Utilities are slowing down the clean energy transition

Even as the world has added a record amount of new renewable power, utilities globally have moved too slowly to transition away from fossil fuels to generate electricity, according to a study published today in Nature Energy.

Between 2001 and 2018, only about 10 per cent of the more than 3,000 utilities studied prioritized renewable energy over fossil fuels. That accounted for 55 gigawatts of new energy-generating capacity, largely wind. Another 14 per cent of the utilities put more emphasis on coal and natural gas over renewables. And the rest essentially maintained the status quo — they didn’t show a net change in their fossil-fuel generation or renewable power assets.

That’s not good enough for the energy transition, said Galina Alova, a researcher at the University of Oxford and the author of the study. “It’s not only about adding renewables to the system but also getting rid of fossil fuels or, at a minimum, not growing them.”

Renewables have grown rapidly despite the lack of interest from utilities in owning those assets. As governments around the world provided subsidies or laid down policy mandates to increase the share of renewables, independent power producers (IPPs) jumped at the opportunity of the high risk, high reward game. IPPs built wind and solar farms, then signed long-term power purchase agreements with utilities.

As a result, by the end of 2018, utilities owned only 18 per cent of renewable power assets like wind and solar farms, compared to about 75 per cent for IPPs. Those owners have been key to doubling the global share of renewables in the electricity mix in the last five years.

At some point, however, more utilities will have to clean up their acts or face a “significant risk of stranded assets,” said Alova. That’s because clean energy is already the cheapest source in much of the world and set to get cheaper. Many fossil fuel power plants could become uneconomical sooner than utilities think.

“All the markets are saying where the growth is will be in the clean stuff,” said Albert Cheung, head of analysis at BloombergNEF. “So it should matter to them if they’re not well represented in this picture.”

© 2020 Bloomberg L.P.

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