Today at COP, the focus is on the energy transition. To help limit warming to 1.5°C we must see a tripling in the development of renewable energy by 2030.
In November, CDP partnered with the World Benchmarking Alliance (WBA) to evaluate the credibility and justness of the transition plans from 68 of the most influential companies in the electric utilities sector. This sector is key, as it is responsible for 40% of emissions globally and it enables the transition of other sectors.
The findings revealed that companies are making progress towards transitioning to net-zero, but it is not yet sufficient. Below are examples pulled out from the assessment, that demonstrate a transition is possible, evidenced by a few companies that are leading the way. These are examples that we hope other companies will soon follow.
A credible transition plan shows how a company plans to adapt to climate change and prepare for a low-carbon economy. A credible plan must include medium- and long-term targets, as well as financial commitments, and be based on a 1.5-degree climate scenario.
A credible transition plan must start with ambitious targets. The International Energy Agencie's (IEA) Net Zero Emissions by 2050 Scenario (NZE Scenario) requires the electricity sector to reach net-zero in advanced economies by 2035, in China around 2040 and globally before 2045.
Across the assessment only 10 companies had sufficient targets meeting the IEA’s recommendations, including Tata Power from India, setting a net-zero target across all scopes by 2045 – it is the only company from the developing economies whose targets are aligned with the NZE Scenario.
Over 90% of companies assessed had elements of a plan but most were far off credible.
Ørsted from Denmark and EDP from Portugal, however, are leading the way, as both plans have already started to be put into action. Both companies have short and long-term targets validated by the SBTi and aligned with the NZE Scenario. They spend a significant share of capital expenditure (CapEx) on low-carbon activities - 99% and 76%, respectively. Ørsted’s investments are focused on its renewable energy portfolio, including offshore and onshore wind and solar power, sustainable biomass and energy storage capacities. In 2017, low-carbon sources accounted for approximately 64% of the company’s generation, whereas in 2022, this share increased to more than 90%.
In its transition plan, Ørsted has considered various climate scenarios, including a 1.5°C scenario, and uses a carbon price aligning with the IEA expectations to promote energy efficiency and low-carbon investment. The company divested its upstream oil and gas business five years ago and plans to phase out coal in 2024. EDP has established various low-carbon business models and will phase out coal by 2025 and gas by 2030.
As a result of its plan’s implementation, Ørsted’s emissions intensity for the last five years decreased by a rate greater than required by the company’s 1.5°C pathway. EDP also managed to significantly lower emissions intensity for its own generation over the last five years.
Low-carbon business models
To stay profitable in a low-carbon economy, companies need to transition away from business models that rely on fossil fuels. Some companies from the assessment show their readiness for a transition by actively developing low-carbon business models and phasing out coal and gas.
SSE, a UK headquartered company, closed its last coal power plant in 2020 and now is developing business models that include a quadrupling of its renewables capacity by 2032. A French company EDF has one of the highest revenue shares, 80%, coming from low-carbon products and services, including electricity generation from nuclear sources and renewables, and is doubling its installed renewable energy capacity between 2015 and 2030.
Vattenfall, a company from Sweden, currently generates 55% of its revenue from low-carbon activities and plans to increase this share significantly. The company has identified projects in the pipeline to quadruple its installed solar and wind power capacity to 16 GW by 2030. It also has been investing in energy storage technologies and plans to develop a CCUS solution for its biomass and waste plant.
The electric utility sector remains one of the top-emitting sectors, but it is changing. While a few companies have almost completely transitioned to a low-carbon economy, showing that it is possible, others are taking steps in the right direction, but we must see more urgent action.
Today, we hope to see commitments to more ambitious action that will urgently speed up and scale the energy transition.
To find out about the performance of the other companies assessed visit here: https://www.worldbenchmarkingalliance.org/publication/electric-utilities/