A new report by climate change research provider CDP has revealed that many of Europe’s major utilities companies remain heavily dependent on fossil fuels, the reality of which is likely to lead to 14 major European utilities exceeding carbon targets by 1.3 billion tons of CO2.
Charged or Static analyzed a €256 billion market cap grouping of Europe’s major publicly-listed utilities companies and found that many are locked into high emissions from long-lived fossil fuel power plants until 2050 and €14 billion of earnings are at risk unless they rapidly respond to climate goals laid out in the Paris Agreement.
Almost half of the major utilities across Europe are producing more than 20 percent of electricity from coal and on aggregate the 14 companies are set to exceed the ‘carbon budget’ required to keep temperature rises below 2°C by 14 percent. This comes despite the EU’s target to provide 45 percent of electricity from renewables by 2030.
“EU utilities are at a crossroads and must make some rapid decisions. 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,” said Paul Simpson, CEO of CDP.
“The recommendations of Mark Carney’s Taskforce on Climate-Related Financial Disclosure (TCFD) is another marker of increasing investor pressure for companies to not only disclose but manage their transition risk. CDP’s mission is more important now than ever and we continue to drive global environmental disclosure and track corporate progress towards achieving a well below 2-degree world.”
The report benchmarks major European utilities’ performance on climate issues and finds that Verbund, Iberdrola, Fortum and Enel are the best performing companies on carbon-related metrics relative to peers, with RWE, CEZ, Endesa and EnBW ranking lowest among those who disclose to CDP.
Other findings from the report include:
- Companies have increased their renewable portfolios, and 20% of electricity generated in 2016 was from renewables. However, fast progress is needed to meet the EU's 2030 target of 45% from renewables.
- Carbon Capture & Storage (CCS) technology could be a key means to limit global warming to below 2°C if existing fossil fuel assets are to continue operating, yet progress on this technology is slow which risks it becoming commercially available too late to contribute to effective mitigation.
- Exposure to water stress is considerable. By 2030, half of utilities’ thermal generation capacity will be in areas of high or extremely high water stress.
- Nuclear power is a low-carbon option helping the EU to mitigate climate change but with limited growth prospects. Companies that focus on nuclear at the expense of investment in renewables may limit their growth opportunities going forward.
- Only three utilities’ targets have been externally validated as compatible with limiting warming to 2°C. The most proactive targets extend as far as 2050 and require complete decarbonization of electricity supplies.
“In Europe, major utilities must transform their business models to achieve the climate goals laid out in the Paris Agreement. Vebund is leading the way in planning for the future, targeting a 100 percent 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 year 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,” said Drew Fryer, senior analyst of Investor Research at CDP.