The Obama administration's plan to reduce power plant emissions may be a bold effort to put climate change back on the political agenda, but it doesn't exactly have the big generators in the US quivering with fear.

Not yet anyway.

In a detailed analysis, Bank of America-Merrill Lynch's energy team argue the EPA draft rule, which mandates a 30 per cent reduction in emissions by 2030, is "a relatively soft requirement."

On BoA-Merrill Lynch figures, the rule changes to the Clean Air Act effectively amount to a 1 per cent per year reduction in carbon from 2013 levels.

The baseline year for the 30 per cent reduction is 2005, which is pretty well the peak of carbon emissions in the US - only in 2007 were emissions higher.

Since then, the closure of numerous coal fired power stations, the gradual switch to gas fired generation and lower demand have seen emissions in the US fall by about 16 per cent, making any reduction trajectory less onerous.

The BoA-Merrill Lynch team says the EPA's move had already been anticipated by the market and is not a "material surprise" to valuations. If anything the rule changes are "a light touch".

However, another report put out by a different investment bank two weeks before the EPA came out with its new carbon rules may give the coal burners a far greater concern for their future.

Not investment grade

British banking giant Barclays downgraded the entire electricity-generating sector of the US high-grade corporate bond market because of the challenges posed by renewables and the fact that the market isn't pricing in those challenges.

Carbon emissions from US power generation, estimates from 2013 onwards ( EPA, BoA Merrill Lynch )

The thesis from the Barclays credit team is that it's not so much regulations that will choke off coal burning, but technological advances.

And it's serious money Barclays is talking about.

According to the Barclays data, electricity utilities represent about 7.5 per cent of the investment-grade corporate bond market in the US, or about $280 billion in outstanding debt.

What makes the report particularly interesting is that it's driven by hard-nosed financial considerations rather than the ideology surrounding renewable energy.

Barclays' credit team is advising its investors to stop viewing the utilities as a "sturdy and defensive subset of the investment grade universe".

"In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power," the report noted.

"Over the next few years, however, we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo."

It says that the cost of solar plus storage for residential consumers is already competitive with the price offered by the traditional utility grid in Hawaii.

The sun-drenched states of California and Arizona are only a couple of years behind, as is solar friendly New York.

"Death spiral"

As alternative energy advisor Elias Hinckley put it an recent blog, "the rationale for the downgrade is stark, with Barclays expecting more than 20 per cent of US electric consumers to live in states where solar combined with electric storage will be as cheap or cheaper than utilities can deliver power to those same consumers within four years."

Mr Hinckley, an energy and tax partner with Washington-based law firm Sullivan and Worcester says, essentially, Barclays is re-pricing bankruptcy risk for the entire electric utility sector.

"This a sophisticated bank not just acknowledging coming changes to the utility model, but pointing to the risks that have given rise to the idea of the utility death spiral and determining them to be a clear and present danger," he added.

The Barclays analysts argue that the regulated monopoly that traditional generators enjoy is an environment that makes them slow to react to technological change.

"We see near-term risks to credit from regulators and utilities falling behind the solar plus storage adoption curve and long-term risks from a comprehensive re-imagining of the role utilities play in providing electric power," the report concluded.

Regulatory change vs technological change

The rule changes to the Clean Air Act may speed this process up by encouraging greater investment in renewable energy as one of the key planks of compliance.

The other significant areas of compliance under the draft rule changes will be encouraging the shift from coal to gas, increasing energy efficiency and moving customer power demand to off-peak hours.

However, these regulatory changes are hardly set in stone.

The timing of their introduction can be changed at a whim by future administrations, and the cashed-up generating lobby can be expected to mount serious political and legal challenges to slow things down.

What they won't be able to slow is the narrowing of the cost gap between old and new technologies, a race in which the incumbent generators are odds on lose if Barclays' framing of the market is correct.

Australia's generators are looking on anxiously.

About 10 per cent of their capacity has been mothballed due falling demand and increased uptake of renewable alternatives.

Once big institutional investors and credit rating agencies start writing down the value of assets, funding costs can start rising, which in turn puts pressure on pricing making alternatives look cheaper still.

Or, as Elias Hinckley puts it, "eroding demand and eroding profitability, and the best available option is to increase the price per unit of electricity, which only accelerates the economic competitiveness of the competing technology."

Thus starts the death spiral.