September 25, 2020 Read More →

Analysts see looming problems for gas-fired power plant financing

S&P Global Market Intelligence ($):

Buoyed by renewable energy builds, financing for power generation assets sped up in the summer months after slowing during March and April. Natural gas-fired generation, however, is facing its own set of uncertainties.

As the U.S. locked down in response to the coronavirus pandemic, disrupted construction schedules and strained equipment supply chains slowed capital to a trickle. “Through April, May, June, we definitely sort of slowed down in new activity during that period,” said Eamon Nolan, a partner in project development and finance at law firm Vinson & Elkins LLP who said ongoing financings wrapped more or less as expected. “Most of the deals that were in the hopper already were progressing.”

The trend toward renewables has bolstered project finance debt and equity markets, with demand for new projects propelling new financings through the summer after the lull in the spring months. “There’s real demand for much more utility-scale, much more residential-scale, so there’s going to be no slowdown in that space for the foreseeable future,” Nolan said. “I think it’s the other markets, perhaps, that are going to suffer. Gas-fired power plants are going to struggle.”

One problem facing gas-fired generators is that larger states within the U.S., primarily California, are turning away from natural gas as they try to curb carbon emissions, said Nolan. Another issue is investor divestitures from fossil fuels.

“Investor capital is putting serious pressure on sponsors to ensure that they have significant components of their strategies in the renewable space,” Nolan said. “A lot of the investors are under pressure from their own base of contributors,” including pension funds.

Regardless, Nolan said, “Natural gas is going to have a significant role in the next 10 years” as renewables continue to be built, even if there may not be a flurry of gas-fired financings in the short term. Even as investors divest from natural gas, many developers and regions will rely on it as a transition fuel.

[Fotios Tsarouhis]

More ($): Gas-fired plant financings may face hurdles as renewable projects make gains

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