latames
Environmental challenges in the electric utilities industry

Environmental challenges in the electric utilities industry

25-11-2015 | Visión

Power generation requires substantial investments and long-term planning by the power generators. At the same time their strategies are greatly affected by regulatory decisions as a substantial part of the market remains regulated or impacted by regulatory decisions (e.g. subsidies). The right balance between security of supply, environmental impact and energy costs must be found for the power system - and its participants; the electric utilities - to be sustainable. 

  • Matthias  Narr
    Matthias
    Narr
    Engagement Specialist

For this reason we believe companies should implement proactive and ambitious environmental strategies and, independently of their historical energy mix, focus on de-carbonization i.e. move from coal to gas and eventually to renewables. It also means working towards operational excellence of the existing coal-fired power plants by striving for higher thermal efficiencies, the ability to burn biomass, co-generation and responsible coal sourcing. New opportunities also arise as centralized generation becomes less and less important and we think that companies ought to innovate their business models, diversify their revenue streams and leverage their huge customer base. Finally, the regulatory side of the equation is difficult for companies to influence, however we believe companies should at least be transparent on their lobbying activities and ensure consistency between their positions and the positons of their trade associations. 

We believe that the business models of power generators will significantly change by the end of the decade; moving from a centralized generation structure based on burning fossil fuels to a decentralized one based on renewables. Environmental reasons are one of the main drivers behind this development. Decentralized generation through renewables is increasing the existing overcapacity in the power markets. Coupled with low demand due to increasing energy efficiency and modest GDP growth, traditional power generation is being pushed “out of the merit order” and will ultimately need to be shut down or get paid for providing backup power. In this context, companies need to design new strategies and seize investment opportunities elsewhere by focusing on cleaner power generation, customer retention, networks and services. However, the journey is not without risks. With the sector getting more digital, the risk is that new entrants such as Google and Apple will start proposing power management solutions. As investors, we need to know how the electric utilities will deal with this tectonic shift in their industry, how they will address the huge risks and how they plan to profit from the opportunities that arise. This will allow us to pick the winners of this transformation. 

Our assessment of the sector translated into the following four engagement objectives:

Conozca las perspectivas más recientes sobre sostenibilidad
Conozca las perspectivas más recientes sobre sostenibilidad
Suscríbase

Proactive environmental strategy

We believe companies should have a proactive environmental strategy to position themselves for future changes such as rising carbon prices. Thus we expect electric utilities to have a clear de-carbonization strategy (i.e. from coal to gas to renewables) reflected by decreasing carbon intensity and to have a plan of how to deal with a future carbon price reflecting the reality of the emissions’ impact (about 30-40€/t). We acknowledge that traditional generation will continue to play a role in the energy mix for some years to come; however, we expect electric utilities to shut down aged and less efficient coal-fired power plants.

Operational excellence in thermal generation

Traditional thermal generation from sources such as coal and gas will continue to play a role because it helps to mitigate the increasing volatility related to the integration of more and more renewables into the grid. That is why we expect electric utilities to strive for operational excellence at their thermal generation assets. This includes having quantified thermal efficiency targets, upgrading coal-fired power plants to higher thermal efficiency, creating cleaner plants and sourcing coal responsibly.

Focus on business model innovation

The rise of distributed generation presents a significant challenge to the current business models of electric utilities. It has the potential to substantially disrupt the ability of electric utilities to generate revenues. Therefore, we expect electric utilities to adjust their business models by diversifying their revenues e.g. via energy services, and find ways to monetize their huge retail customer base and capitalize on digitalization (e.g. Smart Home). In addition we believe investments in grid efficiency and flexibility, targeted strategic acquisitions and green marketing and product development are suitable strategic choices.

Public policy

We expect electric utilities to be transparent on their lobbying activities on the national and EU level and on their positions on relevant environmental legislation (i.e. fixing the ETS, or carbon tax). This includes ensuring consistency between the companies’ views on climate change and those which are advocated for on their behalf by their representative trade association(s). This transparency allows investors to see if the utilities are indeed embracing the changes or trying to hold on to the status quo. 

In the first quarter of 2015, Robeco commissioned a research report by the utilities team of French broker Exane BNP Paribas. Based on our outline of the issue and definition of engagement objectives, the report analyzed a large number of key performance indicators such as capital expenditure, R&D spending and thermal efficiency across the peer group. Complemented with an in-house report on the public policy activities of the utilities this data set forms the basis for our engagement. Over the next three years we will engage with the following companies on the four engagement objectives above for the utilities sector: Centrica, Drax, E.ON, Electricite de France (EDF), Enel, Energias de Portugal (EDP), Fortum, Gas Natural Fenosa, Engie (GDF Suez), Iberdrola, RWE and Scottish and Southern Energy (SSE). In June we kicked off the engagement with formal letters to the 12 companies, in these letters we outlined our expectations and invited them to start a dialogue.

Los temas relacionados con este artículo son:
Logo

Información importante

Los Fondos Robeco Capital Growth no han sido inscritos conforme a la Ley de sociedades de inversión de Estados Unidos (United States Investment Company Act) de 1940, en su versión en vigor, ni conforme a la Ley de valores de Estados Unidos (United States Securities Act) de 1933, en su versión en vigor. Ninguna de las acciones puede ser ofrecida o vendida, directa o indirectamente, en los Estados Unidos ni a ninguna Persona estadounidense en el sentido de la Regulation S promulgada en virtud de la Ley de Valores de 1933, en su versión en vigor (en lo sucesivo, la “Ley de Valores”)). Asimismo, Robeco Institutional Asset Management B.V. (Robeco) no presta servicios de asesoramiento de inversión, ni da a entender que puede ofrecer este tipo de servicios, en los Estados Unidos ni a ninguna Persona estadounidense (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores).

Este sitio Web está únicamente destinado a su uso por Personas no estadounidenses fuera de Estados Unidos (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores) que sean inversores profesionales o fiduciarios profesionales que representen a dichos inversores que no sean Personas estadounidenses. Al hacer clic en el botón “Acepto” que se encuentra en el aviso sobre descargo de responsabilidad de nuestro sitio Web y acceder a la información que se encuentra en dicho sitio, incluidos sus subdominios, usted confirma y acepta lo siguiente: (i) que ha leído, comprendido y aceptado el presente aviso legal, (ii) que se ha informado de las restricciones legales aplicables y que, al acceder a la información contenida en este sitio Web, manifiesta que no infringe, ni provocará que Robeco o alguna de sus entidades o emisores vinculados infrinjan, ninguna ley aplicable, por lo que usted está legalmente autorizado a acceder a dicha información, en su propio nombre y en representación de sus clientes de asesoramiento de inversión, en su caso, (iii) que usted comprende y acepta que determinada información contenida en el presente documento se refiere a valores que no han sido inscritos en virtud de la Ley de Valores, y que solo pueden venderse u ofrecerse fuera de Estados Unidos y únicamente por cuenta o en beneficio de Personas no estadounidenses (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores), (iv) que usted es, o actúa como asesor de inversión discrecional en representación de, una Persona no estadounidense (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores) situada fuera de los Estados Unidos y (v) que usted es, o actúa como asesor de inversión discrecional en representación de, un inversión profesional no minorista. El acceso a este sitio Web ha sido limitado, de manera que no constituya intento de venta dirigida (según se define este concepto en la Regulation S promulgada en virtud de la Ley de Valores) en Estados Unidos, y que no pueda entenderse que a través del mismo Robeco dé a entender al público estadounidense en general que ofrece servicios de asesoramiento de inversión. Nada de lo aquí señalado constituye una oferta de venta de valores o la promoción de una oferta de compra de valores en ninguna jurisdicción. Nos reservamos el derecho a denegar acceso a cualquier visitante, incluidos, a título únicamente ilustrativo, aquellos visitantes con direcciones IP ubicadas en Estados Unidos.

Este sitio Web ha sido cuidadosamente elaborado por Robeco. La información de esta publicación proviene de fuentes que son consideradas fiables. Robeco no es responsable de la exactitud o de la exhaustividad de los hechos, opiniones, expectativas y resultados referidos en la misma. Aunque en la elaboración de este sitio Web se ha extremado la precaución, no aceptamos responsabilidad alguna por los daños de ningún tipo que se deriven de una información incorrecta o incompleta. El presente sitio Web podrá sufrir cambios sin previo aviso. El valor de las inversiones puede fluctuar. Rendimientos anteriores no son garantía de resultados futuros. Si la divisa en que se expresa el rendimiento pasado difiere de la divisa del país en que usted reside, tenga en cuenta que el rendimiento mostrado podría aumentar o disminuir al convertirlo a su divisa local debido a las fluctuaciones de los tipos de cambio. Para inversores profesionales únicamente. Prohibida su comunicación al público en general.

No estoy de acuerdo