Utilities should face climate change stress tests: Investor network

A network of over 270 institutional investors are concerned that utilities’ strategies concerning climate change are not consistent with global targets to reduce average temperature rise. SouthWings.org photo.

By Nina Chestney

LONDON, April 29 (Reuters) – Electric utilities should undergo stress tests to show how their business models are in line with limiting climate change, a global network of investors said on Friday.

The network of more than 270 institutional investors with assets worth more than 20 trillion euros ($23 trillion) said they were concerned that utilities’ strategies are not consistent with a global target to limit the planet’s average temperature rise, compared with pre-industrial times, to below 2 degrees Celsius (3.6 Fahrenheit).

With renewable energy generation expected to increase, and overall demand low due to efficiency improvements and modest economic growth, traditional centralised power generation is being pushed out of the merit order. The report said such plants would ultimately need to be shut down or retained to provide emergency backup in return for state payments.

New entrants such as Google are emerging as competitors with power management solutions. So electric utilities need to design new business plans and focus on cleaner energy, networks, new services and keeping customers, it said.

“As investors, we need to know how electric utilities will deal with the vast shift already underway within their industry, how they will address the considerable risks posed by these trends and how they plan to profit from emerging opportunities,” the report said.

Utilities need to set long-term strategies for managing climate-related risks and opportunities, it added.

Even though fossil fuels would continue to have a role in power generation for years to come, utilities needed a clear long-term strategy for lowering their emissions and dealing with a future higher carbon price.

“It is vital that utility companies undertake comprehensive under 2 degree stress testing of their business activities and disclose to investors how their business model will fare in the face ofclimate change,” said Emma Herd, chief executive at the Investor Group on Climate ChangeAustralia and New Zealand.

($1 = 0.8822 euros) (Editing by Mark Trevelyan)