Coal played a part in ‘big five’ energy firms losing €100bn in share value

Friday 05 June 2015

The value of Europe’s five biggest energy utilities dropped €100bn (£73bn) between 2008 and 2013 in part because of a dogged preference for coal over clean power investments, a new report says.

The five firms – E.ON, RWE, GDF Suez, EDF and Enel – collectively lost 37% of their share value in the period, in part because of their increasing dependence on loss-making new coal generating capacity, according to the study by the Carbon Tracker Initiative.

As the recession on the continent dampened power demand and the EU enacted new clean energy laws, Europe’s coal use fell by around 5%. At the sane time, the ‘big five’ firms increased their reliance on coal by 9%.

More than 100 new coal plants were announced but never built. Nineteen plants were constructed, but there was a net loss in coal-fired capacity of 19GW as other plants closed.

The energy giants – which provide nearly 60% of Europe’s electricity – were blindsided as 203GW of additional production capacity from wind and solar came online.

“Any firms that made new investment in the belief that there was a big future for coal, any companies that left themselves in that position, clearly did not have their eyes open,” said Michael Grubb, the sustainable energy adviser to Ofgem, the UK’s energy regulator.

Grubb, a former climate change committee member and chief economist to the Carbon Trust, which advises businesses on reducing emissions, said that rapid moves to more energy efficient and renewable technologies this decade had bitten chunks out of the utilities’ market size and profit margins, due to their carbon-intensive business models.

The new report, ‘Caught in the EU utility death spiral’ outlines how Enel bucked the downward market trend by separating its fossil fuels and clean energy operations in 2008, and ramping up its renewable quotient from 4% to 12% of overall capacity. Late last year, E.ON followed suit.

The German energy company RWE took the opposite tack, and was the worst-performing of the big five companies. “Our competitiveness depends on whether we succeed in bringing electricity generation based on fossil fuels —especially coal— in line with the goal of protecting the climate,” its 2008 annual report had said.

Last month, the firm posted a 5% fall in profits, blaming a “persistent drop” in demand for fossil fuel-generated power. More than half of RWE’s electricity still came from coal at the end of 2013. Its chief executive Peter Terium recently said that plans to set emissions budgets for big polluters would “affect our very existence.”

But Carbon Tracker argues that the writing should have been on the wall for RWE in 2008, when the EU published its three 2020 goals of a 20% emissions cut, 20% share for renewables in the energy mix, and 20% increase in energy efficiency.

With moderated but still tangible reforms to Europe’s emissions limits and carbon pricing systems set to kick in over the next decade – and new targets for 2030 – Matt Gray, one of the report’s authors, argued that the transition to a cleaner energy system was now unstoppable.

“The future for coal in Europe is very bleak,” he said. “We see coal generation reducing significantly between now and 2030, due to increases in renewables and stagnating energy demand,” he said.

A case study in the Carbon Tracker paper finds that the asset stranding of Vattenfall’s new Moorburg hard coal plant in Hamburg is “almost inevitable”.

Grubb said that as Germany’s energiewende continued to empower citizens to sell back their own solar-powered electricity to the grid, the utilities would be wise to capitalise on new business opportunities in the distribution and services provision sectors.

“I think there will be a substantial number of stranded assets,” he told the Guardian, “although I also think many of the utilities will only have themselves to blame.”

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