European Infrastructure Finance Yearbook - Investing In Bonds ...

More documents

Recommendations

Info

UTILITIES 32 ■ NOVEMBER 2007 The ultimate impact of any Russian investment on the credit ratings of a company depends on several factors. Among them are its size, whether it represents a majority interest that would be consolidated or a minority investment that would be accounted for using the equity method, how it is funded, its earnings and cash-flow visibility, and how much headroom is in the current ratings to absorb such an investment. Better Credit Quality Likely, But Regulatory Risk Remains Overall, the restructuring of UES and deregulation of the power prices may support improved credit quality in the sector through lower business risk strategies, higher transparency, and price growth, while capacity payments and hedging will smooth the impact of volatile spot prices. The downside is that customers will likely face much higher electricity bills in the next three to four years and political and regulatory risks will remain a key challenge for credit quality in the sector. ■ STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
Publication Date: May 10, 2007 Primary Credit Analyst: Peter Kernan, London, (44) 20-7176-3618 Secondary Credit Analysts: Michael Wilkins, London, (44) 20-7176-3528 Mark Schindele, Stockholm, (46) 8-440-5918 Hugues De La Presle, Paris, (33) 1-4420-6666 COMBATING CLIMATE CHANGE IN THE EU: RISKS AND REWARDS FOR EUROPEAN UTILITIES Climate policy is a key high-level issue for the EU and its member states. Indeed, the European Council, the EU’s main decisionmaking body, recently reaffirmed its commitment to the reduction of carbon dioxide (CO2) and other greenhouse gases (GHGs). It recommended that the Emissions Trading Scheme (ETS), which is the EU’s principal policy instrument for hitting its emissions targets, be strengthened and broadened in scope. As a result, the ETS--and other climate policy initiatives such as the drive to increase the share of GHG-clean renewable energy in the energy mix--will continue to have a major impact on European electricity generators and vertically integrated utilities that Standard & Poor’s Ratings Services rates. That’s because the burning of fossil fuels such as coal, oil, and gas to generate electricity accounts for a very significant share of EU GHG emissions (see footnote at end of article). The most visible effect of the ETS to date has been through an increase in power prices, as fossil fuel generators in liberalized (deregulated) markets now include the cost of CO2 emissions in their pricing decisions. We expect the ETS to potentially have a greater impact on power prices in Phase 2 of the ETS (2008-2012), as the cap on CO2 emissions will be tighter. Until the form of any potential successor treaty to the Kyoto Protocol (an agreement made under the UN Framework Convention on Climate Change that requires industrialized signatory nations to collectively reduce GHG emissions) becomes known, European utilities lack visibility on the scope and potential impact of global climate change policies beyond 2012, when Kyoto expires. The European Council’s decision in March 2007 to adopt either a 20% or 30% GHG reduction target by 2020, depending on the scope of any successor treaty to the Kyoto Protocol, reflects this uncertainty. Nevertheless, it is clear that GHG emission reduction will continue to be central to EU policy over the long term and that the operating and regulatory environment for electricity generators will remain influenced by this focus. In considering the effects of climate change policy on European utilities, we examine the impact of the ETS on power prices and on the profitability of the power generation sector. We discuss the challenge for generators in taking long-term investment decisions given the high STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK UTILITIES level of uncertainty about future policy, the possible roles that renewable and nuclear energy will play in the generation mix, and why technological developments will be key to the future of coal-fired generation. High Power Prices Under The ETS: Benefits For Some, Rising Costs For Others The principal impact of EU climate change policies has been a continued boost in the profitability and cash flows--and therefore credit quality--of European generation companies that operate in countries in which wholesale and retail power markets and prices have been fully liberalized. The key instrument of these policies has been the ETS. The ETS restricts CO2 emissions and requires power generation and energy-intensive companies in what are known as the “covered sectors” (encompassing oil refineries; coke ovens; iron and steel plants; and factories making cement, glass, lime, brick, ceramics, and pulp and paper) to hold tradable allowances to match their CO2 emissions. The covered sectors account for about 50% of total EU GHG emissions. The ETS began on Jan. 1, 2005, and Phase 1 will run until Dec. 31, 2007. Phase 2 will run from January 2008 to December 2012, the period over which the performance of the Kyoto signatory nations against their GHG emission reduction targets will be assessed. The impact of the ETS on the power generation and energy-intensive industrial sectors differs markedly. While both power generators and energy-intensive industrial power users face caps on CO2 emissions and have been granted free allowances to at least partly cover their emissions, it is the power generators that benefit from higher power prices, at the expense of electricity users. One of the foremost effects of the ETS has been to increase wholesale power prices in markets such as the U.K. and Germany in which fossil fuel-fired generation is the marginal price-setting plant. Electricity generators that burn fossil fuels-coal, lignite, gas, and oil (fossil fuel-based generation accounts for about 50% of EU generation)--include the cost of CO2 emissions in their cost base and pricing decisions. All other things being equal, the higher the price of CO2 allowances, the greater the impact on power prices. EU fossil fuel power generators that emit CO2 receive “free” allowances, however, under NOVEMBER 2007 ■ 33
Page 1 and 2: November 2007 Infrastructure Financ
Page 3 and 4: CONTENTS Introduction STANDARD & PO
Page 5 and 6: INTRODUCTION 2007: New Challenges A
Page 8 and 9: ject Finance Rating Distribution: I
Page 10 and 11: COMMENTARY Publication Date: Sept.
Page 12 and 13: (Bil. ) 140 120 100 80 60 40 20 0 F
Page 14 and 15: UTILITIES EUROPEAN UTILITIES Once a
Page 16 and 17: UTILITIES approach to ownership unb
Page 18 and 19: UTILITIES 16 ■ NOVEMBER 2007 tran
Page 20 and 21: UTILITIES 18 ■ NOVEMBER 2007 Limi
Page 22 and 23: UTILITIES 20 ■ NOVEMBER 2007 •
Page 24 and 25: Publication Date: osenergoatom (sta
Page 26 and 27: UTILITIES 24 ■ NOVEMBER 2007 Tabl
Page 28 and 29: UTILITIES 26 ■ NOVEMBER 2007 supp
Page 30 and 31: UTILITIES 28 ■ NOVEMBER 2007 pres
Page 32 and 33: UTILITIES 30 ■ NOVEMBER 2007 Tabl
Page 36 and 37: UTILITIES 34 ■ NOVEMBER 2007 thei
Page 40 and 41: UTILITIES 38 ■ NOVEMBER 2007 Evol
Page 42 and 43: UTILITIES Publication Date: Aug. 29
Page 44 and 45: UTILITIES Publication Date: Nov. 12
Page 46 and 47: UTILITIES Publication Date: Sept. 3
Page 48 and 49: UTILITIES Publication Date: Aug. 17
Page 50 and 51: UTILITIES Publication Date: Sept. 3
Page 52 and 53: UTILITIES 50 ■ NOVEMBER 2007 stro
Page 54 and 55: Publication Date:
Page 56 and 57: TRANSPORTATION INFRASTRUCTURE 54
Page 58 and 59: TRANSPORTATION INFRASTRUCTURE Publi
Page 64 and 65: TRANSPORTATION INFRASTRUCTURE BAA L
Page 75: Termination events under the swap a
Page 84 and 85:
TRANSPORTATION INFRASTRUCTURE 82
Page 86 and 87:
Page 88 and 89:
TRANSPORTATION INFRASTRUCTURE Publi
Page 90 and 91:
Page 92 and 93:
TRANSPORTATION INFRASTRUCTURE Publi
Page 94 and 95:
PROJECT FINANCE/PUBLIC-PRIVATE PART
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
Page 102 and 103:
Page 104 and 105:
Page 106 and 107:
Page 108 and 109:
Page 110 and 111:
Page 112 and 113:
Page 114 and 115:
Page 116 and 117:
Page 118 and 119:
Page 120 and 121:
Page 122 and 123:
Page 124 and 125:
Page 126 and 127:
Page 128 and 129:
Page 130 and 131:
Page 132 and 133:
Page 134 and 135:
Page 136 and 137:
Page 138 and 139:
Page 140 and 141:
Page 142 and 143:
Page 144 and 145:
Page 146 and 147:
RATINGS LIST RATINGS LIST Utilities
Page 148 and 149:
RATINGS LIST Transportation Infrast
Page 150 and 151:
RATINGS LIST Project Finance Name I
Page 152 and 153:
CONTACTS KEY ANALYTICAL CONTACTS Fr
Page 154:
ARGENTINA AUSTRALIA BRAZIL CANADA C
show all

European Infrastructure Finance Yearbook - Investing In Bonds ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?