Batteries May Trip ‘Death Spiral’ in $3.4 Trillion Credit MarketBy
Energy storage technologies impact a quarter of corporate debt
Fitch urges utilities to diversify to limit risk of disruptive
Battery technologies starting to disrupt the electricity and automobile industries may also emerge as a trillion-dollar threat to credit markets, according to Fitch Ratings.
A quarter of outstanding global corporate debt, or as much as $3.4 trillion, is linked to the utility- and auto-industry bonds that rely on fossil fuel activities, the ratings agency wrote in a report published Tuesday.
Batteries have the potential to “tip the oil market from growth to contraction earlier than anticipated,” according to Fitch. “The narrative of oil’s decline is well rehearsed -- and if it starts to play out there is a risk that capital will act long before” and in the worst case result in an “investor death spiral.”
While hybrid and battery-only cars are making slow progress in denting sales of gasoline and diesel-driven vehicles, their growth trajectory may be grossly underestimated, said the authors of the study. The clean-energy research unit of Bloomberg LP estimates that battery-electric vehicles, which only run on power from a plug, will displace 13 million barrels of oil a day by 2040.
Mapping out the full effect of battery technologies on the fossil fuel economy currently exceeds the time frame of rating methodologies, according to Fitch. It advised utilities to lower their risk by diversifying into clean energy technologies.
“Diversification will help guard against the risk that the markets turn against” the oil economy,” Fitch wrote.
Battery prices fell 35 percent last year and are on a trajectory to make electric vehicles as affordable as their gasoline counterparts over the next six years, according to Bloomberg New Energy Finance.
Provided rapid renewable energy improvements continue, along with adoption of electric vehicles and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, the World Energy Council said in a report this month.
British Petroleum Plc said the risks to the oil industry by renewable energy shifts may be exaggerated. Rising demand for oil over the next two decades is likely to overwhelm the impact of the electric car on crude markets, said Spencer Dale, chief economist for BP Plc.
“They’ll have a huge impact in terms of air quality, but it’s not a game changer over 20 years even with aggressive electric vehicle penetration,’’ Dale said at in a panel discussion at the Bloomberg New Energy Finance summit in London on Oct. 11.