UK POWER GIANTS GENERATING CLIMATE CHANGE AN ANALYSIS OF THE MAJOR UK POWER COMPANIES A WWF-UK summary of the report by Innovest July 2005 To avoid the most serious aspects of climate change, we must ensure the rise in the global average temperature is kept below 2°C above pre-industrial levels – the critical “tipping point” for people, wildlife and habitats. Government and the business community must show leadership in changing the way we produce and use energy. WWF-UK has therefore launched a major new climate change campaign, Stop Climate Chaos! which is calling © MauriWWF-UK Rautkari / on the power sector to become CO2-free by 2050 and achieve 60 per cent reductions of CO2 emissions by 2020. And with good reason – the power sector is SUMMARY responsible for an estimated 37 per cent of global CO2 In a world where we are surrounded by real and emissions. perceived risks, it is sometimes hard to differentiate the serious from the frivolous and to work out how best to As part of its campaign, WWF has commissioned act for our future survival. Not just individuals, but Innovest to analyse the six major UK power companies. governments and companies also face this problem. Its report, UK Power Giants: Generating Climate Over the last 30 years, however, there has been a Change, ranks the companies in terms of their efforts growing awareness that one phenomenon – climate to reduce their CO2 emissions and their development change – poses a greater challenge than any other. of, and investment in, renewable energy programmes This is an issue the Prime Minister, Tony Blair, has and energy efficiency measures. The study has found: called “the single most important…that we face as a • a difference between the more forward-thinking global community”. companies – Centrica, Scottish and Southern Energy, and Scottish Power Plc – and the worst performers in the study – EDF, Powergen and Innogy; • a power sector that, while being fairly successful in meeting current minimum regulatory requirements, is generally failing to exercise sufficient leadership or implement the changes required to address climate change; • that some UK companies are taking innovative and forward-thinking actions in reducing their energy use and CO2 emissions, but are failing to apply the lessons learned across the full range of their operations; and • that the UK government has failed so far to provide the long-term framework and market conditions – especially a strong EU Emissions Trading Scheme National Allocation Plan – needed to encourage investment in a low-carbon UK economy. Results summary: Assessment matrix for the carbon risk of the six main UK power companies EDF Centrica Innogy Powergen Scottish & Scottish Southern Power Energy Historic carbon intensity of production and operations. Total GHG emissions (time-series) Carbon emissions improvements Greenhouse gas cluster Consumer EE training (demand management training) and customer incentives EE improvements Energy efficiency cluster Total renewable energy investment procured ROC/RPS tariffs obligation Non-ROC/RPS tariffs obligation, if any RE planned investments RE improvement Renewable energy cluster Top tier Middle tier Bottom tier BACKGROUND The companies powering the UK As we turn on our lights, computers, televisions, radios different market conditions, was switching back to the and kettles, most of us give little thought to where our old coal-fired power and purchasing cheaper coal from electricity comes from, how it is generated and who is eastern Europe. It is clear, therefore, that in order to supplying it. Yet every year, UK homes and businesses meet this challenge of significant and swift CO2 use around 400,000GWh of energy. Contributing up emissions cuts, the government needs to take much to 2 per cent of the UK’s Gross Domestic Product and more radical action – and the UK power sector needs supplying more than 26 million domestic customers to be willing and able to respond. around the country, the power industry is a hugely significant part of the UK economy. It is also an industry The power industry in the UK now faces a period that is undergoing major change. Just 15 years ago, the of profound change: generation and supply of UK electricity was executed by • The government has set a target of reducing UK CO2 just one government-run company, the Central Electricity emissions by 20 per cent by 2010, and 60 per cent by Generating Board. Now, there are more than 40 major 2050, with 15 per cent of our electricity aiming to be private producers in the UK, using electricity from over sourced from renewable sources by 2015. 2,000 generating stations. And whereas, in the early • The UK is facing a potential energy crisis. Twelve 1990s, most electricity was generated by coal-fired nuclear power stations currently produce 20 per cent plants, with gas generators representing just 2 per cent of the UK’s electricity demand, but retirement of old of the market, in 2005 there are more than twice as plants means that by 2020 this will have shrunk to many gas as coal plants in the UK. At present, gas- 7 per cent from only three nuclear power stations. burning coupled with nuclear production – and a small New and renewable sources of electricity, as well as amount (around 3 per cent) from renewable sources more gas, increased savings from energy efficiency, – has overtaken coal as the major fuel source in the UK. and a reduction in UK energy demand, will be needed Nonetheless, the power sector currently accounts for to fill the gap. over 30 per cent of UK CO2 emissions. • Several government studies have concluded that the only solution is a significant alteration to the way Generating climate change the UK’s heat and electricity is produced and used. ii The international community is only now waking up • The government has made a start and introduced to the massive implications of climate change on the new regulations, such as the Renewables Obligation environment, business and the worldwide economy (RO) and the Energy Efficiency Commitment (EEC), – and the imperative need to reduce the emissions of but these are just a minimum and much more needs greenhouse gases into our atmosphere. Globally, the to be done. power sector is the single largest source of CO2 into the world’s atmosphere. One average-sized coal power plant releases about 11 million tonnes of CO2 into the air every year. The “dash for gas” was a major contributing factor to the fall in UK CO2 emissions in the 1990s.The government’s Energy White Paper (EWP) i in 2003 assumed this trend would continue. Yet, with some embarrassment, the government was forced to admit that CO2 emissions were in fact on the rise again, increasing by 2.2 per cent in 2003 and 1.5 per cent in 2004. The UK power sector, faced with DIGITAL VISION The potential financial and carbon savings possible – if the political will, and the foresight within the power sector, exist to make it happen – are immense. The risks, if the power companies do not adapt, are equally huge – to society, business and the environment. For example, in July 2005 Allianz, one of the biggest financial companies in Europe, announced it would be adapting its business at board level to account for the risk of climate change. iii Who the companies are Which Company Its household name Centrica Centrica is the UK’s largest gas supplier, with an estimated market share of 64 per cent. Through its British Gas brand, Centrica claims to be the UK’s largest domestic electricity supplier. In 2003, the Centrica group’s turnover was £17.9 billion. Scottish and Southern Energy Scottish and Southern Energy is involved in generation, transmission, distribution and supply of electricity to industrial, commercial and domestic customers as well as energy trading, gas marketing, electrical and utility contracting and telecommunications. The turnover in 2004 was £5.1 billion. The company serves in excess of 5 million homes and businesses in the UK. Scottish Power serves around 6 million customers in the western US Scottish Power and across the UK. It provides electricity generation, transmission, distribution and energy supply services. Annual turnover at the end of March 2004 was c. £5.8 billion. EDF EDF Energy is part of the EDF Group, which has business interests in several parts of Europe. EDF Energy was formed from the merger of London Electricity and the Seeboard Group. EDF currently claims to be the fifth largest electricity generator in the UK, generating 7 per cent of the country’s electricity. It also distributes electricity to 7.8 million homes and businesses across London, the east of England and the south-east. The turnover in 2003 was c. £3.6 billion. Powergen (now E.ON-UK) Powergen is now run by E.ON-UK, the world’s largest investor-owned utility. It is the UK’s largest electricity supplier, generating, distributing and retailing electricity to 8.1 million UK customers. The turnover in 2003 was c. £6.8 billion. Innogy (currently RWE-npower) Innogy was created in 2000 as a result of a de-merger of National Power. In 2003, Innogy was acquired by the German utility RWE. RWE-npower supplies gas and electricity as a retail branch of RWE to 6.2 million customers. How the companies compared The companies were ranked according to three key “clusters” of criteria which affect their carbon risk – the development of and investment in renewable energy programmes; energy efficiency and demand-side energy management measures; and greenhouse gas policies and changes in their company emissions over time. Ranking Company Summary results 1 Centrica The only clear-cut CO2 risk management leader.