On the eve of the September 2018 Global Climate Action Summit in San Francisco, California Governor Jerry Brown unveiled a new gold standard for renewable energy in the U.S.: A mandate requiring the state to get 100% of its power from renewable energy sources by 2045. The announcement precipitated a chorus of praise from environmentalists, although even its most ardent supporters know that substantial political and technological challenges lie ahead. For one, there is the inherent reliability concerns of operating exclusively from intermittent resources. Moreover, the four-term governor's call comes amidst backsliding on environmental progress at the federal level, as President Trump has replaced the Obama Administration's Clean Power Plan with a more coal-friendly substitute and is trying to subsidize coal-fired power generation. Nevertheless, advocating full reliance on renewable energy sources provides evidence that even without federal government backing, individual states can set their own ambitious goals for cutting carbon emissions.

Key Takeaways

- The economics of gas fired generation, already dramatically weaker because of existing regulation and market conditions, promises to get worse as California takes interim steps towards 100% renewable power.

- Renewable assets figure to benefit from a credit perspective, but the degree and immediacy of that depends on asset type, with more reliable and durable hydro and geothermal best positioned.

- There are both technological and economics hurdles to surpass before the state meets its 100% renewable mandate, or even more modest intermediate steps.

- The realization of this renewable energy mandate emphasizes the importance of considering ESG risk in our ratings process, while the state's ambitions also enter into the realm of social and governance risks.

The significance of Gov. Brown's mandate for the state's electric utilities cannot be overstated. We believe that important political, regulatory, and technological changes must be overcome to meet the governor's goal, which would move the grid to 100% green from the 35% it stands at now. These include improving battery storage, which may have to increase 200-fold to meet the 100% goal, and determining how to integrate the state's load-bearing utilities and community choice

SP Global | www.spglobal.com