exposed to environmental factors than other generators and integrated utilities due to its carbon-emission-heavy power generation portfolio and increasingly stringent German and European environmental rules. The company is thus more vulnerable to political, regulatory, and reputational risks. Uniper's installed capacity split by fuel type consists of 52% gas (18.1 GW), 28% coal (10.4 GW) and 8% oil (2.8 GW). In Germany, the main market for Uniper, coal generation is set to exit no later than 2038 as part of the country's efforts to curb climate change. There will, however, be compensation to coal plant operators, which will become more unfavorable the lower the profitability expectation against rising CO2 allowance prices. We balance Uniper's CO2-intensive generation portfolio (523 tCO2/GWh in 2018) against its strategic orientation to contribute to the European energy transition via its gas transport, gas storage, regasification, and flexible gas generation capacities. Another mitigating factor for Uniper is the fact that its immediate (gas-fired) response capacity is crucial to balance the increasing share of volatile renewable energy sources and taking into account the phase-out of stable base load capacity. Ben Bjoern Schurich
Verbund AG(A/Stable)  
We believe that Austrian Verbund is stronger positioned on environmental factors than peers, thanks to its almost 100% green generation portfolio. Moreover, the company is restructuring its thermal portfolio in line with its strategic focus on CO2-free electricity generation. Verbund had a very low 34 tCO2/GWh scope 1 emission in 2018. Following the restructuring, thermal generation operations are no longer part of the company's business mix, except for an 848-MW combined-cycle gas turbine and its 165 MW gas-fired boiler (recently refitted from coal) in Mellach, Austria, contracted for security of supply purposes. We consider the company's use of its gas generation assets for grid stability and security of supply measures as credit supportive because immediate response capacity is crucial to balance the increasing share of volatile renewable energy sources and supports more stable cash flow generation. Ben Bjoern Schurich
Ratings as of Feb. 11, 2020.
North America

Table 2

Company/Rating/Comments Analyst
The AES Corp.(BB+/Positive/--)  
The AES Corp. is exposed to risks related environmental laws and regulations in the jurisdictions in which it operates. Coal represents about 30% of AES' generation fleet, but the company and its subsidiaries actively monitor environmental compliance and manage its operations within emission limits, thus minimizing environmental impact. We expect the share of coal in AES' generation mix to decline over the next few years because the company has planned to sell, retire, or reduce generation from its coal assets. The company currently has a large backlog of renewable energy projects that are in various stages of execution phase, and we expect it to transition to become one of the prominent renewable project developers. The AES Corp. has been actively reducing its CO2 emissions through replacing coal capacity with renewables and working towards reducing carbon intensity by 50% between 2016 and 2022 as well as by 70% between 2016 and 2030. Tony Mok
Alabama Power Co.(A/Negative/A-1)  
Alabama Power Co.'s credit quality is more negatively exposed than peers by environmental risk factors given its high amount of fossil-fired generation, which represents over 50% of its 12,000 MW. The company's reliance on coal-fired generation exposes it to heightened risks, including some coal ash risk, and the ongoing cost of operating older fossil-based generation units considering the potential for changing environmental regulations that may require significant capital investments. The company's recent integrated resource plan includes the retirement of coal-fired generation over time. Obioma Ugboaja
ALLETE Inc.(BBB+/Negative/A-2)  
ALLETE's environmental footprint represents higher exposure than peers. In 2018, the company relied on coal-fired facilities for more than half of its electric supply and generated a small proportion of its earnings from its coal mining operations, exposing it to heightened risks of tighter environmental standards. In addition, the company's significant reliance on industrial mining customers that are subject to numerous environmental regulations also present other risks as work stoppages or environmental remediation at these mines may affect financial measures. However, the company's growth strategy as a wind-energy provider in the U.S. demonstrates its commitment to reducing greenhouse gas emissions, somewhat offsetting its overall heavy reliance on carbon emitting coal-fired generation. Sloan Millman
Ameren Corp.(BBB+/Stable/A-2)  
Ameren Corp.'s credit quality is more negatively influenced by environmental risk factors than peers, primarily reflecting its regulated subsidiary's heavy reliance on coal-fired generation, and associated carbon footprint. Please see the discussion on Union Electric (doing business as Ameren Missouri) for more details. William Hernandez
American Electric Power Co. Inc.(A-/Stable/A-2)  
American Electric Power Co. Inc.'s (AEP's) credit quality is less supportive than generation peers due to environmental factors given the level of coal-fired electricity it produces. With a total generation fleet capacity of over 32,000 MW, of which 75% is based on fossil fuels (about 47% coal; 28% natural gas), AEP's environmental footprint is a significant credit risk factor. The company's reliance on coal-fired generation exposes it to heightened risks, including the ongoing cost of operating older units in the face of disruptive technology advances and the potential for increasing environmental regulations that require significant capital investments. AEP began to reduce its reliance on coal through plant retirements and renewable investments such as hydro, wind, solar, and energy efficiency. However, this upside is partly offset by AEP's exposure to nuclear generation (7% of the generation fleet), which introduces higher operational risks and plant retirement responsibilities. AEP's management is actively trying to reduce its fleet's environmental footprint, committing to reduce carbon dioxide emissions 80% by 2050 from 2000 levels. Gerrit Jepsen
Atlantica Yield PLC(BB/Stable/--)  
From an environmental perspective, Atlantica compares favorably to peers because over two-thirds of revenue come from long-term contracted solar and wind assets, which reduce its cash flow volatility. The company has also publicly commitmted to invest in assets that are environmentally sustainable. While the company is diverse from a gender perspective, with women constituting 40% of employees, social factors are not salient in our assessment. We assess Atlantica's management and governance as fair. Although we viewed governance under its previous owner, Abengoa, as weak, the existing Atlantica management team has taken the necessary steps to remove linkages to Abengoa and has demonstrated good governance practices. Unlike some YieldCo peers, the company has no incentive distribution rights, which is positive from a governance perspective. Five out of eight board members are independent and the company's level of transparency and disclosure is in line with peers. Kimberly Yarborough
AVANGRID Inc.(BBB+/Stable/A-2)  
Avangrid's credit quality is positively influenced and better positioned among peers due to its large renewable generation presence and lower risk transmission and distribution network utilities. Avangrid has roughly 7 GW of wind and solar generation either owned or under operation, and over 15 GW generation under development. Avangrid is the third-largest wind operator in the U.S. Fei She
Avista Corp.(BBB/Stable/A-2)  
Avista's credit quality is positively influenced by environmental factors compared to peers given its large hydro portfolio. With a total generation fleet capacity of over 2,000 MW, close to 50% of its generation portfolio is hydro generation. Obioma Ugboaja
Black Hills Power Inc.(BBB+/Stable/--)  
Black Hills Power Inc.'s credit quality is more negatively influenced by environmental risk factors than peers given its heavy reliance on coal-fired generation and its associated carbon footprint. From a supply standpoint, Black Hills Power sources almost all of its electricity generation from coal, exposing the company to heightened environmental risks, including the ongoing cost of operating older units and the potential for increasing environmental regulations requiring significant capital investments. William Hernandez
Brookfield Renewable Partners L.P.(BBB+/Stable/--)  
We view BREP's environmental position stronger than peers because its generation assets are renewable (75% hydro, 20% wind, and the remainder predominantly solar power) and 90% contracted under long-term power purchase agreements. The large portion of contracted revenues also reduces cash flow volatility and improves the company's business risk profile. BREP has some of the lowest GHG emissions compared to other power generation companies globally. The company has managed its underlying water resources efficiently to minimize biodiversity changes and maintain the natural ecology to reduce its environmental impact. Of its 219 hydro facilities, 55 have received the Low Impact Hydropower Institute Certification. BREP has relatively strong management and governance, which is reflected in its execution process and clear strategy for developing renewable assets. Sunneva Bernhardsdottir
Calpine Corp. (B+/Positive/--)  
We see Calpine's management and governance as fair, but weaker than peers. Transparency and governance issues arose when the company was taken private by Energy Capital Partners. Although the company has remained consistent on its deleveraging targets and is generating cash flow (and deleveraging), transparency of disclosures has lessened. In response to lender concerns, Calpine has committed to debtholders that it will schedule quarterly earnings releases and will attend industry conferences to provide greater transparency on its financials. We expect that the company will provide greater transparency on its consolidated cash flow build-up. While Calpine relies on natural gas as the dominant fuel for producing power, we see its generation as not being significantly disadvantaged from a business risk perspective compared with the industry since we consider natural gas an essential part of the energy transition. Calpine's over 26 GW of generation capacity is newer, relatively efficient, and highly cost competitive with its peers. Its 725-MW geothermal portfolio is the largest source of firm renewable power in the U.S. Aneesh Prabhu
Caribbean Utilities Co. Ltd.(BBB+/Stable/--)  
Caribbean Utilities Co. Ltd.'s (CUC's) credit quality is more negatively influenced by environmental factors than peers because the vast majority of its current electricity supply depends on diesel oil. More than 90% of its energy supply comes from diesel; however, the company is jointly working with the government to reduce its carbon footprint. The government rolled out a National Energy Policy that aims to accelerate renewable energy usage to 70% of total electricity generation by 2037. In addition, CUC is exposed to hurricanes and tropical storms that may cause service disruptions. Andrew Ng
Covanta Holding Corp.(BB-/Stable/--)  
We consider Covanta to be more favorably positioned than other generation peers in terms of environmental risks. Covanta generates electricity through waste-to-energy facilities in the U.S. and U.K., positively contributing to the environment because it removes waste from its area of influence and uses it to generate electricity. Additionally, more than 65% of total revenues come from fixed disposal fees, which reduce its EBITDA volatility and provide stability to its business risk profile. Covanta has no need to change its generation mix like other companies exposed to coal generation. Since 2007, Covanta reduced emissions by more than 50%. Jason Starrett
DTE Energy Co. (DTE) and DTE Electric Co. (DTEE)(BBB+/Stable/A-2)  
The credit quality of parent DTE and its subsidiary DTEE are more negatively influenced by environmental risks than peers given DTEE's heavy reliance on coal to generate electricity. More than 60% of the company's electricity generation is fueled by coal. The supportive regulatory framework in Michigan partially offsets some of the financial risks through the use of riders and other cost recovery mechanisms. Additionally, DTEE's management team continues to demonstrate its commitment to reducing emissions and shifting its fuel mix to cleaner alternatives, with the goal of reducing emissions 80% by 2050 and retiring most of its coal facilities by 2030. Fei She
Duke Energy Carolinas LLC(A-/Stable/A-2)  
Duke's Energy Carolinas LLC's (DEC's) credit quality is more negatively influenced by environmental risk factors than peers given the scale of its generation fleet. Although only 30% of DEC's capacity is coal-fired, the absolute size of coal plants (i.e. 6,700 MW) makes it more exposed, in our view. This also includes the ongoing cost of operating older units and strict environmental regulations related to coal ash. The company's environmental risk exposure in North and South Carolina has heightened in recent months following an order from its environmental regulators to fully excavate its remaining coal ash basins in North Carolina, and a regulatory disallowance of related costs in South Carolina. We expect DEC's environmental risk mitigation efforts to be part of a broader environmental strategy that will be implemented at the parent level. Obioma Ugboaja
Duke Energy Corp.(A-/Stable/A-2)  
Duke's credit quality is more negatively exposed to environmental risk factors than global peers given the scale of its fossil-fired generation fleet and a greater risk of hurricanes as a result of physical climate change. Approximately 30% and 45% of Duke's total electric generation fleet capacity of almost 51 GW are coal and gas-fired, respectively, which exposes it to the ongoing cost of operating older units in the face of disruptive technological advances and the potential for changing environmental regulations that may require significant capital investments. In September 2019, Duke announced an updated climate strategy with a new goal of net-zero carbon emissions from electric generation by 2050. Historically, the company has faced significant environmental, social, and financial repercussions from closing its coal ash ponds in South and North Carolina, but is mitigating this risk though the North Carolina's regulatory framework, which allows coal ash remediation costs to be recovered. Furthermore, potential future regulatory disallowances related to the company's coal ash remediation still pose some risk. In addition, the company's carbon-free nuclear generation portfolio increases its operating risk and exposes it to longer-term nuclear waste storage risks despite the company's long-term track record of achieving safe operational standards in its nuclear fleet. On the gas side, older assets are susceptible to natural gas leaks, which emit methane. Also, the company operates its utilities in regions of the U.S., such as Florida, North Carolina, and South Carolina that are prone to frequent hurricanes, which could increase the company's risk exposure because climate change is intensifying the severity and frequency of these natural disasters globally. Obioma Ugboaja
Duke Energy Indiana Inc.(A-/Stable/A-2)  
Duke Energy Indiana Inc.'s (DEI's) credit quality is more negatively influenced by environmental risk factors than peers given its heavy reliance on coal-fired generation and associated carbon footprint. From a supply standpoint, DEI generates about 70% of its generation from coal in terms of megawatt hours. The company's coal generation exposes it to heightened environmental risks, including the potential for increasing environmental regulations requiring significant capital investments. Indiana is currently updating its regulations related to coal ash. As such, we continue to monitor possible implications for credit quality. We expect DEI's environmental risk mitigation efforts to be part of a broader environmental strategy that will be implemented at the parent level. Obioma Ugboaja
Duke Energy Kentucky Inc.(A-/Stable/A-2)  
Duke Energy Kentucky Inc.'s (DEK's) credit quality is more negatively influenced by environmental risk factors than peers given its heavy reliance on coal-fired generation and its associated carbon footprint. From a supply standpoint, DEK generates about 90% of its generation from coal in terms of megawatt hours. The company's coal generation exposes it to heightened environmental risks, including the ongoing cost of operating older units in the face of disruptive technological advances and the potential for increasing environmental regulations requiring significant capital investments. We expect DEK's environmental risk mitigation efforts to be part of a broader environmental strategy that will be implemented at the parent level. Obioma Ugboaja
Edison International(BBB/Stable/A-2)  
Edison's credit quality is more negatively influenced by environmental and social risk factors than peers because of the wildfire risks facing its subsidiary Southern California Edison. Please see Southern California Edison for more details. Gabe Grosberg
Entergy Mississippi LLC(A-/Stable/--)  
Entergy Mississippi LLC's credit quality is more positively influenced by environmental factors than peers given its successful strategy of transitioning from coal-based generation to either gas or renewables. Currently, Entergy Mississippi's coal-based generation is only about 15% of its total generation and is declining as it moves forward with its new gas generation build. Mayur Deval
ExGen Renewables IV LLC(B/Developing/--)  
We view Exgen Renewables IV LLC (EGR IV) as more favorably positioned than other generation peers in terms of environmental risks. EGR IV derives all of its cash flows from renewable generation sources under long-term contracts (45% from solar, 45% from wind, and 10% from biomass), which reduce cash flow volatility and improve the business risk assessment. Kimberly Yarborough
Fortis TCI Ltd.(BBB/Negative/--)  
Fortis Turks and Caicos' (FTCI's) credit quality is more negatively influenced by environmental factors than peers because virtually all of its energy supply comes from diesel. However, the company is jointly working with the government to reduce its carbon footprint. The government of Turks and Caicos Islands and FTCI developed the Resilient National Energy Strategy (R-NETS) in 2019, which aims to have solar generation contribute between 25% and 28% of total electricity generation across the country's individual electricity systems by 2031, rising to 33%-38% by 2040. In addition, FTCI is exposed to hurricanes and tropical storms, which may disrupt service. Andrew Ng
Granite Acquisition Inc.(B+/Positive/--)  
We consider Granite Acquisition to be more favorably positioned than other generation peers in terms of environmental risks. Granite generates electricity through waste-to-energy facilities in the U.S. and U.K., positively contributing to the environment because it removes waste from its area of influence and uses it to generate electricity. Additionally, more than 50% of total revenues come from fixed disposal fees, which reduce its EBITDA volatility and provide stability to its business risk. Granite has no need to change its generation mix like other companies exposed to coal generation. Diego Weisvein
Green Mountain Power Corp.(A-/Stable/--)  
Green Mountain Power Corp.'s (GMP's) credit quality is more positively influenced by environmental factors than peers because its operation is primarily in electric distribution, making it more favorably positioned than its counterparts with significant ownership of power generation assets. Furthermore, GMP has an obligation to ensure adequate supply of electricity and the utility's power supply is mostly carbon-free and comes from resources such as hydro or nuclear. Andrew Ng
Hawaiian Electric Co. Inc.(BBB-/Stable/A-3)  
Hawaiian Electric Co. Inc.'s (HE's) credit quality is relatively more exposed to environmental risks than its peers given that most of its electricity supply is from fossil-based fuel and is exposed to hurricanes and physical climate change. Close to 70% of the net energy HE utilities generate or purchase comes from oil and coal, which are sources of GHG emissions, and generally require more environmental remediation spending for its combustible byproducts compared to gas-fired generation. However, the company is slowly reducing its carbon footprint as mandated by Hawaii's renewable portfolio standards (RPS) program where electric utility operators, including HE, need to achieve 100% renewable electrical energy sales by 2045. HE utilities' RPS for year-end 2018 was about 27% compared to only about 10% in 2010, which sets them on track to meet the 30% by 2020 RPS, and the company has reduced its GHG emissions about 20% compared to 2010. In addition, Hawaii is exposed to hurricanes and tropical storms, which may disrupt service. The company has made significant efforts over the past decade to harden the grid by reinforcing equipment, replacing poles, and expanding tree trimming to increase reliability and safety. Andrew Ng
Hawaiian Electric Industries Inc.(BBB-/Stable/A-3)  
Hawaiian Electric Industries Inc.'s credit quality is more negatively influenced by environmental factors than global peers given its subsidiary Hawaiian Electric Co. Inc.'s heavy dependence on fossil fuels to generate electricity. See Hawaiian Electric Co. Inc. for more details. Andrew Ng
Indianapolis Power & Light Co and IPALCO Enterprises Inc.(BBB/Stable/--)  
Indianapolis Power & Light Co. (IPL), a subsidiary of IPALCO Enterprises, bears higher environmental risk than peers because about 70% of its electricity supply stems from coal-fired facilities. This exposes it to heightened risks, including the ongoing cost of operating older and the potential for changing environmental regulations that could require significant capital investments. However, it is trying to lessen its reliance on coal by investing in less carbon-emitting forms of generation, and expects that the proportion of its generation from coal will be less than 30% by 2036. Indiana is currently updating its regulations related to coal ash and we will continue to monitor the situation for possible credit quality implications. Sloan Millman
Innergex Renewable Energy Inc.(BBB-/Watch Neg/--)  
Innergex's power generation assets are entirely renewable, with a net installed capacity of 2.6 GW as of November 2019, which lessens the company's exposure to environmental risk factors compared to peers. We consider Innergex's reliance and commitment to renewables as highly supportive from an environmental standpoint. The company has added 35 generation facilities to its asset portfolio since 2015, all of which were renewable. In addition, the current development pipeline reflects continuation of its strategy to grow as an emissions-free generator. Innergex has also adopted a Sustainable Development Policy that drives integration of sustainable development considerations (environmental protection, social development, and economic development) in all aspects of its business, including its strategic planning, decision-making, management, and operations. Luqman Ali
Kentucky Power Co.(A-/Stable/--)  
Kentucky Power Co. (KP) is more negatively influenced by environmental factors than generation peers given its mostly coal-based power generation. Of KP's 1,060 MW of owned generation capacity and 393 MW of purchased power capacity, coal contributes around 81% and natural gas about 19%. The company's reliance on coal-fired generation exposes it to heightened risks, including the ongoing cost of operating older units in the face of disruptive technological advances and the potential for significant capital investments to meet increasing environmental regulation. KP has begun to reduce reliance by retiring coal plants and investing in hydro, wind, solar, and energy efficiency. KP has committed to cut CO2 emissions to 80% of 2000 levels by 2050. Gerrit Jepsen
Kentucky Utilities Co.(A-/Stable/A-2)  
Kentucky Utilities Co.'s credit quality is more negatively influenced by environmental factors than generation peers given its significant exposure to coal-based generation, which is about 77% of net generation (its total capacity being about 5,000 MW). In Kentucky, the company is seeking a green energy tariff that would help grow renewable energy. Over the longer term, the company expects to replace much of its coal-based generation with a combination of natural gas and renewables. Gerrit Jepsen
LG&E and KU Energy LLC(A-/Stable/--)  
LG&E and KU Energy LLC's credit quality is more negatively influenced by environmental risk factors than peers given its significant exposure to coal-based power generation. LKE is the intermediate holding company of LG&E and KU, both of which have generating assets. Most of the total generation capacity--about 8,000 MW--is from coal and natural gas. In Kentucky, the company is seeking a green energy tariff that would incentivize renewable energy. Over the longer term, the company expects to replace much of its coal-based generation with a combination of natural gas and renewable generation. Gerrit Jepsen
Monongahela Power Co.(BBB/Stable/--)  
Monongahela Power Co.'s (MP's) credit quality is more negatively influenced by environmental risk factors than peers given its heavy reliance on coal fired generation. MP's generation capacity is about 3,600 MW and coal-fired generation represents about 85% of total generation, which increases the company's potential environmental risks and higher costs. We incorporate this elevated risk in our view of the company's business risk profile. While the company has a long-term stated goal to reduce its carbon emissions by 90% below 2005 levels by 2045, the strategy is beyond the timeframe for our base-case assessment. However, to date the company has reduced CO2 emissions 62%. Beverly Gantt
Montana-Dakota Utilities Co.(A-/Stable/A-2)  
Through its operations in electric generation and natural gas distribution, MDU bears higher environmental risk than peers, given approximately 80% of its electric generation is coal-fired. MDU is trying to lessen its reliance on coal-fired generation by planning to replace three coal units, which made up about 25% of its generation in 2018, with a lower CO2-emitting combined-cycle plant. The company also recently acquired an additional 48 MW of wind generation, which will reduce its carbon emissions. While the company is reducing its reliance on coal, its exposure to coal and other fossil fuel-emitting forms of generation is still considerable. This exposes it to heightened risks including the ongoing cost of operating older units in the face of disruptive technological advances and the potential for changing environmental regulations that could require significant capital investments. Furthermore, although the company spends significant capital to replace aging natural gas lines that are prone to leaks, its gas operations emit GHGs. Sloan Millman
NextEra Energy Inc.(A-/Stable/--)  
NextEra's credit quality is more enhanced than peers by its proactive management of its environmental and social risks, even though its assets are more exposed to hurricanes and physical climate change. The company has been proactively reducing its carbon emissions, even though Florida does not have a renewable portfolio standard. NextEra's owns over 45 GW of generation capacity through its regulated utility operations and competitive businesses. While a significant share of the company's generation is from natural gas (about 45%), the company has successfully built one of the largest renewable portfolios (about 40%). The remaining 15% of the company's generation mix stems from nuclear, which although carbon-free, exposes it to potentially higher operating risks and longer-term nuclear waste storage risks. The company also operates its utilities in Florida, a region prone to frequent hurricanes, which could increase the company's risk exposure because climate change is intensifying the severity and frequency of these natural disasters globally. However, the company minimizes these risks through storm hardening and effectively managing regulatory risk by allowing for the timely recovery of storm costs. Also, we believe that NextEra's management of social risks is consistently better than peers because it delivers safe and reliable services to customers while maintaining customer bills at 30% less than the national average. Furthermore, the company's recent acquisition of Gulf Power and its intent to proactively lower customer bills while reducing its carbon footprint further demonstrates its commitment to local communities. Gabe Grosberg
Northern Indiana Public Service Co. LLC(BBB+/Negative/--)  
Northern Indiana Public Service Co. LLC's (NIPSCO's) credit quality is more negatively influenced by environmental risk factors than peers given its heavy reliance on coal to generate electricity (about 70% of total). The company's generation is mostly coal-fired, exposing it to various environmental regulations and emissions standards; however, NIPSCO plans to replace most of its coal generation fleet by 2023 with renewables. Matthew O'Neil
NRG Energy Inc.(BB/Positive/--)  
While we do not view its overall generation from coal-fired assets (32 TWH) as an outlier, we view unfavorably from a credit perspective that about 50% its economic generation (62 TWH) comes from coal units. The company's past acquisitions did not preclude ownership in coal-fired generation (GenOn and Edison Mission) but it subsequently took steps to mitigate its coal-fired exposure, including converting many of its units from coal to gas. Moreover, with a strategic shift toward retail power, we expect wholesale power to make up only about 30% of EBITDA by 2024. The company also piloted the world's largest carbon sequestration facility (Petra Nova) at its Parish facility. Still, despite the power industry's shift toward renewables, NRG has largely exited this space, initially in residential solar (where it was arguably struggling), but also by selling the former NRG Yield Inc. (Clearway Energy). We considered the sale of as a strategic shift because NRG started the YieldCo wave. Aneesh Prabhu
Pacific Gas & Electric Co.(D/NM/D)  
The credit quality of Pacific Gas & Electric, subsidiary of PGE Corp., is negatively influenced by ESG risk factors significantly more than peers. Environmental factors have become an integral part of our credit analysis on California's electric utilities because of climate change, which has intensified the severity and frequency of wildfires. Inverse condemnation exacerbates the operational and financial risks that climate change introduces for the company. This allows third parties to make claims against the utility for causing a catastrophic wildfire, despite acting reasonably. Social risk factors also have a more negative impact because of the very negative public sentiment toward Pacific Gas & Electric, which we believe may make it difficult for the company to effectively manage regulatory risk compared to its peers. Over the past decade, the company has faced many operational challenges including the San Bruno gas explosion and the recent devastating Camp Fire. We believe that it will likely take significant time and a consistent longer-term demonstration of operational excellence for the company to regain the trust of all of its stakeholders. We believe that based on the lack of confidence that many stakeholders in the company, regulators' willingness and ability to implement measures that consistently protect the company's credit quality could be challenging. Finally, Pacific Gas & Electric bears higher governance risks as reflected by its history, which at times has been confrontational and contentious with regulatory authorities, in addition to legal infractions over the past two decades. In our view, this is beyond an isolated episode and outside industry norms and leads to an adverse impact on the company's reputation, representing significant risk to the company. While over the past year, the company has hired new leaders on its management team and board of directors, we believe it could take many years for the company to improve its culture and to consistently demonstrate the oversight needed to account for its unique enterprise risks. Gabe Grosberg
Pattern Energy Group Inc.(BB-/Stable/--)  
We see Pattern's environmental impact being more credit supportive compared to peers. Pattern's investment in exclusively renewable assets (much of the portfolio is in the U.S.) is a competitive advantage, with more than 90% of the company's cash flows underpinned by long-term power purchase agreements, which reduce cash flow volatility and improve the business risk assessment. Karthik Iyer
PG&E Corp. (D/NM/D)  
PG&E's credit quality is more negatively influenced by ESG risk factors than peers because of the wildfire risks facing its subsidiary Pacific Gas & Electric. Please see Pacific Gas & Electric for more details. Gabe Grosberg
Southern California Edison Co.(BBB/Stable/A-2)  
The credit quality of Southern California Edison, a subsidiary of Edison International, is more negatively influenced by environmental and social risk factors than peers given the increased intensity of wildfires within its service jurisdiction. Because climate change has intensified the severity and frequency of wildfires in California, environmental factors have become an integral part of our credit analysis on the state's electric utilities. Inverse condemnation exacerbates the operational and financial risks that climate change introduces for the company. Furthermore, the company's service territory already faced catastrophic wildfires in both 2017 and 2018, demonstrating its susceptibility and exposure to wildfires and climate change. As such, we believe the company is more exposed to environmental risk compared to the vast majority of peers. In our view, the company's social risks are also high, reflecting its communities' susceptibility to wildfires and the potential for higher customer bills in the near term due to the need to invest in wildfire mitigation and technology, and the uncertainty of how costs will be socialized. Beverly Gantt
Southern Indiana Gas & Electric Co.(BBB+/Stable/--)  
Southern Indiana Gas & Electric Co.'s (SIGECO's) credit quality is more negatively influenced by environmental risk factors than global peers given its heavy reliance on coal-fired generation. From a supply standpoint, SIGECO sources almost all of its electric generation from coal, exposing the company to heightened environmental risks, including the ongoing cost of operating older units and the potential for increasing environmental regulations requiring significant capital investments. However, we believe the company's longer-term plans to transition its generation portfolio to predominantly gas-fired generation and renewables will have positive implications for its environmental footprint. William Hernandez
Talen Energy Supply LLC(B+/Negative)  
Talen is more exposed to environmental risks given its high share of fossil-fueled generation (85%). Its carbon-free capacity represents only 15% of its 15-GW fleet, and also exposes Talen to asset concentrated risk in one nuclear unit. We also see Talen as having some higher social exposure. While the company has achieved greater success in controlling and reducing costs than we expected, some of this has been from a reduction in labor, which could elevate social risks from the impact retrenchment caused in local communities. Finally, we assess management and governance as only fair considering average levels of disclosures compared to publically rated peers. Kimberly Yarborough
Tampa Electric Co.(BBB+/Negative/A-2)  
Tampa Electric Co.'s (TEC's) credit quality is more positively influenced by environmental risk factors than other global coal-fired generation peers given its successful strategy of transitioning from highly coal-based generation usage to mostly gas-fired generation and renewables. TEC's 5,240 MW of owned generation capacity consists about 20% of electricity from coal-fired generation and the remaining majority is from gas-fired units. Furthermore, the company is converting two generating units at a coal-fired power plant to natural gas by 2023, lowering coal exposure to below 15% after the conversion. Andrew Ng
TECO Energy Inc.(BBB+/Negative/A-2)  
TECO Energy Inc.'s credit quality is more positively influenced by environmental risk factors than global peers given its subsidiary Tampa Electric Co.'s successful transition from coal-based generation to either gas-fired generation or renewables. See Tampa Electric Co. for more details. Andrew Ng
TerraForm Power Inc. (TERP)(BB-/Stable/--)  
TERP's credit quality is more positively influenced by environmental risk factors than peers because its emission rates are significantly lower than those generated by power producers that rely on fossil fuels. Of its 4.1 GW of total nameplate capacity, 93% is wind or solar photovoltaic, which does not generate any direct emissions. The remaining 7% comprise solar thermal facilities, which generate a relatively small quantity of direct emissions due to the natural gas they must burn to prevent solidification of thermal fluid where there is no electric production and the combustion of diesel fuel to start up emergency and maintenance equipment. In addition, TERP's existing power purchase agreements largely support state-level renewable mandates, which would likely increase over time as renewable generation gains momentum. Luqman Ali
Terra-Gen Finance Co. LLC(B-/Negative/--)  
Terra-Gen's investment in exclusively renewable assets implies a more favorable environmental risk profile than peers. The company's significant renewable footprint in California is particularly credit supportive given strong in-state renewable energy support, as evidenced by California's goal to decarbonize its electricity generation system by 2045. Though some of its assets are older, the company benefits from a lower cost structure than fossil-fuel-tilted peers given a leaner workforce for renewable assets relative to conventional power plants. Karthik Iyer
Union Electric Co. (d/b/a Ameren Missouri)(BBB+/Stable/A-2)  
Ameren Missouri's (AM's) credit quality is more negatively influenced by environmental risk factors than global peers given its heavy reliance on coal-fired generation and its associated carbon footprint. AM operates a vertically integrated electric utility and is a natural gas utility distributor. The company has about 11,000 MW of electric generation capacity and relies on coal-fired generation for over 60% of its electricity generated. The company's high reliance on coal-fired generation exposes it to heightened risks, including the ongoing cost of operating older units and the potential for increasing environmental regulations that could require significant capital investments. The company has a stated 2050 goal of reducing carbon emissions 80% from 2005 levels. To reach this goal, the company expects to add 700 MW of wind generation in 2020, 100 MW of solar generation by 2027, retire 3,000 MW of coal generation by 2036, and retire all of its coal-fired generation by 2045. Furthermore, the company relies on nuclear electricity for about 25% of its total electricity generation, which introduces higher operational risks and longer-term nuclear waste storage risks despite the company's track record of achieving safe operational standards. William Hernandez
Vectren Utility Holdings Inc.(BBB+/Stable/--)  
Vectren Utility Holdings Inc.'s credit quality is more negatively influenced by environmental risk factors given its subsidiary Southern Indiana Gas & Electric Co.'s (SIGECO's) heavy reliance on coal-fired generation and associated carbon footprint. See SIGECO for more details. William Hernandez
Vistra Energy Corp.(BB/Positive/--)  
We view Vistra as somewhat disadvantaged on environmental factors under our business risk assessment given that it still produces about 70 TW hours, or about 37%, of its generation from coal-fired assets. With one of the larger coal-fired fleets in the Electric Reliability Council of Texas, Vistra's carbon footprint was significant, especially because the Sandow unit was supported by Vistra's Three Oaks coal mine. In late 2017, Vistra announced the closure of nearly 4.2 GW of its coal-fired capacity as well as the mine, which we view favorably. Subsequently, it has announced a further 2 GW of retirements in Illinois. This is somewhat offset by the social and cost effects of future asset retirement obligations, reflected in the debt adjustment in our financial analysis. We still see some of Vistra's coal-fired units as at risk. Their potential shuttering would improve exposure to environmental risks but could somewhat elevate social risks. Aneesh Prabhu
Ratnings as of Feb. 11, 2020.
Latin America

Table 3

Company/Rating/Comments Analyst
AES Gener S.A.(BBB-/Stable/--)  
AES Gener is more negatively exposed to environmental factors than its peers given that around 60% of its energy matrix comes from coal-fired plants, while competitors such as Enel's and Colbun's fossil fuel' capacity represents less than 12% of their capacities. There is increasing emissions regulation in Chile and the government has committed to achieve 20% of electricity from renewable sources by 2025, and above 70% for 2030. In this context, Gener has a long-term plan to develop more than 4 GW of clean energies, of which it is already developing 0.8 GW and will continue subject to the closing of new power purchase agreements. In our view, the transformation of Gener's energy matrix into a cleaner one will allow it to mitigate recontracting risk and remain competitive in the market, but will become more visible only a couple of years from now. On the other side, the company's credit metrics will be pressured during the renewables development until it starts generating cash flows. Melisa Casim
Comision Federal de Electricidad (Foreign currency: BBB+/Negative/--; local currency: A-/Negative/--, mxAAA/Stable)  
We view governance as the most relevant factor in our credit analysis of CFE because it is controlled by the government. As such, we believe the political agenda drives, and to some extent influences, CFE's strategy. We recently witnessed considerable turnover in the company's upper management and a change in rhetoric following Andrés Manuel López Obrador's election in July 2018. One of the risks confronting CFE is the greater political influence and the company's diminished ability to prioritize economic decisions. For example, the administration plans to increase CFE's share of the generation segment at the private sector's expense. However, by doing so, the company's leverage metrics could increase beyond our expectations and weaken its credit profile. CFE is more exposed to environmental factors than peers, as about 70% of its installed capacity runs on fossil fuels, and about 28% is from renewable energy, most of which is hydro. The company has committed to increase renewable energy's share of installed capacity to 35%. Although during first-quarter 2019 the government cancelled two bidding processes for renewable energy projects, other auctions will likely occur. Moreover, the company intends to decommission several of its fossil fuel plants and switch to natural gas, given the start of operations of several pipelines in the next six to 12 months. Additionally, CFE is also exposed to social factors given that its union is one of the biggest in the country. We track the company's labor relations and its ability to convert strategic decisions into constructive action has been good. For an example, the company reduces its pension liabilities after it revised its Collective Labor Contract with its union. Daniel Castineyra
Companhia Energetica de Minas Gerais(B/Stable/--; brA+/Stable)  
Brazilian CEMIG is more exposed to environmental factors than peers, given its exposure to climate change where the energy matrix is hydro based (60% of capacity). Environmental exposure was also shown by the recent dam failure in Brumadinho, which resulted in several deaths and devastated territories in the region, including the Paraopeba river, which services the company's hydroplant operations. Although the consequences of the tragic Brumadinho accident were relatively marginal for CEMIG's operations and financial performance, future incidents may have more relevant consequences. Governance is also relevant given the company's ownership structure, which is ultimately controlled by the state of Minas Gerais. There's often management turnover whenever a new administration takes office, and changes to management can in turn result in a revised strategic direction. Alvaro Landi
Eletrobras-Centrais Electrias Brasileiras(BB-/Positive/--, brAAA/Stable/brA-1+)  
Environmental risks for Eletrobras are higher than peers given its exposure to climate change, which could affect water levels in Brazil and thus the company's hydro production (88% of capacity). For instance, Brazil suffered a drought in 2013-2015 that helped to weaken Eletrobras' financial metrics for that period. At the same time, Eletrobras' carbon footprint is very low because about 90% of the group's total generation capacity stems from renewable sources. We assess Eletrobras' management and governance as only fair, stemming from its ownership structure and management turnover. In our view, the government's control of Eletrobras could undermine the effectiveness of its governance structure because the government could promote its own interests and priorities above those of other stakeholders. This has occurred in the past because the government interfered in the sector, which dented the company's credit metrics. That said, we don't expect similar interferences going forward. The company was also subject to bribery and corruption investigations, but in our view it took steps to improve its governance and controls. Julyan Yokota
Engie Energia Chile S.A.(BBB/Stable/--)  
We see Engie Chile as more exposed to environmental risks than other energy conglomerates not only because of regulatory requirement but also amid the increasing demand for clean sources. Currently, 60% of Engie's installed capacity comes from coal-fired assets. Nevertheless, Engie has embarked on converting part of its energy mix into renewables. It mainly consists of the gradual decommissioning of coal plants reducing the share of the coal-based capacity to 20%, and expanding the solar and wind capacity to up to 1 GW or 40% of total installed capacity. So far, Engie's conversion strategy has been on time and within budget, and we expect it to continue doing so in the short to medium term. Melisa Casim
Guacolda Energia S.A.(BB-/Negative/--)  
Guacolda Energia is more exposed to environmental factors than other generators because it operates five coal-fired power units, with an aggregate capacity of 760 MW in Chile. Despite its relative small scale, Chile has a long-term strategy to shift its energy generation matrix to cleaner sources, which will make it more difficult for Guacolda to recontract its capacity. On the other hand, the country's largest miners, which represent most of Guacolda's unregulated off-takers, have prioritized agreements with power generators that produce 100% of output from renewable sources. Melisa Casim
Neoenergia S.A.(BB-/Positive/--, brAAA/Stable)  
We see Neoenergia's environmental risks as higher than peers given its exposure to climate change, which could affect water levels in Brazil, where the energy matrix is hydro-based (60% of capacity). Still, the negative financial impact is partially mitigated because it contracted a hydrology hedge covering the exposure under the regulated PPAs that current accounts for around 60% of the energy produced. Neoenergia's ESG strategy is aligned with those of its controlling owner the Spanish Iberdrola that targets to be carbon neutral by 2050. As such, its expansion investments are focused on transmission lines and renewables; in particular it is investing in the development of 1.0 GW of onshore wind assets, which will allow it to achieve 1.6 GW of wind capacity by 2022. From a social standpoint, we view Neoenergia as more exposed than local peers because about 20% of its residential clients are low income and benefit from government social programs including subsidies on their electricity bills, reducing delinquencies. Any change to the political framework supporting these low-income customers could affect the company's performance. Vinicius Ferreira
Ratings as of Feb. 11, 2020.

Table 4

Company/Rating/Comments Analyst
China General Nuclear Power Corp.(A-/Stable/--)  
As a leading nuclear power developer with 27.1 GW nuclear power in operation and 6.6 GW under construction, China state-owned CGNPC's environmental exposure is comparable to the industry, with a significant share of zero-emitting generation offset by exposure to long-term nuclear waste storage. The government's support for nuclear energy reflects the latter's contribution to China's goal of lowering its carbon footprint and reducing pollution. While this benefits CGNPC's environmental credit factors compared to peers, the company also owns more than 27 GW of non-nuclear capacities including gas, wind, and solar power across China and Asia-Pacific. CGNPC has ongoing exposure to radioactive waste management. By regulation, the company must contribute to a fuel treatment and disposal fund starting from the sixth year of a nuclear plant's operation and must manage low- and medium-level radioactive waste, including emissions or the release of gas, liquid, and solid radioactive waste. While the company has a large nuclear fleet, decommissioning is less of an issue because the fleet is quite young (eight years on average), and is not expected to commence until 2034 through 2057 based on the plants' expected useful lives. Asset retirement obligations, while still small, are included in our debt analysis but are not significant enough to hurt the company's financial risk profile. From a social risk perspective, it maintains its plants well, and its safety record is satisfactory and generally above industry standards. Yuehao Wu
China Longyuan Power Group Corp. Ltd.(A-/Watch Dev/--)  
Longyuan is the world's largest wind power operator (19 GW as of June 2019). The company accounts for 10% of China's wind power generation and contributed to a net decrease of CO2 consumption by 29.7 million tonnes in 2018. Notwithstanding ownership of two coal power plants (1.875 GW, 20% of Longyuan's power generation and reducing), Longyuan has been exclusively wind-power- focused, including offshore wind, having brought on-grid 7 GW across China over the past five years. In doing so, the company has taken note oftried to preserveing biodiversity and minimizeing the impact on local residents and bird habitats. The company'’s coal -power plant also achieves good efficiency in terms of water consumption and internal power utilization. In our view, Longyuan's large renewable portfolio gives it a better position than its coal-power-dominant peers. This is because in a bid to decarbonize the economy, China's regulations are supportive of renewables compared to fossil fuels. Greatly improved curtailment has enhanced Longyuan's profitability considerably since 2017. Notwithstanding a slowing economy, prioritized dispatch of renewables will lead to a sustained demand profile for Longyuan. This is despite the manageable impact of delayed receipt of renewable subsidies. Both social factors and governance are neutral to our rating on Longyuan. The company maintains adequate corporate governance practices as one of the leading renewables listed companies in Hong Kong. Yuehao Wu
EnergyAustralia Holdings Ltd.(BBB+/Stable/--)  
Energy Australia (EA) is more exposed to environmental factors than peers given its large coal-generation portfolio and aging fleet amid greater adoption of renewables in Australia. EA's generation capacity consists of 54% coal and 30% gas-based plants, creating exposure to carbon liabilities and asset retirement obligations. Also, as more large-scale solar and wind farms become operational, we expect pressures from the community on early closure of old coal-fired plants to exacerbate. For EA's Yallourn plant, this scenario would be about 10 years away and we continue to incorporate the retirement obligations in our analysis. The company has started to evaluate opportunities to improve its portfolio mix over the medium term. From a social perspective, safety and employment levels remain key factors given the age of EA's plant and potential closure of Yallourn. Further, the recent re-regulation of retail pricing to reduce electricity costs to end consumers is a risk for the industry as a whole. Given the age of EA's plants, employee safety is also a key focus area for the company, as well as industry bodies. Governance is increasingly important given the need to address the portfolio mix and quality issues, and position the company appropriately to maintain its competitiveness and profitability. Sonia Agarwal
NHPC Ltd.(BBB-/Stable/--)  
We believe Indian state-controlled NHPC's exposure to ESG risks is higher compared with its rated utility peer group given that it is tasked by the government to operate large hydro projects in challenging and highly sensitive geographical areas. Execution risks are illustrated by its stalled Subansiri project, which has faced prolonged delays since 2011, largely caused by social unrest and protests around ecological concerns in the area. Project delays and associated cost overruns (which cannot be recovered until projects are commissioned) have pressured both NHPC's capital cost structure and cash flows. As such, we have incorporated the impact of such delays in our analysis. However, NHPC's largely hydropower-based operations benefit from good growth prospects amid the government's push for renewables to meet emissions targets. Greater engagement by the government in resolving some of the social issues related to displacement should gradually help mitigate the risk. At the same time, NHPC's public policy role of increasing India's hydroelectricity power generation capacity also has a positive credit influence as it contributes to our expectation of high likelihood of extraordinary government support. Cheng Jia Ong
Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara(BBB/Stable/--)  
Indonesia's dominant state-owned utility, PLN, is exposed to relatively higher ESG risks compared to its regulated utilities peers. In our view, subsidized tariffs in Indonesia increase PLN's reliance on significant cash flows directly paid from the government. This partly reflects weaker regulation, but also results from social policies enacted to protect less affluent portions of society. The government capped the electricity tariff starting from 1 July 2017, before elections in 2019; resulting in high levels of deferred compensation. PLN will likely receive compensation with a lag of one to two years, affecting its cash flows. We believe greater coordination between various government ministries is required to take timely corrective actions for PLN because its ownership, strategy, and funding come under the purview of different government ministries, namely the Ministry of State-Owned Enterprises, Ministry of Energy, and Mineral Resources, and Ministry of Finance. At the same time, PLN's public role in providing subsidized vital services also underpins its critical role to the government, underpinning an almost certain likelihood of extraordinary government support. While the company will likely remain a fossil fuel-based power producer (46% exposure to coal, 30% natural gas), this is largely in line with the country's energy policy and electrification plans to provide low-cost energy. We do not anticipate any carbon tax or environmental fines that could negatively affect PLN's earnings quality in the medium term. Mary Ann Low
Taiwan Power Co.(AA-/Stable/--)  
State-owned, sole integrated electricity provider Taiwan Power is more exposed to environmental and social factors than global peers, as reflected by the government's policy shift amid growing social division on nuclear power. This led to the decommissioning of its finished fourth nuclear power plant without a clear path to recover the construction costs. Taipower is also under pressure to lower pollutant emissions from its coal-fired power plants, though its power plants have persistently met regulatory requirements. The pass-through for more expensive renewable energy and gas-fired power remains unresolved without clear regulations. The decommissioning of existing nuclear power plants could cause an additional cash flow burden in 2021-2025, with a moderate shortfall in retirement reserves. Those additional costs could pressure Taipower's stand-alone credit profile without sufficient tariff adjustments in the long-term. On the other hand, the company's public mandates also underpin its critical role and almost certain likelihood of extraordinary state support. Raymond Hsu
Tokyo Electric Power Co. Holdings Inc. (TEPCO)(BB+/Stable/B)  
We see Japan's most important state-owned utility TEPCO as more exposed to environmental and social factors than global peers. The disaster at the Fukushima No. 1 nuclear plant has led to unprecedented environmental concerns since 2011. TEPCO continues to bear a colossal financial burden from the clean-up and decommissioning of the plant, as well as compensation for the damages. With backing from the Japanese government, TEPCO has agreed to contribute ¥8 trillion to the decommissioning project over the next 30-40 years. However, given the immense technological challenges of storing contaminated water and disposing of nuclear fuel, we believe TEPCO could remain under a huge financial burden for a considerable period. In our view, risks related to GHG emissions are manageable for the company. TEPCO was among the first Japanese regulated utilities to join the Electric Power Council for a Low-Carbon Society in 2016, and has taken a lead in improving efficiency at its thermal power plants and expanding renewable energy operations. We believe these initiatives, coupled with an eventual restart of one of its nuclear power plants, will help the company manage its CO2 emissions. From a social perspective, we also see TEPCO, as well as other Japanese nuclear operators, as more exposed than global peers given the strong local opposition to restarting idle nuclear plants. The company has, however, stepped up its marketing and communications channels in its service areas. For example, in Niigata prefecture, the location of one of its currently idle nuclear plants, TEPCO has held more than 40,000 meetings annually to enhance transparency and build confidence in the safety of its operations. In our view, the upside for TEPCO's credit quality is limited until it can restart at least one of the idle nuclear reactors. We assess TEPCO's governance as only fair, which is lower than typical Japanese corporates. This mainly reflects the company's considerable risk of litigation and the scale of the off-balance liabilities resulting from the Fukushima disaster. Katsuyuki Nakai
Zheneng Jinjiang Environment (formerly China Jinjiang Environment)(BB-/Positive/--)  
We consider Zheneng Jinjiang Environment's (ZJE's) exposure to environmental risks as significant and comparable to peers in the Chinese environmental services sector and of thermal generators more broadly. While the company operates in a sector with a high exposure to environmental risks, as a waste-to-energy (WTE) operator, ZJE takes appropriate measures and applies appropriate treatment to handle municipal waste and turn it into electricity. However, ZJE uses circulated-fluidized-bed technology in most of its WTE plants, which uses coal as the feedstock for incinerating solid wastes. While this incineration process could help reduce volume of waste intake, it produces both solid and gas emissions. Therefore, ZJE is exposed to the same increasingly stringent environmental and emissions standards in China as traditional thermal generators. To tackle the issue, ZJE has applied various measures, including the technological upgrade of the eight WTE facilities, which will help improve their operating efficiency and reduce feedstock demands. ZJE has also reduced coal additions in the feedstock material to less than 2%, helping curb gas emissions from its plant. CJE's activities are, however, more exposed to social risks than average, due to not-in-my-backyard conflicts. Planning new incineration plants is sensitive to local community acceptance because large waste treatment plants can face severe opposition due to the concern of perceived health or environmental problems. A couple of ZJE's WTE facilities were closed down or relocated in 2017 and 2018 due to these reasons. In late 2019, a large provincial state-owned independent power producer, Zhejiang Provincial Energy Group, acquired material ZJE shares from its founder and became the largest shareholder of the company, and positioned ZJE as the group's environmental protection flagship platform. As a state-owned enterprise, the new shareholder could help reduce finance costs and optimize internal governance of the company. Rocky Huang
Ratings as of Feb. 11, 2020.

This report does not constitute a rating action.

Primary Credit Analyst:Pablo F Lutereau, Madrid +34 91 423 3204;
Secondary Contacts:Pierre Georges, Paris (33) 1-4420-6735;
Claire Mauduit-Le Clercq, Paris + 33 14 420 7201;
Aneesh Prabhu, CFA, FRM, New York (1) 212-438-1285;
Gabe Grosberg, New York (1) 212-438-6043;
Julyana Yokota, Sao Paulo + 55 11 3039 9731;
Gloria Lu, CFA, FRM, Hong Kong (852) 2533-3596;

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