A new risk is looming for power utilities, according to recent research.

In a report released this month, analysis firm Trucost, part of S&P Dow Jones Indices, found that carbon pricing risk due to climate-related policies and taxes arising from the Paris Agreement “could lead to significant losses” for many companies, although the risk could “vary substantially” among firms in a single sector.

The growing carbon price could affect companies directly, the report said, with regulatory costs imposed on their operations, or indirectly through costs passed on by suppliers. Companies would then need to decide whether to absorb the costs themselves, or pass them on again to consumers.

Utilities, which have the highest operational carbon footprint of the sectors analyzed in the report, consequently have the highest operational carbon footprint per unit of revenue. In addition, the power sector has less flexibility than other sectors to relocate its physical assets when costs rise.

Although utilities’ carbon pricing risk was “minimal” in 2017, the report predicted that it will grow significantly over time. Indeed, the average at-risk profit is expected to reach close to 90 per cent by 2030 and to exceed 150 per cent by 2050.

However, quite a bit of variation in risk exposure is also predicted due to differences in location, business model and market conditions. By 2050, the report estimated that utilities’ at-risk profits will range between 1 per cent and almost 600 per cent. Companies using fossil fuels in Europe, where the carbon price is expected to rise significantly over time, are at the greatest risk.

One interesting correlation found was that utilities with the highest risk have a greenhouse gas (GHG) intensity below or close to the sector average. However, this indicator accounts for just 30 per cent of variation in risk between utility companies.

The report noted that the activities of a company’s supply chain often account for a larger share of its carbon pricing risk exposure than its own operational emissions. For utilities, supply chain risk amounted to an average of 29 per cent of the total risk. Adjusting procurement strategies could mitigate this risk and minimize its financial impact, the report said.

“At present, many companies measure their carbon footprint,” the researchers said, “a vital first step in understanding exposure. However, across the global network of carbon policies, carbon pricing risk will vary over time according to the type of business activity and location.

“Relying on the carbon footprint as the only indicator of carbon pricing risk exposure could create a blind spot regarding the financial implications of carbon policies for companies and their investors. Companies should look at how carbon prices affect the cost of global value chain impacts, as well as the net impact on profitability across different scenarios and time horizons.”

A new risk is looming for power utilities, according to recent research.

In a report released this month, analysis firm Trucost, part of S&P Dow Jones Indices, found that carbon pricing risk due to climate-related policies and taxes arising from the Paris Agreement “could lead to significant losses” for many companies, although the risk could “vary substantially” among firms in a single sector.

The growing carbon price could affect companies directly, the report said, with regulatory costs imposed on their operations, or indirectly through costs passed on by suppliers. Companies would then need to decide whether to absorb the costs themselves, or pass them on again to consumers.

Utilities, which have the highest operational carbon footprint of the sectors analyzed in the report, consequently have the highest operational carbon footprint per unit of revenue. In addition, the power sector has less flexibility than other sectors to relocate its physical assets when costs rise.

Although utilities’ carbon pricing risk was “minimal” in 2017, the report predicted that it will grow significantly over time. Indeed, the average at-risk profit is expected to reach close to 90 per cent by 2030 and to exceed 150 per cent by 2050.

However, quite a bit of variation in risk exposure is also predicted due to differences in location, business model and market conditions. By 2050, the report estimated that utilities’ at-risk profits will range between 1 per cent and almost 600 per cent. Companies using fossil fuels in Europe, where the carbon price is expected to rise significantly over time, are at the greatest risk.

One interesting correlation found was that utilities with the highest risk have a greenhouse gas (GHG) intensity below or close to the sector average. However, this indicator accounts for just 30 per cent of variation in risk between utility companies.

The report noted that the activities of a company’s supply chain often account for a larger share of its carbon pricing risk exposure than its own operational emissions. For utilities, supply chain risk amounted to an average of 29 per cent of the total risk. Adjusting procurement strategies could mitigate this risk and minimize its financial impact, the report said.

“At present, many companies measure their carbon footprint,” the researchers said, “a vital first step in understanding exposure. However, across the global network of carbon policies, carbon pricing risk will vary over time according to the type of business activity and location.

“Relying on the carbon footprint as the only indicator of carbon pricing risk exposure could create a blind spot regarding the financial implications of carbon policies for companies and their investors. Companies should look at how carbon prices affect the cost of global value chain impacts, as well as the net impact on profitability across different scenarios and time horizons.”

Europe’s power and utilities sector wrote off €23bn ($27bn) in assets in 2016, according to new analysis.

Despite last year’s significant drop in asset impairments (the value of a fixed asset against the profit it generates) compared with 2015 levels, consultancy EY said in a report released this week that the writeoffs had been larger than expected and that stakeholders would be “left wondering whether an end is in sight”.

In answer to that question, EY predicted further impairments due to rapid sector transformation and the rise of converging technological trends including battery energy storage, electric vehicles and artificial intelligence.

Writeoffs by European utilities were down by 34 per cent on 2015’s record high of €34.7bn, the report said, noting that this figure excludes E.ON’s €7bn impairment against the value of its spinoff Uniper.

However, the writeoffs still equalled 8 per cent of the market capitalization of the companies sampled at the end of 2016.

Asset-related impairments made up the bulk of the total, at 92 per cent compared with 74 per cent in 2015. Power generation assets accounted for 62 per cent of overall impairments.

Continental western Europe and the Nordic countries remained the regions with the largest impairment writeoffs, making up 54 per cent of the total.

Drivers for the increased impairment included oversupply of capacity, the report said, which led to lower utilization rates for thermal power assets.

And the report predicted more disruption ahead due to the interaction of technological trends including battery energy storage, electric vehicles, solar PV, artificial intelligence and grid-edge technology.

According to EY, several ‘tipping points’ around these trends are set to “fundamentally alter the dynamics of the market forever”. These points include when non-utility scale solar+storage systems achieve cost parity with grid power and when their LCOE reaches parity with transmission and distribution costs; and when EVs achieve cost and performance parity with internal combustion engines.  

“As these tipping points approach, potentially undermining asset values across the entire value chain,” the report warned, “European utilities will have to consider the likely implications for further impairments.”

Europe’s power and utilities sector wrote off €23bn ($27bn) in assets in 2016, according to new analysis.

Despite last year’s significant drop in asset impairments (the value of a fixed asset against the profit it generates) compared with 2015 levels, consultancy EY said in a report released this week that the writeoffs had been larger than expected and that stakeholders would be “left wondering whether an end is in sight”.

In answer to that question, EY predicted further impairments due to rapid sector transformation and the rise of converging technological trends including battery energy storage, electric vehicles and artificial intelligence.

Writeoffs by European utilities were down by 34 per cent on 2015’s record high of €34.7bn, the report said, noting that this figure excludes E.ON’s €7bn impairment against the value of its spinoff Uniper.

However, the writeoffs still equalled 8 per cent of the market capitalization of the companies sampled at the end of 2016.

Asset-related impairments made up the bulk of the total, at 92 per cent compared with 74 per cent in 2015. Power generation assets accounted for 62 per cent of overall impairments.

Continental western Europe and the Nordic countries remained the regions with the largest impairment writeoffs, making up 54 per cent of the total.

Drivers for the increased impairment included oversupply of capacity, the report said, which led to lower utilization rates for thermal power assets.

And the report predicted more disruption ahead due to the interaction of technological trends including battery energy storage, electric vehicles, solar PV, artificial intelligence and grid-edge technology.

According to EY, several ‘tipping points’ around these trends are set to “fundamentally alter the dynamics of the market forever”. These points include when non-utility scale solar+storage systems achieve cost parity with grid power and when their LCOE reaches parity with transmission and distribution costs; and when EVs achieve cost and performance parity with internal combustion engines.  

“As these tipping points approach, potentially undermining asset values across the entire value chain,” the report warned, “European utilities will have to consider the likely implications for further impairments.”

Joint power purchase agreements (PPAs) that aggregate corporate demand could be the way forward for companies wanting to run their business on renewables, a new report states.

The US-based Rocky Mountain Institute (RMI) this week released a case study showcasing a consortium of four corporations which have jointly negotiated PPAs for wind power in The Netherlands.

The firms – chemicals company AkzoNobel; health, nutrition and materials outfit DSM; technology firm Google and health technology company Philips – have jointly signed two PPAs so far, one in October 2016 for the 102 MW Krammer Wind Park and one in December 2016 for the 34 MW Bouwdokken Wind Park, with each company contracting for 25 per cent of the wind farm’s output.

According to the case study, the first deal took 36 months to accomplish due to the need for the companies to reach agreement on governance. However, the RMI said the structure established will be “easily replicable” going forward. The second PPA took around six months.

The deals are among the earliest examples of aggregated corporate demand successfully transacting in renewables markets and offer a potentially replicable model, the RMI said.

Among the benefits for the companies found in the case study were economies of scale, cost-sharing, portfolio diversification and risk management. The Netherlands was chosen as the preferred location as three of the four firms are headquartered there, while Google operates a number of high energy use data centres in the country.

Roberto Zanchi, senior associate at the RMI and lead author of the case study, said: “We feel strongly that aggregation can be a winning strategy for corporate renewable energy buyers, and this model shows that it is indeed possible to align across business motives, priorities and operational teams to get to yes on a PPA.”

Joint power purchase agreements (PPAs) that aggregate corporate demand could be the way forward for companies wanting to run their business on renewables, a new report states.

The US-based Rocky Mountain Institute (RMI) this week released a case study showcasing a consortium of four corporations which have jointly negotiated PPAs for wind power in The Netherlands.

The firms – chemicals company AkzoNobel; health, nutrition and materials outfit DSM; technology firm Google and health technology company Philips – have jointly signed two PPAs so far, one in October 2016 for the 102 MW Krammer Wind Park and one in December 2016 for the 34 MW Bouwdokken Wind Park, with each company contracting for 25 per cent of the wind farm’s output.

According to the case study, the first deal took 36 months to accomplish due to the need for the companies to reach agreement on governance. However, the RMI said the structure established will be “easily replicable” going forward. The second PPA took around six months.

The deals are among the earliest examples of aggregated corporate demand successfully transacting in renewables markets and offer a potentially replicable model, the RMI said.

Among the benefits for the companies found in the case study were economies of scale, cost-sharing, portfolio diversification and risk management. The Netherlands was chosen as the preferred location as three of the four firms are headquartered there, while Google operates a number of high energy use data centres in the country.

Roberto Zanchi, senior associate at the RMI and lead author of the case study, said: “We feel strongly that aggregation can be a winning strategy for corporate renewable energy buyers, and this model shows that it is indeed possible to align across business motives, priorities and operational teams to get to yes on a PPA.”

Thailand’s Gulf Energy is set to invest heavily in Southeast Asia's power sector after raising THB24bn ($733m) in an IPO last week.

The company, which is Thailand’s third-largest energy firm, is reportedly looking into investing THB150bn in power capacity in Myanmar, Laos and Vietnam as well as in its home market.  

The investments will be funded through a combination of the proceeds from the IPO and loans.

According to Gulf Energy’s CEO, Sarath Ratanavadi (pictured), the firm plans to invest largely in gas-fired power capacity and its activities are likely to include acquiring operational plants as well as greenfield projects.

Sarath was quoted as saying that his firm would likely stick to gas power because it offers both a lower risk profile than coal-fired power, which is facing stricter regulation in Asia due to environmental concerns, and higher returns than renewable power projects.

Gulf Energy also plans to raise its share in an existing joint development venture with Japan’s Mitsui & Co. The companies are developing two gas-fired power plants with a total capacity of 5300 MW, and Gulf Energy will now up its stake in the venture from 51 per cent to 70 per cent.

The company boasts an installed capacity of 4.7 GW of largely gas-fired capacity, and aims to add an additional 6.3 GW by 2024.

Last Wednesday's IPO was Thailand's largest since 2006. 

Thailand’s Gulf Energy is set to invest heavily in Southeast Asia's power sector after raising THB24bn ($733m) in an IPO last week.

The company, which is Thailand’s third-largest energy firm, is reportedly looking into investing THB150bn in power capacity in Myanmar, Laos and Vietnam as well as in its home market.  

The investments will be funded through a combination of the proceeds from the IPO and loans.

According to Gulf Energy’s CEO, Sarath Ratanavadi (pictured), the firm plans to invest largely in gas-fired power capacity and its activities are likely to include acquiring operational plants as well as greenfield projects.

Sarath was quoted as saying that his firm would likely stick to gas power because it offers both a lower risk profile than coal-fired power, which is facing stricter regulation in Asia due to environmental concerns, and higher returns than renewable power projects.

Gulf Energy also plans to raise its share in an existing joint development venture with Japan’s Mitsui & Co. The companies are developing two gas-fired power plants with a total capacity of 5300 MW, and Gulf Energy will now up its stake in the venture from 51 per cent to 70 per cent.

The company boasts an installed capacity of 4.7 GW of largely gas-fired capacity, and aims to add an additional 6.3 GW by 2024.

Last Wednesday's IPO was Thailand's largest since 2006. 

Samsung Engineering has filed an investor-state dispute settlement suit against Saudi Arabia over an engineering, procurement and construction (EPC) contract for a power and desalination plant.

The arbitration request was filed this week with the World Bank’s International Centre for Settlement of Investment Disputes. 

Samsung’s EPC and testing contract for the 2500 MW gas- and heavy fuel oil-fired Yanbu 3 plant on the Red Sea coast was cancelled in January by state-owned Saudi project developer Saline Water Conversion Corporation (SWCC).

Samsung had won the EPC contract as part of a consortium in 2012, garnering around $1.45bn in orders. But in January SWCC changed its turbine specifications and the two companies said they were unable to agree on new pricing.

Yanbu 3 had been due to come online at the end of 2016, but commissioning has been rescheduled for summer 2018.

At the time of the contract’s cancellation, Samsung said it had received payments of around $830m for the project, which was about 55 per cent completed.

In May, SWCC signed a new deal with China’s Sepco III Electric Power Construction Corp to finish work on the plant, which it then said was around 60 per cent completed.  

In addition to power, the plant is planned to provide 550,000 m3 per day of clean water for eight million residential and commercial customers in the region, which includes the city of Medina. 

Samsung Engineering has filed an investor-state dispute settlement suit against Saudi Arabia over an engineering, procurement and construction (EPC) contract for a power and desalination plant.

The arbitration request was filed this week with the World Bank’s International Centre for Settlement of Investment Disputes. 

Samsung’s EPC and testing contract for the 2500 MW gas- and heavy fuel oil-fired Yanbu 3 plant on the Red Sea coast was cancelled in January by state-owned Saudi project developer Saline Water Conversion Corporation (SWCC).

Samsung had won the EPC contract as part of a consortium in 2012, garnering around $1.45bn in orders. But in January SWCC changed its turbine specifications and the two companies said they were unable to agree on new pricing.

Yanbu 3 had been due to come online at the end of 2016, but commissioning has been rescheduled for summer 2018.

At the time of the contract’s cancellation, Samsung said it had received payments of around $830m for the project, which was about 55 per cent completed.

In May, SWCC signed a new deal with China’s Sepco III Electric Power Construction Corp to finish work on the plant, which it then said was around 60 per cent completed.  

In addition to power, the plant is planned to provide 550,000 m3 per day of clean water for eight million residential and commercial customers in the region, which includes the city of Medina.