German utility RWE, Europe’s biggest emitter, has had its credit rating downgraded by S&P on the risk of further low power prices and the prospect of additional policies to help meet emission reduction targets.
In a note dated Aug. 27, S&P lowered its long term ratings to BBB from BBB+, which could increase the cost of borrowing for the company.
In July, the German government opted to pay to idle several old coal-fired power plants to meet a shortfall towards its 2020 emission target, rejecting its original plan to instead force them to buy more EUAs for exceeding emission levels amid opposition from unions and centre right lawmakers.
“We observe persistent pressure on power prices in Central Europe linked to the low commodity price environment. In addition, in our view, the political environment in Germany remains adverse for RWE. Although the threat of a coal tax has abated, we believe that RWE’s lignite operations remain exposed to political risk in Germany, in light of national elections scheduled in 2017 and national CO2 reduction targets.”
“We believe that conventional generation long ago ceased to support utilities’ profitability in the current market environment, and that investments are now reduced to maintenance.”
It viewed the potential for the German government to establish a national nuclear fund to help pay for the shutdown and cleanup of legacy atomic power operations as an issue that could put further pressure on its rating.