OREANDA-NEWS. Recently, state legislatures have created incentives that, in tandem with other market forces, have lowered the prices of renewable energy in the western US to levels that are competitive with natural gas-fired generation, Fitch Ratings says. We believe this could lead to renewable energy price declines in neighboring states and prime renewable capacity for growth. However, the intermittent nature of renewables still requires conventional technology generating assets to be available when renewable resources are not.

In our view, lower prices for renewables are key to their expansion. One request for proposal that's in the market right now is a leading indicator. NV Energy recently issued an RFP for 400-700 MW of nonspecific long-term capacity, based on summer peak planning, beginning in 2018.The pricing on this supply will be important because it is large-scale and in a region where other pricing in neighboring states has already come into line with natural gas and renewables companies have been supported by the state. We believe this could force neighboring states to create similar legislation to make their renewables companies competitive.

Oregon's recent legislation shows how this might spread to other states. The state's Clean Energy and Coal Transition Act will phase out coal-fired power by 2035 and double the amount of renewable energy used in the state by 2040. The legislation also calls on utilities to propose plans to speed the setup of charging stations for electric vehicles.

We believe the prudent closure of coal plants and the healthy growth of natural gas-powered plants are both important to the expansion of renewables. We believe current plans to retire coal capacity are prudent given the expectation that some form of carbon regulation is likely. Massachusetts, Washington, Oregon and Hawaii have the largest proportions (100%) of their coal plants in retirement planning stages, while other states' closures are slower paced. However, we expect natural gas prices will remain low, making investments in new capacity (particularly new greenfield activity) more financially challenging.

US State Coal Closures

We have a stable outlook on both thermal power and renewables. For Fitch-rated thermal projects, their contracted revenues will shield from the cash flow volatility we expect from continued low natural gas prices. Fitch's rated renew able portfolio also benefits from mostly fixed-price power purchase agreements, mitigating price decline risks.