‘ESG Wave’ Puts Greater Utilities Focus on Sustainable Energy
Environmental, social and governance (ESG) issues are becoming greater considerations in utilities-industry transactions as companies look to reduce business and supply chain risks, a topic discussed during multiple sessions at the Virtual Edison Electric Institute (EEI) Financial Conference in November.
In an S&P Global Market Intelligence report on the conference, Moody’s Analytics managing director Jim Hempstead said the regulated utility sector is “benefiting from the ESG wave that is taking place right now. And there is no sector that we can find that can move the dial on greenhouse-gas emissions more than (and) as quickly as utilities.”
With a focus on cleaner energy, Richmond, Virginia-based Dominion Energy in July announced the sale of its natural gas transmission and storage business to Berkshire Hathaway Energy. For PNM Resources of Albuquerque, New Mexico, an US$8.3-billion merger with Avangrid of Orange, Connecticut, announced in October, is designed in part to acquire the capital to exit coal and pursue a carbon-free energy strategy.
The conference highlighted other transactions and mergers designed to strengthen companies’ ESG positions. “Absolutely, the ESG train is not a buggy that is going to break down. It’s going to continue going,” Jan Childress, director of investor relations at New York-based Consolidated Edison, said during an EEI conference panel discussion.
Sustainability Shift Evident in Increased Reporting Rate
When KPMG, the Amstelveen, Netherlands-based global professional services network and one of the Big Four accounting firms, began surveying companies’ sustainability reporting in 1993, those doing it were few and far between — the rate was just 12 percent.
The nearly three decades since have brought new rules and regulations, shifting consumer attitudes and increasing recognition of environmental, social and governmental (ESG) issues on organizational performance. The degree of that sustainability evolution was reflected in The Time Has Come: The KPMG Survey of Sustainability Reporting 2020, which found a global company-participation rate of 80 percent.
“(A)ttitudes towards the financial risks of climate change in the financial and corporate sectors have changed beyond recognition,” Adrian King, partner at KPMG in Australia and co-chair of the firm’s ESG & sustainability services practice, wrote in the report. “I predict that climate change is only the first of a series of sustainability or ESG issues which will come to be perceived as financial risks or, indeed, opportunities.”
In other highlights from the survey of 5,200 companies in 52 countries:
- North America has the highest regional reporting rate, at 90 percent.
- About 40 percent of companies acknowledge financial risk of climate change in their reporting.
- A majority of companies have carbon-emission reduction targets.
Average compounded annual rate of decline in levelized cost for utility-scale solar energy from 2015-20, to US$31 a megawatt hour (MWH) when accounting for U.S. government subsidies, according to the Levelized Cost of Energy Analysis by Lazard, a financial-services company headquartered in Bermuda.
While the cost of onshore wind generation is cheaper (at $26 an MWH, down 2 percent from 2019), the solar price has declined at a faster rate.
“(A)s the cost of renewable energy continues to decline, technologies (for example, onshore wind and utility-scale solar) that became cost-competitive with conventional generation several years ago on a new-build basis, continue to maintain competitiveness with the marginal cost of selected conventional-generation technologies,” stated a Lazard press release.