[MCN] PG&E bankruptcy darkens outlook for renewable energy

[Lance Olsen]

Financial Times  January 20 2019

PG&E bankruptcy darkens outlook for renewable energy investment 
Credit ratings for several suppliers to the California utility have been cut sharply 
Ed Crooks

https://www.ft.com/content/a11365b0-1cdd-11e9-b126-46fc3ad87c65

Excerpts 

The plan for Pacific Gas and Electric, the California utility, to enter bankruptcy to manage its $30bn wildfire liabilities has sent shockwaves through the US energy industry, raising concerns about the outlook for investment in renewable power in the state and beyond. Credit ratings for several businesses that supply power to PG&E were cut sharply last week, potentially raising the cost of capital for the industry and creating additional difficulties for California’s plan to source 100 per cent of its electricity from low-carbon technologies by 2045. 

A bankruptcy of a US regulated utility is a rare event, and companies that agreed to supply PG&E did so on the basis that it was unlikely to fail to meet its obligations. Until this month, PG&E was rated as investment grade by S&P Global, Moody’s and Fitch. Its decision to seek Chapter 11 bankruptcy protection has overturned the assumptions used by its suppliers to finance their projects. 

Topaz Solar, which runs a large photovoltaic plant in central California that sells power only to PG&E, was last week downgraded by Moody’s from Baa2 to Caa2, a drop of nine steps from “moderate credit risk” to “very high credit risk”.  Gregory Remec of Fitch, which also downgraded Topaz sharply last week, said it was a basic principle that a project’s rating “will never exceed the rating of its counterparty”. Fitch last week cut its rating for PG&E to CC/RR3, meaning that “default of some kind appears probable”, and unsecured creditors were likely to recover 51-70 per cent of their principal plus interest. 

Michael Wara, a specialist in energy and climate policy at Stanford Law School, said bankruptcy for PG&E would “throw into doubt” the future of the developers that have been central to the development of renewable generation in California. The best solution, he argued, would be to fix the underlying problem with large-scale investment in rooftop solar and local battery storage, to reduce customers’ dependence on the grid.
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