Moody's: Wind and solar power will continue to erode thermal generators' credit quality

Moody's cites a 'new paradigm' for European utilities.

What could this "new paradigm be called?

Moody's: Wind and solar power will continue to erode thermal generators' credit quality

London, 06 November 2012 -- Further expected increases in renewable energy will continue to erode the credit quality of European thermal generation companies in the near to medium term, says Moody's Investors Service in a Special Comment published today."

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Moody's notes that many European countries are considering the introduction of capacity payments to incentivise thermal generators to remain online. Utilities argue that the intermittent nature of renewables makes these mechanisms essential to address security-of-supply concerns, although politicians will be cautious about burdening the consumer with additional costs. Capacity mechanisms would be credit positive for Moody's rated utilities, although their timing and structure remains uncertain.

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European utilities can hope for favourable new policies such as capacity payments but these may be difficult to achieve in the context of affordability. Ultimately, renewable companies, utilities and network operators may be forced into a three-way lobbying battle to secure a share of the total revenue pot. Utilities must therefore adapt to this new paradigm or risk being squeezed out.

The entire research note can be read at Moody's