Sustainaweekly - Will the Russian crisis speed up the transition?
In our latest edition of the SustainaWeekly, we cover a rich range of topics. While we think the EC’s plans to reduce the EU’s dependence on Russian gas will likely boost the transition over the medium term, its short-term targets look too ambitious. Meanwhile, we also take a look at the topic of Greenflation, PPAs, greeniums in the utility bond market, and a report by the EBA on the development of a sustainable securitisation framework.
Economics Theme: The view that the energy transition will be inflationary seems to be the conventional wisdom. However, we argue that the inflationary effect of the green transition is not as clear-cut as it may seem at first glance. The net effect on inflation will be heavily dependent on the nature of transition.
Strategy Theme: Renewable electricity providers are increasingly using fixed price Power Purchase Agreements (PPAs) to improve long-terms stability in their cashflows. Despite rising prices for key materials for renewable electricity installations and continued caution from utility off-takers, we still see a case for rising renewable PPA prices in 2022.
ESG Bonds: Last week, three new corporate deals “revived” the ESG market. It seems that investors are now more selective on ESG credentials. This could also explain the strong greenium in the secondary market for utility issuers such as Iberdrola and Engie, and also why the greenium for companies such as E.ON and ENBW seems to have disappeared.
Policy: The European Commission has announced a plan to reduce its dependence on Russian gas. An acceleration of the energy transition is an important element of the strategy. The targets the EC has set out for this year may well prove to be too ambitious, but it is likely that the crisis will give an extra push to the transition over coming years.
Regulation: The EBA supports that the EU Green Bond Standard (EU GBS) will also be applied to securitisation transactions, which would mean that an ‘use of proceeds’ approach will become the leading concept. Until now, most securitisation transactions had underlying assets instead following the definition of “green assets”.
ESG in figures: In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.