Utilities roundtable report

Growing importance of carbon intensity a key discussion point in Two Tomorrows roundtable for utilities companies

The commercial and competitive implications of carbon reporting and transparency on forest-based biomass use were among key sustainability issues facing the utilities industry discussed at a roundtable hosted recently by Two Tomorrows.

Guest speakers Tracey Campbell of the Forest Footprint Disclosure Project and Neil McIndoe of environmental data company Trucost joined Two Tomorrows director Jon Woodhead in leading the roundtable, which was attended by representatives of the utilities industry and held at Imperial College in London.

Carbon reporting

With carbon intensity – CO2 emissions per GWh of electricity produced – now taken into account in some asset pricing models, this was the first topic on the agenda. Standard & Poor’s, for example, includes carbon in assessments of the future cash flows of EU power companies and related credit risks. Longer-term targets for carbon intensity have been set by some companies for many years, but there are important differences between companies in how these are being set and then used. The roundtable discussed whether these targets now play a part in competitive positioning.

It was agreed that, while exact comparisons between energy generators are difficult to make, many companies are in fact heading towards the same target range over the long term. This raised the question – to be further explored by the industry over the years ahead – of what other targets and metrics might reveal a more meaningful representation of the interrelationship between factors such as investment and carbon reduction.

The setting of targets was widely debated. It was noted that some reduction targets have been set in direct alignment with known investment plans while others have been set taking into account brand reputation and forecast customer retention to help build the business case. While some companies saw targets as definitive, others believed that a long-term downward trend was more important than meeting short-term goals, depending on the provision of a credible explanation.

Attitudes to energy policy among the general public and the media were also discussed. In countries such as Germany and Sweden, new nuclear has become a source of much debate, but in countries such as the UK, prices remain consumers’ main priority.

Neil McIndoe from Trucost presented an overview of the types of carbon analysis available and the expectations and concerns of investors that are increasingly building environmental data into their models. He outlined how a variety of metrics and indicators are now used by investors to gain perspective on the relative performance of companies in tackling carbon emissions in the context of traditional financial reporting measures.

Forest-based biomass use

The increasing importance to the investment community of the transparency over the use of biomass and other forest products was outlined by Tracey Campbell from the Forest Footprint Disclosure Project. The Disclosure Project is an annual request for information on companies’ management approach to forest risk commodities (FRCs), such as biofuel, palm oil and timber, and how they are linked to deforestation. It examines the key issues for FRCs and the challenges ahead for business, NGOs and government in tackling the link between the use of commodities in the supply chains and deforestation.

The discussion that followed considered the conundrum that biofuels are ideally positioned for local power generation, but investment so far has been directed towards major installations which require a large-scale fuel source, typically from a global supply chain. In developing policies towards biofuels, energy utility companies are advised to consider the range of indirect effects that are possible through the supply chain, and to consult with relevant stakeholders where necessary.

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