Benchmarking the CO2 intensity and analysing the CO2 reduction strategies of utilities in Europe

Abstract

Electricity can be produced by many different technologies, each of which has a different CO2 intensity. The CO2 performance of a utility depends to a large extent on the technologies used for electricity generation. Because utilities have different electricity generation portfolios, their CO2 performance also varies. It is not known how utilities in Europe perform relative to their peers. Furthermore, there is no good analysis available of which strategies are used by utilities to make investment decisions for new power plants. Investment strategies are important for the reduction of the CO2 intensities of electricity generated by utilities. For this reason an analysis of the factors which have an impact on these strategies is interesting.

The aim of this study is to show what the CO2 emissions per kilowatt-hour are of various utilities and how this compares to their peers. Additionally, the CO2 reduction strategy of utilities is analysed to see how utilities take up the challenge of reducing CO2 emissions and whether and how external factors such as policies, economics, social structures, technology, environment, legal issues and competition influence this strategy.

First a benchmark methodology is developed to calculate the current CO2 intensity, the CO2 intensity of the past decade and expectations of the CO2 intensity of the upcoming decade of utilities. Second, this methodology is applied to twelve utilities, which results in an overview of the CO2 performance of the utilities compared to their peers. Finally, the strategy of utilities is analysed, also by using the results of the benchmark. Two case studies on the investment decisions of E.ON and Vattenfall are part of this strategy analysis.

The benchmark results show that there are large differences between the current CO2 intensities of the twelve selected utilities, ranging from about 100 gram CO/kWh to 1000 gram CO2/kWh. Most utilities have strong ambitions to reduce their CO2 intensities. Based on their investment plans, many utilities are expected to reduce their CO2 intensities, but most are not expected to reach their own reduction targets. Also, as a result of the expected growth in the electricity supply, the total CO2 emissions of most utilities are expected to increase.

The strategy analysis showed that utilities try are developing a strategy to reduce their CO2 emissions, be competitive and maintain the security of electricity supply. The economic analysis of the CO2 costs showed that the emission trading system has a significant impact on the profitability of a utility. Utilities are making investments in natural gas-fired power plants and renewable energy to reduce their CO2 costs. Investments in coal-fired power plants are also made because utilities point out the necessity to maintain their competitive position and to secure their supply of electricity.

As a strategy to create competitive advantage, utilities are diversifying their generation portfolio. This decreases the financial risks of policies and high fuel prices. The investments in renewables are used to create a positive brand image, but also to keep the option open to make larger investment in these technologies in the future. To enhance their brand image, utilities emphasise the positive aspects of their investments, but also explain what they do to reduce the negative impacts of these investments.