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Southern’s $1B in ‘Green Bonds’ Pointing to Shift in Power Grid

A Southern Company subsidiary has issued $1 billion in “green bonds” earmarked for investment in renewable projects, pointing to an ongoing shift in domestic power generation.

Atlanta-based Southern Power utility said Wednesday the move makes it “the first investment-grade electric utility in the United States to offer this type of security to support investment in sustainable generation.”

Southern Company CEO Thomas A. Fanning said the green bonds “are further evidence of our commitment to renewables as part of a diverse generation portfolio and underscore our focus on creating America’s energy future.”

The announcement comes amid growing concern among investors about the market impact of climate change. Earlier this month, BlackRock Investment Institute published a report concluding that “climate change has arrived as an investment issue” (see Daily GPI, Nov. 5). Major energy players like ExxonMobil Corp. and Royal Dutch Shell plc already use carbon pricing in their operations (see Daily GPI, Nov. 3).

The Environmental Protection Agency’s (EPA) Clean Power Plan (CPP), a central component of the Obama administration’s climate change agenda, has brought debates about the future of domestic power generation to the forefront (see Daily GPI, Nov. 18). The rule, which was finalized in August, targets a 32% reduction in carbon emissions from U.S. power plants by 2030 based on 2005 levels.

Though the draft version of the CPP had placed more emphasis on natural gas as a bridge fuel to reduce carbon emissions from power plants, the final version focused more on a shift to renewables such as wind and solar, leading to criticism from the oil/gas industry that the administration was discounting the role of natural gas in reducing carbon emissions (see Daily GPI, Aug. 3).

In recent years, utilities have increasingly turned to low-cost, cleaner-burning natural gas as coal’s share of domestic power generation has slipped (see Daily GPI, Oct. 28).

But analysts with the Energy Information Administration (EIA) said the economics of wind and solar have changed in recent years, making renewables potentially more competitive as utilities look to replace retiring coal-fired generating capacity in a carbon-regulated market.

The EIA has not completed an analysis of the final version of the CPP. But Chris Namovicz, head of EIA’s renewable electricity analysis team, told NGI that under the draft version of the rule, the EIA was already projecting “a lot more wind and solar generation.

“Part of that is the need to replace carbon emissions from coal with something, and wind and solar obviously have very low carbon emissions, and part of that is the reductions in cost set them up to be competitive in that market,” Namovicz said.

A combination of increased equipment productivity, expansions of global manufacturing and subsidies, among other things, have helped drive down the costs for wind and solar over the last five years, Namovicz said.

EIA’s Tyler Hodge, an electricity industry economist, said renewables other than hydroelectric power have “definitely experienced the largest relative growth in terms of percentage of capacity additions over the last few years.”

Based on an EIA analysis of reports from utilities, Hodge said the United States is expected to add 8.3 GW of wind generating capacity in 2015 and another 10 GW in 2016. Utilities are expected to add 3.1 GW of new capacity in 2015 and another 8.9 GW in 2016.

“It’s still a pretty minor share of total capacity, but it’s definitely trending upward rather quickly,” Hodge said.

EIA said since 2005, renewables other than hydroelectric have accounted for an increasing share of total domestic power generation. In 2005, renewables like wind and solar accounted for 87.33 million MWh, or 2% of total generation. In 2014, renewables accounted for 281.06 million MWh, or 7% of total generation.

“Next year we expect renewables to be about 8% of total generation, so it’s definitely growing,” Hodge said.

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