What to expect from power utilities transition plans?

Reports

17 December 2024

To support the development of a sustainable power system, financial institutions must make strong commitments in the power generation sector and engage power utilities to adopt high standards transition plans.

Currently, the climate strategies of the main European power utilities contain significant shortcomings. Moreover, they use heterogeneous assumptions, references, and timelines, making it difficult to assess and compare them.

To provide a common basis for analysis, Reclaim Finance has developed a reference guide for financial actors. It offers a complete framework specifying the components of a comprehensive power utility transition plan, and how they should be addressed by utilities to reach robust and ambitious transition plans. It gathers the key aspects that financial institutions should expect from any power utility that claims it is transitioning towards a sustainable future. It also presents our recommendations to financial actors for engaging power utilities in adopting efficient and successful decarbonization pathways.

Key findings:

As a primary lever in the transformation of the power generation sector, financial institutions should:

  • Implement a sectoral exclusion policy on gas in power generation.
  • Achieve a 6:1 financing ratio in favor of sustainable power supply over fossil fuels by 2030.

When in dialogue with power utilities, financial institutions should first and foremost require utilities to:

  • Align with a 1.5°C pathway with no or low overshoot and a limited volume of negative emissions.
  • Commit to carbon neutrality by 2035 in Europe and OECD countries, and by 2040 in the rest of the world.
  • Commit to fossil gas power phase-out by 2035 in Europe and OECD countries, and by 2040 in the rest of the world.
  • Set up a plant-by-plant closure plan for fossil gas and coal power plants that excludes sale or conversion
  • Not invest in new fossil gas and coal power plants.
  • Avoid investments in “false solutions”, some of which depend on the continued use of fossil fuel resources: hydrogen for power, biomethane, biogas, biomass, nuclear.

We recommend use of this framework at two levels:

  • firstly, it should be endorsed as a reference frame by all those contributing to the transformation of the power sector – financial institutions, regulators and power utilities ;
  • secondly, it can be used by financial actors to help discern which power utilities are genuinely advancing toward the crucial goal of limiting global warming to 1.5°C, and which are lagging behind.