From pv magazine 11/2020
A global shift to clean energy is already underway, with wind, solar, and other power sources growing in capacity each year. Renewables are set to overtake coal and gas to account for the largest share of the global energy mix before 2040, according to International Energy Agency predictions.
A look back over the past 20 years shows that the development of renewable energy has so far been driven by independent power producers, which are estimated to own three-quarters of non-hydro renewables capacity globally. Electric utility companies, meanwhile, have been much slower to pick up on the shift, owning around 19% of that capacity, and in many cases continuing to invest heavily in coal and gas generation.
“Although there have been a few high-profile examples of individual electric utilities investing in renewables, overall the sector is making the transition to clean energy slowly or not at all,” says Galina Alova, a researcher at Oxford University and author of a study analyzing utility investments. “Utilities’ continued investment in fossil fuels leaves them at risk of stranded assets – where power plants will need to be retired early – and undermines global efforts to tackle climate change.”
The study led by Alova took in the activities of more than 3,000 utilities between 2001 and 2018. The data was collated from the World Electric Power Plants Database published by S&P Global Market Intelligence – estimated to contain unit-level data on around 109,500 power plants operated by 42,000 companies. “What’s really valuable about this data set is the historical lens that it allows to look through,” says Galova. “Often, asset-level data sets have the latest snapshots of the power generation sector, but not necessarily going back decades back. So this is quite a unique data set.”
This data was then analyzed and arranged into “clusters” of similar data points using a machine-learning technique. The study, “A global analysis of the progress and failure of electric utilities to adapt their portfolios of power-generation assets to the energy transition,” was published in Nature Energy.
The research revealed four major trends among all of the utilities and multiple sub-patterns within them. The largest chunk – more than 75% of the companies, representing 50% of the overall capacity – were so-called “passive” players, as they are neither actively growing renewables nor expanding their fossil fuel portfolios.
The second-largest cluster, which primarily featured bigger utilities with larger market shares in their respective countries, included companies that prioritized growth in renewables over other technologies. They represented 10% of all the utilities and 26% of the overall capacity. The study’s key finding was that 57% of these renewables-prioritizing companies had continued to invest in gas, coal, or both, while 80% expanded their commitments to gas generation by an average of 5%. About 35% increased investments in coal at a rate of 1%. While 34% of the renewables-prioritizing cluster showed negative growth in coal and gas, just 15% cut both from their portfolios. Around 16% of the cluster have 46 GW of gas projects in their pipelines, while 7% have new coal projects, adding up to 36.5 GW.
The third and fourth clusters identified were those prioritizing gas – 10% of utilities and 19% of capacity – and a smaller cluster prioritizing coal generation investment. This made up 2% of the companies and 5% of capacity.
The largest countries represented in the RE-prioritizing cluster were the United States (29%), Germany (13%), and China (10%). Europe and North America collectively accounted for more than two-thirds of the cluster. The highest growth in utility gas investments was seen in the Middle East region, while Asian utilities led investments in coal generation. Of the 15% that had reduced investments in both coal and gas, more than 40% were located in European countries.
Utilities prioritizing gas were spread across regions, with North America representing 30%, Europe 26%, and Asia 13%. The coal prioritizers, meanwhile, were overwhelmingly (82%) located in Asia, with China alone contributing 60%, India 9%, and Vietnam 6%.
Market liberalizations emerged as one driver for growth in utility-owned renewables. Regions where independent power producers and other non-utility actors have invested in solar or wind capacity also saw more activity on renewables from utilities. And the study also points to policy as an important factor, with more than 60% of the RE-prioritizing utilities located in regions with an active feed-in-tariff for renewable energy, and close to half in jurisdictions with some form of renewable portfolio standard. Of the already small number of utilities prioritizing coal, just 6% were located in regions with a carbon tax policy and 3% in jurisdictions with an emissions trading scheme in place.
In 2001, the beginning of the period examined, Alova notes that 18% of global operating energy capacity was covered by some form of RE promoting or fossil fuel inhibiting policy. By the end of the study in 2018, this had risen to 85%.
And when the 18 years studied are divided into six-year sub-periods, some evidence of shifting priorities can be seen. Between the second and third periods, 16% of previously gas prioritizing and 8% of coal prioritizing companies made their way into the RE-prioritizing group.
To gain an even more in-depth understanding of the relationship utilities have with renewables, Alova says that the relative price of the different technologies and the financial performance of the utilities would merit further study, and a closer look at the relationship between policy and the actions of utilities. “The effectiveness of a policy often depends on its design and complementarity with other instruments,” she explains, “rather than its mere existence.”
The majority of utilities studied grew neither their fossil fuel nor renewable energy assets during the 18 years analyzed. A market shift toward independent power producers and utilities acting as off-takers provides a possible explanation for this. Alova also notes that utility activities in energy efficiency, decentralization and other non-generation activities could somewhat change the picture.
The analysis conducted here, however, points to a major global trend of continued investment in fossil fuels from utilities, one which sees them lagging behind other players in the energy transition and taking the risk of these investments becoming stranded assets in the years to come.
This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: firstname.lastname@example.org.
Great article, thanks. Just shows how so many people don’t get it yet. While RE may not be the cure for all our problems it certainly is the best tool we have at present.
Is there a chance that Namibia will be included in your list soon? We already have over 50% of RE in our grid and recently Nampower has revised feedback tariffs for homeowners which will accelerate this further.
By submitting this form you agree to pv magazine using your data for the purposes of publishing your comment.
Your personal data will only be disclosed or otherwise transmitted to third parties for the purposes of spam filtering or if this is necessary for technical maintenance of the website. Any other transfer to third parties will not take place unless this is justified on the basis of applicable data protection regulations or if pv magazine is legally obliged to do so.
You may revoke this consent at any time with effect for the future, in which case your personal data will be deleted immediately. Otherwise, your data will be deleted if pv magazine has processed your request or the purpose of data storage is fulfilled.
Further information on data privacy can be found in our Data Protection Policy.