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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

Updated 1 hour ago - World

17 U.S. and Canadian missionaries kidnapped in Haiti

Haitian soldiers guard the public prosecutor's office in Port-au-Prince this month. Photo: Richard Pierrin/AFP via Getty Images

American officials and authorities in Haiti are working to try and free 17 hostages from a U.S.-based missionary group who were kidnapped in Port-au-Prince over the weekend, AP reported Monday.

The latest: Christian Aid Ministries said in a statement Sunday, "The group of 16 U.S citizens and one Canadian citizen includes five men, seven women, and five children." The Ohio-based organization said they were on a trip to visit an orphanage when they were kidnapped Saturday.

China's economic growth slows

A worker assembles heavy truck engines in Hangzhou in eastern China's Zhejiang Province, on Monday. Photo: Long We/Costfoto/Barcroft Media via Getty Images

China's economy grew 4.9% in the third quarter of 2021 compared with a year earlier, the country's National Bureau of Statistics announced Monday.

Why it matters: The gross domestic product growth in the July-September period in the world’s second-largest economy marked the "weakest pace since the third quarter of 2020 and slowing from 7.9% in the second quarter," Reuters notes.

5 hours ago - World

Former spy Steele defends controversial Trump Russia dossier

Former U.K. intelligence officer Christopher Steele arrives at the High Court in London in July 2020. Photo: Tolga Akmen/AFP via Getty Images

The author of the "Steele Dossier," containing unverified claims about former President Trump told ABC News he stands by his controversial report, according to excerpts from an upcoming documentary released Sunday.

Why it matters: The FBI drew on former U.K. intelligence officer Christopher Steele's dossier as part of its investigation into the Trump campaign's alleged links to Russia's government, which led to former special counsel Robert Mueller's probe.