Decoding the coming AGM & post-AGM reaction ↓
April 14th 2022 – French utility company ENGIE will hold its AGM next week. Climate will feature high on the agenda and it will be a test case for the credibility of investor engagement. At first glance, ENGIE’s coal exit plan seems to be paying off: a coal exit planned by 2025 in Europe and by 2027 in the rest of the world, an 86% decrease in coal-fired power generation capacity since COP21, etc. But on closer inspection, this strategy is far from adequate: Since 2015, ENGIE has mainly resorted to asset disposals, conversions, and an increasing reliance on gas. Rather than committing to a massive shift towards renewables, the company has chosen to maintain and strengthen its fossil-based capacities. During the AGM, climate-conscious investors must therefore vote against ENGIE’s deficient “Say on Climate”, but also question its alarming transition choices on coal and fossil gas.
A coal exit strategy primarily based on disposals and conversions
Up to now, ENGIE has sold most of its coal assets instead of shutting them down. ENGIE has sold 15 power plants since COP21, accounting for 58% (12,1 GW) of the total decrease in its coal production capacity. While this strategy allows ENGIE to drastically reduce its coal portfolio (from 20,9 GW in 2015 to 2,9 GW currently), it does not result in material emissions reductions: emissions are simply transferred to other players.
More than half of its remaining coal-fired power plants (2,9 GW) are destined to be either sold or converted to gas or biomass, as opposed to being shut-down. Out of its eight remaining coal-fired power plants, two do not have a precise coal exit date. Regarding the six coal assets for which an exit date is provided, ENGIE plans to close three plants and convert the other three (two will be converted to biomass, and one to fossil gas). With these planned conversions, ENGIE is going down the wrong path.
Converting coal power plants to biomass will likely lead to increased emissions of CO2 per KWh as a result of the lower energy density of wood, emissions along the supply chain, and/or less efficient conversion of combustion heat to electricity. Moreover, using biomass at an industrial scale to produce electricity often entails the large-scale destruction of forests and has serious impacts on biodiversity.
Concerning the conversion to gas of one of the group’s last coal-fired power plants, it is only the tip of the iceberg: ENGIE’s energy mix is now 50% dependent on fossil gas.
For its transition, ENGIE bets on fossil gas
ENGIE’s transition plan relies excessively on gas, which the energy company considers a bridge fuel. But gas is a fossil energy, composed mostly of methane, a greenhouse gas with a warming potential 84 times more important than CO2 over 20 years. Yet 50% of ENGIE’s total power generation capacity comes from fossil gas. Among European utilities, ENGIE currently holds the largest gas-fired power generation capacity.
While the scientific conclusions to limit warming to 1.5°C clearly state that all fossil fuel power plants must be closed by 2035 for EU/OECD countries, ENGIE is accumulating future stranded assets. Most gas-fired power plants have a lifespan of 20 to 30 years: constructing or planning any new gas capacities in 2022 is a very poor strategic choice. Yet ENGIE is still planning to extend its gas capacities in Australia, Belgium, Brazil and Italy.
Finally, ENGIE’s commitment to decarbonize its gas production by 2040-2045 is very uncertain and relies heavily on the development of potential renewable gasses, such as green hydrogen, that are not yet mature. Globally, biogas and biomethane account for only 1% of the current gas production, and green hydrogen only represents 0,5% of the current global hydrogen production, which is about 0.03% of global gas production. By basing its transition plan on purely hypothetical future capacities, ENGIE is taking an extremely risky gamble. And in the meantime, it allows the group to continue to rely on fossil gas …
A lack of ambition that fail to address climate change
For the first time, ENGIE has decided to table a “Say on Climate” resolution during its coming AGM, meaning that the company will consult its shareholders on its climate strategy and targets, through a non-binding advisory vote. While a “Say on Climate” is a welcome first step which is unfortunately very insufficient since ENGIE’s underlying climate strategy remains both incomplete and not aligned with a 1.5°C pathway. Betting on a vaguely defined “gas decarbonization” strategy, ENGIE only commits to contributing to a “well below 2°C” world.
Investors who are serious about accelerating ENGIE’s transition should mobilize during the AGM. The Say on Climate vote and the renewal of both the Chairman of the Board and the Chairman of the Ethics, Environment and Sustainable Development Committee offer a unique opportunity to put climate on center stage. Investors should also send written questions to the French utility, in order to obtain details on a real transition plan.