Jan 22, 2019

Possible PG&E bankruptcy could spell trouble for California renewables

A Pacific Gas and Electric (PG&E) Service Center in San Rafael, California. Photo: Justin Sullivan via Getty Images

Facing more than $30 billion in potential liability claims for wildfires sparked by its electric system, Pacific Gas and Electric (PG&E), the largest utility in California, plans to file for bankruptcy by the end of the month. Consumers' lights will stay on regardless of what happens in court, but the future of California’s energy policy might be a bit dimmer.

Why it matters: To meet California’s ambitious climate goals, PG&E has entered into dozens of power purchase agreements (PPAs) with wind and solar farms, for thousands of megawatts, all over the West Coast. If PG&E enters into bankruptcy court, it might not have to pay those contracts, some of which extend past 2040, in full. While that might help PG&E’s balance sheets, it could hurt renewable suppliers that own the assets.

Background: Wind and solar project developers usually are required to have a PPA in place before they can obtain financing. These PPAs, usually contracts for differences — whereby project owners get paid a certain rate regardless of the market clearing price for electricity — are often long term and act as hedges against fluctuating wholesale electricity prices.

California aims to attain 60% renewable energy by 2030 and 100% carbon-free energy by 2045. While solar and wind are some of the cheapest sources of electricity today, some of the earlier renewable PPAs, entered into over a decade ago, are priced much higher than ones entered into more recently.

  • The stronger the credit rating of the project developers buying the PPA, the better the financing terms they are able to obtain from banks. But at this point, PG&E’s credit rating has been lowered to junk status.

The bottom line: If an entity as large as PG&E cannot make good on 30-year contracts, lenders’ faith in such projects might be shaken. As a result, banks might offer developers worse terms on the financing of future projects, which could put upward pressure on future PPAs. On the other hand, if these contracts are able to survive, as they have in the past — and California still has its climate and energy goals on the books — they might still prove a good investment.

Joshua Rhodes is a research associate in the Webber Energy Group and the Energy Institute at the University of Texas at Austin.

Go deeper

Public transit's death spiral

Illustration: Eniola Odetunde/Axios

Public transit systems across the country are experiencing a painful trifecta: Ridership has collapsed, funding streams are squeezed, and mass transit won't bounce back from the pandemic nearly as fast as other modes of transportation.

Why it matters: Transit agencies could see an annual shortfall of as much as $38 billion due to the coronavirus pandemic, according to TransitCenter. At the same time, they're more important than ever, with more than 36% of essential workers relying on public transportation to get to work.

World coronavirus updates: London mayor says U.K. nowhere near lockdown lifting

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

Prime Minister Jacinda Ardern offered hope in the fight against the novel coronavirus, saying she believes New Zealand has "turned a corner" after two weeks of strict lockdown measures. But London Mayor Sadiq Khan has said the U.K. is "nowhere near" lifting restrictions.

The big picture: COVID-19 has killed over 82,000 people and infected 1.4 million others globally as of early Wednesday, per Johns Hopkins data. Global recoveries have surpassed 301,000. Spain has reported the most cases outside the U.S. (more than 141,000) and Italy the most deaths (over 17,000). Half the planet's population is on lockdown.

Go deeperArrowUpdated 33 mins ago - Health

Wisconsin may be the start of the 2020 election wars

Illustration: Aïda Amer/Axios

Wisconsin voters braving lines in face masks — after a last-minute Supreme Court ruling against extending the absentee deadline — could foreshadow a nationwide legal struggle over how to conduct elections during the coronavirus outbreak, election experts say.

Why it matters: "It's a harbinger of what's to come in the next skirmishes in the voting wars" from now through November, Richard Hasen, a professor and national election law expert at the University of California, Irvine, told Axios.