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European utilities could face lost cash flows worth €114bn – report

Power companies should divert investment to green technologies or risk a “debt trap” and declines in credit ratings, concludes a study by Oxford University and University College Cork.

European power companies should increase spending on green technologies immediately, or risk lost cash flows worth €114bn ($134.27bn) from stranded assets, warns an Oxford University and University College Cork study. This assumes they stop using fossil fuel power plants by 2040.

Vattenfall’s combined heat and power plant in Sweden, 2021. (Photo by Jeppe Gustafsson via Shutterstock)

The study revealed that 14 out of 29 power companies could suffer declines in credit ratings related to having enough money to pay interest payments on loans if they delay green technology investments until 2025.

In the case of immediate deferral of cash flows to replace obsolete capacity, very few of the 29 companies will suffer a decline in credit rating, the report states.

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The ability of power companies to finance new, net-zero-compatible projects hinges on a strong credit rating. If a company has an accumulation of debt and its fossil fuel assets are then devalued, the company could find itself in a “debt trap”, says the report.

To avoid negative impacts on share prices, credit ratings and financial returns, the report recommends power companies generate new income streams via green technologies that will mitigate losses from stranded fossil fuel assets.