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American Recovery and Reinvestment Act

What Price, GHGs?

Renewable portfolio standards and other green energy rules put a price on environmental benefits. Calculating this price can help clarify the social value of GHG reductions.

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Figure 1 - Implied CO2 Externality Values of Carbon Reduction Policies
Figure 2 - Ranges of Implied CO2 Externality Values
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Business & Money
Author Bio: 

Philip Q Hanser is a principal with The Brattle Group, and Mariko Geronimo is an associate with the firm. The views in this article are theirs and not those of The Brattle Group or its clients.

Calculating the implied value of CO2 abatement in green energy policies.

Last Call

Conditions are ideal for utility financing—but not forever. Although interest rates remain low, policy changes weigh on capital structures.

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Figure 1 - 10-Year Bonds
Figure 2 - 30-Year Bonds
Figure 3 - Utility Bond Tenors
Figure 4 - Utility & Power Ratings Snapshot
Rising interest rates and unknown dividend tax policies could be a headwind for utility stocks. –Brian Tate, Wells Fargo Securities
Utilities have a  significant amount of capex planned in the near term, and bonus depreciation is not a funding strategy. –David Nastro, Morgan Stanley
There’s good reason to believe there will be a lot of M&A activity around contracted renewable assets in 2013. –Frank Napolitano, RBC Capital Markets
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Sidebar Title: 
Pay It Forward
Sidebar Body: 

One way that some utilities have been getting ahead of market changes is by issuing equity to pre-fund costs they expect to incur later. This generally takes two forms: equity forward contracts, and mandatory convertible offerings. Examples include Pepco Holdings, which sold about $350 million in shares on a forward basis in March, and PPL, which sold about $270 million in April. Also, NextEra Energy issued $600 million in three-year, mandatory convertible bonds on May 1, and another $650 million in September.

Both approaches carry a premium, but they allow utilities to capture today’s high stock prices in a forward sale. And some issuers have found banks hungry enough to participate in equity deals that they’ll take a substantial haircut for the opportunity. (See “BofA loses $12m on bought convert,” IFR 1932, May 2012.)

However, terms likely will normalize as soon as the current confluence of forces drives utilities back into the equity markets in earnest.–MTB

Author Bio: 

Michael T. Burr is Fortnightly’s editor-in-chief. Email him at burr@pur.com.

Utilities are enjoying some of the best financing terms anybody’s ever seen. Is the party winding down?

Renewable Spend & Tax (Credit)

Keith Martin, head of the project finance group at Chadbourne & Parke, navigates the evolving landscape of renewable power tax incentives.