Fitch: Pricing, Legislation Set Stage for US Renewable Expansion

Recently, state legislatures have created incentives that, in tandem
with other market forces, have lowered the prices of renewable energy in
the western US to levels that are competitive with natural gas-fired
generation, Fitch Ratings says. We believe this could lead to renewable
energy price declines in neighboring states and prime renewable capacity
for growth. However, the intermittent nature of renewables still
requires conventional technology generating assets to be available when
renewable resources are not.

In our view, lower prices for renewables are key to their expansion. One
request for proposal that's in the market right now is a leading
indicator. NV Energy recently issued an RFP for 400-700 MW of
nonspecific long-term capacity, based on summer peak planning, beginning
in 2018.The pricing on this supply will be important because it is
large-scale and in a region where other pricing in neighboring states
has already come into line with natural gas and renewables companies
have been supported by the state. We believe this could force
neighboring states to create similar legislation to make their
renewables companies competitive.

Oregon's recent legislation shows how this might spread to other states.
The state's Clean Energy and Coal Transition Act will phase out
coal-fired power by 2035 and double the amount of renewable energy used
in the state by 2040. The legislation also calls on utilities to propose
plans to speed the setup of charging stations for electric vehicles.

We believe the prudent closure of coal plants and the healthy growth of
natural gas-powered plants are both important to the expansion of
renewables. We believe current plans to retire coal capacity are prudent
given the expectation that some form of carbon regulation is likely.
Massachusetts, Washington, Oregon and Hawaii have the largest
proportions (100%) of their coal plants in retirement planning stages,
while other states' closures are slower paced. However, we expect
natural gas prices will remain low, making investments in new capacity
(particularly new greenfield activity) more financially challenging.

US State Coal Closures

We have a stable outlook on both thermal power and renewables. For
Fitch-rated thermal projects, their contracted revenues will shield from
the cash flow volatility we expect from continued low natural gas
prices. Fitch's rated renew able portfolio also benefits from mostly
fixed-price power purchase agreements, mitigating price decline risks.

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.

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