The Brexit opening for an energy transformation

  Looking on the bright side : the Brexit's potential benefit for NY's energy transformation 

Looking on the bright side: the Brexit's potential benefit for NY's energy transformation 

When Boris Johnson, Nigel Farage and the good people of Great Britain made the move to leave the EU, investors around the world headed for safety. What this meant in large terms is government bonds, particularly (1) Germany--which has a negative all-in bond yield-- and (2) the United States, whose 10-year bond yield is now below 1.4%, and, after accounting for inflation, have flipped negative, too. This implies that if these governments were to borrow more (i.e. issue bonds), the interest they'd have to pay thereon would be unprecedentedly inexpensive.

  THAT"S CHEAP!  10 Year US Treasury Yield, 1990 to today (5 July 2016)

THAT"S CHEAP! 10 Year US Treasury Yield, 1990 to today (5 July 2016)

The same downward trend is evident for municipal bonds, the more-frequent engines of public infrastructure investment in the US (see chart below left). New York State's municipal bond valuations are no exception to this rule (see chart below right; bond price is the inverse of the yield, so a rising price means a lower yield).

   These are cheap     too :  US Muni Yields '09-present  (via S&P Muni ETF)

These are cheap tooUS Muni Yields '09-present  (via S&P Muni ETF)

   An open door for public investment in NY?:   NY Muni Bond Prices '07-'16

An open door for public investment in NY?: NY Muni Bond Prices '07-'16

What does this have to do with New York's energy policy, you ask?

While Regulatory (aka "little" or lil') REV is primarily about market animation and private-sector investment in distributed energy resources (DER), Clean energy (aka "big") REV is about capturing and eliminating a harmful negative externality (greenhouse gas emissions) via cost-effective, source-agnostic investment. Big REV hopes to create both a sustainable state system and an emulable global example of a megacity, its suburbs, and countryside with carbon-free electricity. In other words, not just doing our share, but increasing the odds of NY's economic and ecological survival.

Declining bond yields-- enabled by QE, surging due to Brexit-- means that funding the generation, transmission, and jobs for big REV are cheaper than they've ever been before. (The same is true for energy, infrastructure, education, research, etc. at the national level too, but with the added hurdle of a highly spending-averse congress, in a presidential election year to boot.)

There is a strong pattern in lil' REV of reducing and deferring public and utility spending: the BQDM program directs Con Edison to spend $400MM on DER over the next 2 years in order to defer a $1bn substation investment; NYSERDA is eliminating "resource acquisition", i.e. conventional incentives, for energy efficiency over the next three years; and market-driven (i.e. primarily Federal and privately-funded) distributed resources-- rooftop solar-- will carry the near-term weight in terms of our clean energy transition, at least by megawatts.

What's less emphasized is the extent to which we can redirect this liberated funding capacity immediately to G&T-scale infrastructure, and perhaps even ramp it up in the context of historically cheap borrowing costs. 

The idea is to make low-carbon hay (i.e. solar and wind installations) while the financial sun (Brexit-induced bond appetite) is shining.

Transmission and utility-scale generation planning, procurement, and installation is time consuming, and folks are working through it. From the political perspective, overemphasizing the value of market upswings can create a thorny situation should the situation reverse. But, if we can get there in time, Brexit and the international flight to financial safety offers an unexpected tailwind for NY's (and America's) clean energy transition.