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European utilities put EUR14bn of earnings at risk by missing climate goals, says report

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Many of Europe’s major publicly-listed utilities companies are locked into high emissions from long-lived fossil fuel power plants until 2050 and EUR14 billion of earnings are at risk unless they rapidly respond to climate goals laid out in the Paris Agreement, according to a report by CDP.

The report, Charged or Static, reveals major utilities companies remain heavily dependent on fossil fuels, which is responsible for 43 per cent of their electricity generation.
 
Almost half are producing more than 20 per cent 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 per cent or 1.3 billion tonnes of greenhouse gases. This comes despite the EU’s target to provide 45 per cent of electricity from renewables by 2030.  
 
The electric utilities industry is responsible for a quarter of global emissions and must reduce greenhouse gas emissions by over two thirds (67 per cent) by 2030 to meet the goals of the Paris Agreement. Capacity for short-term turnarounds are restricted due to the long term capital investment in fossil fuel power plants. There are positive signs that the sector is already in transition, highlighted by the UK’s decision to close all coal fired power plants by 2025 and decisions taken by E.ON and RWE to split their renewable and fossil fuel assets into separate companies. Utilities generating larger amounts of power from renewables are outpacing their peers in reducing emissions compared to those reliant on fossil fuels, with emissions ten times more intensive than those using renewables.  
 
Paul Simpson (pictured), CEO of CDP, says: “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 capitalise on the strong growth that is forecast for these technologies. 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. 
 
Drew Fryer, senior analyst, investor research at CDP, says: “In Europe, major utilities must transform their business models to achieve the climate goals laid out in the Paris Agreement. Verbund is leading the way in planning for the future, targeting a 100 per cent 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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