The Potential Implications of Investing in Coal-Heavy Utilities

PGIM Fixed Income

September 2019

Peter Cody, CFA, Principal, U.S. Investment Grade Credit Research, and Tatiana Spineanu, CFA, Principal, European Investment Grade Credit Research

Several factors—including evolving regulations, shifting dynamics across commodity markets, declining costs of renewable electrical generation, and mounting environmental concerns—continue to affect the economics of coal-fueled electrical generation.

With these factors in mind, this paper addresses a primary investment-related question: Do (or will) utility bonds issued by more coal-heavy or carbon-intensive utilities trade at a discount? Or stated differently, what are the implications from the relationship between bonds issued by coal-heavy utilities and those issued by utilities with less reliance on coal?