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The debt market punishes coal projects and encourages green

The debt market is starting to price into the prospects for the transition to a low-carbon economy. This is evidenced by the results of a new study * conducted by the University of Oxford.

* the authors of the work studied 12,072 loans issued to 5,033 borrowers from the energy and housing sectors in the period from 2000 to 2020 in 118 countries

The university studied the dynamics of credit spreads, which are a reflection of credit risk, and found that over the past twenty years, the cost of financing renewable energy projects has fallen sharply, and for coal projects has also increased sharply.

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Specifically, the researchers compared the average spreads for the periods 2007-2010 and 2017-2020 and saw that for onshore and offshore wind projects, they decreased by 12% and 24%, respectively. At the same time, similar spreads for coal-fired power plants and coal mines rose 38% and 54%, respectively.

“The risks associated with a green energy transition are often seen as something to think about in the distant future. But our data supports the hypothesis that prices are being factored into prices today, ”said Ben Caldecott, co-author of the study and director of the Oxford University Sustainable Finance Program.

At the same time, the expert notes that the reduction / growth of credit spreads in the areas of green and traditional energy is too slow and uneven. In particular, between 2000 and 2010, credit spreads for gas-fired power plants increased by 68%, and in the next decade – by only 7%.

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At the same time, the cost of loans for producers oil and gas remained stable between 2010 and 2020 and spreads increased by only 3%, while spreads for offshore oil projects decreased by 41% during the same period.

It seems that the oil and gas sector has managed to avoid the financial punishment that the coal industry has suffered. However, the situation may soon change, predicts the main author of the Oxford study, Xiaoyang Zhu.

“If the observed trends continue and the cost of financing oil and gas projects rises in the same way as coal, this could have very negative economic consequences for oil and gas projects around the world. This can lead to the emergence of problem assets in this area and seriously complicate refinancing, ”says the expert.

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