Major European Utilities Are Risking €14 Billion In Earnings By Missing Climate Goals
A new report from climate change research provider CDP has found that major European utilities are risking €14 billion worth of earnings if they do not rapidly respond to climate targets laid out in the Paris Agreement.
The new CDP report, Charged or static, analyzed a €256 billion market cap grouping of 14 European major utilities, and found that many are currently locked into high emissions from long-lived fossil fuel power plants through to 2050, and are set to exceed carbon targets by 1.3 billion tonnes of CO2, putting €14 billion worth of earnings at risk in the process.
According to the report, which ranks 14 of the largest publicly listed power generators in Europe on readiness for a low carbon transition, electric utilities are among the world’s largest contributors to global greenhouse gas emissions, and therefore play a significantly important role in the global effort to decarbonize. The report found that, though there is progress being made in decarbonizing the European Union power generation sector, “significant additional actions will be required to keep the sector in line with the objectives of the Paris Agreement.”
“The companies in this report are estimated to exceed their implied 2°C carbon budget by 14% or 1.3 billion tonnes CO2e in aggregate between 2015 and 2050.”
The European Union is aiming to provide 45% of its electricity from renewables by 2030, but with 43% of electricity generation from the 14 European utilities stemming from fossil fuels, and almost half producing more than 20% of their electricity from coal, this asks the question of just how Europe is going to meet those targets, and raises the specter of needing to accelerate retirement of existing assets.
Estimated locked-in emissions vs. implied carbon budget for selected companies
Obviously there needs to be a faster transition away from fossil fuels to renewables, but some European utilities are making the going slower than necessary. The report found that non-hydro renewable generation ranged across the 14 utilities from 1% to 34%. While 20% of electricity generated in 2016 came from renewables, much faster progress is needed to meet the EU’s targets.
“EU utilities are at a crossroads and must make some rapid decisions,” said Paul Simpson, CEO of CDP. “The last year has seen a step change in support for, and engagement with, low carbon policies but the industry remains heavily reliant on fossil fuels to meet electricity needs. Market prices are showing that renewable energy sources like wind and solar power are more cost competitive than ever and utilities should look to capitalize on the strong growth that is forecast for these technologies.”
“In Europe, major utilities must transform their business models to achieve the climate goals laid out in the Paris Agreement,” added Drew Fryer, Senior Analyst, Investor Research at CDP. “Verbund is leading the way in planning for the future, targeting a 100% renewable energy generation portfolio by 2020 and is decommissioning remaining fossil fuel assets. But many other utilities remain reliant on coal for a significant share of power generated, and will break their carbon budgets in years to come based on existing fossil fuel assets. Rapid deployment of renewables is critical for the sector as it transitions to a low carbon future.”
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