S&P Paints Gloomy Picture Of US Energy Policy Under President Trump

November 29th, 2016 by Joshua S Hill

Credit ratings agency S&P has released a report detailing the credit implications of Donald Trump’s miraculous win in the 2016 US Presidential Election, and the underlying implications do not paint a healthy picture for the continued growth of America’s clean technology industry.

S&P released its report, Trump & Energy: The Credit Implications Of The 2016 Election, last week, exploring what President-Elect Trump’s new administration will mean for the country’s energy sector, and the consequences it will have for fossil fuel-based electricity generation and renewable energy technology. The report’s overview points out many of the issues we are already aware of that will play a significant role in what is to come: compared to Hillary Clinton’s relatively favorable view toward renewable energy, Donald Trump has appeared “more agnostic to the issue”; President-Elect Trump “has, on occasion, denied anthropogenic climate change and promised to roll back environmental rules, while fashioning himself as a champion of coal workers”; Trump has also “weighed in on issues such as new pipeline building, fracking, and ethanol production.” Together, these represent some of the more damaging aspects of what we can expect over the next four years, in terms of new US energy policy.

However, S&P also notes that “there are aspects of our current energy policy that are unlikely to change, such as support for renewable tax credits.” Additionally, while “carbon-intensive generators that would have faced tough choices under a Clinton presidency may prosper … there are still significant challenges in the industry that have little to do with policies.”

Of particular significance is the battle that will likely arise around America’s coal industry. Donald Trump, in an effort to champion himself as the hero of coal workers, promised to increase coal mining in the US and bring back lost jobs. Donald Trump’s underlying premise was that it was only harsh regulations imposed on the industry by a Democratic President that had led to the drop in coal mining and loss of jobs. While statistics do show that coal mining employment has dropped steadily under President Obama, assuming that this is solely due to his presence in Office and any regulations he may have imposed is naive. According to S&P:

“…the decline of coal-fired generation, which has been especially pronounced during the past two years, has come about more due to tumbling natural gas prices, which have diminished competitiveness for comparatively more expensive coal-fired assets, especially older units with more cumbersome fixed cost structures.”

The Clean Power Plan (CPP), which is now in serious jeopardy, has been blamed for much of the current malaise in the coal industry, but as S&P points out, the CPP wasn’t due to begin imposing carbon pricing on states until 2020 at the earliest — leaving the question, what led to the shuttering of over 100 GW worth of coal-fired generation between 2010 and 2017? The answer is of course that there is something larger going on, which in turn makes investment in coal a flimsy idea at best. “In sum, despite heated rhetoric on the campaign trail, it seems unlikely that a policy shift can do much to revive the weakening coal industry, which is currently in decline chiefly due to economic, and not regulatory, factors.”

S&P also analyzed the potential of Donald Trump following through on his rhetoric of pulling out of the Paris Agreement. In short, the legal requirements to officially step away from the Agreement, especially now that it is in force, could be tricky, but by eradicating the Clean Power Plan, America will struggle to meet its Intended Nationally Determined Contribution, maybe providing Donald Trump with what he wanted in the first place.

“As the Trump presidency unfolds in 2017, we’ll begin to assess what impacts, if any, his Administration will have on energy industry credit quality,” said primary author of the report, Michael Ferguson, Director of US Energy Infrastructure at S&P. “Naturally, we expect there will be credit consequences, impacting, at a minimum, investor-owned utilities, unregulated generators, renewable developers, midstream entities, and coal companies.”

The full report is available here.











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