Expert view

Key questions about ESG in the power industry: Q&A with GlobalData thematic analyst

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Harminder Singh is director for power research and analysis at GlobalData. He specialises in research in the power, renewable energy and smart grid sectors and has more than 20 years of experience, most of which has been in energy sector research. He has led studies in the power and renewable energy sectors covering various aspects, including generation, transmission, distribution, smart grids, equipment, power trading, tariffs, and policy & regulatory aspects.

Lara Virrey: What are the most pressing ESG challenges for the power industry in 2023? 

Harminder Singh: The power industry is responsible for more than a quarter of the global CO2 emissions. Recognising this, governments across the world have set targets for phase-out of coal-based power generation and renewable energy-driven capacity addition.

However, the geopolitical situation since early 2022 has made it difficult for countries to meet this trajectory. The reduction in gas supply from Russia led to many European countries increasing their reliance on coal and postponing the coal or nuclear phase-outs. Thus, maintaining a balance between energy security and energy transition will be a key challenge for the industry.

Lara Virrey: What are the most promising technologies that could help the power industry deal with its environmental challenges? 

Harminder Singh: Solar and wind are the most promising technologies in the power sector. Both these technologies have transformed the way power is generated and are helping reduce the CO2 emissions from the sector. Innovations within these such as floating offshore wind turbines, floating solar photovoltaics (PV), high efficiency solar PV modules, etc. are going to enhance the growth of these technologies.

The share of these two technologies in the power mix has been increasing over the years. In 2022, the share of solar PV stood at 13% while that of wind power was 11%. These will increase significantly to 26% for solar PV and 15% for wind by 2030.

While initially, these technologies were dependent on policy incentives such as feed-in-tariffs, accelerated depreciation, subsidies, etc. due to high costs, they have now achieved grid-parity in most countries due to the rapid cost reduction achieved over the years.

Lara Virrey: Who are the biggest innovators in environmental technology in the power sector?

Harminder Singh: Based on GlobalData’s rankings, power utilities which are at the forefront of energy transition (top 10) are as follows: Iberdrola, Engie, Exelon, Enel, Vattenfall, NextEra Energy, EDF, RWE, AES and E.ON. These rankings use parameters such as renewable energy capacity, coal phase-out, emissions reduction targets, energy storage capacity, initiatives in hydrogen and electric vehicles (EVs), etc. to rank the companies.

Lara Virrey: What are the key areas the power sector needs to focus on in addressing social and governance challenges?

Harminder Singh: The power industry is intertwined with the local communities in which it operates. Those lucky enough to have a consistent power supply rely on the power industry to provide the energy they need. Power plants and operations use up vast amounts of land, and engagement with communities and governments is key. The power industry provides many jobs, often high-skilled, and the transition towards renewable power is creating challenges for a shifting workforce.

Energy transition will bring about the challenges of reskilling and retraining the workforce. While on one hand, the growth in renewable energy will lead to significant job creation in these areas, there will also be job reduction in the fossil fuel-based industry. Large-scale power projects involve the acquisition of large tracts of land and have an impact on the local ecology. Thus, companies must be sensitive to the demands of the local communities and ensure that they are involved in the key issues related to project development, especially those that will impact them.

Companies will need to be transparent in their disclosures and ESG reporting. Current qualitative information has been centred around sustainability, core values, and net-zero emissions targets. These disclosures also discuss social impacts, such as community relations, workforce health and safety, biodiversity impact considerations, and overall, near and far-term stakeholder impact.

Lara Virrey: Overall, do you think the power sector is showing enough commitment to improving its ESG performance?

Harminder Singh: The power sector has been going through a transition, which is mostly related to reducing its environmental impact. The shift to renewable energy, decommissioning of coal-based power, decentralised power generation are all initiatives targeted at reducing the carbon footprint of the sector.

Further, the sector is also playing an important role in the growth of green hydrogen, which promises to be the fuel of the future. There is a significant capacity of green hydrogen in the pipeline, which will require new renewable energy capacities to be developed to power it. Power utilities are also important players in the electric vehicles value chain. A number of utilities are setting up charging infrastructure to fuel the growth of EVs.

GlobalData, the leading provider of industry intelligence, provided the underlying data, research, and analysis used to produce this article.

GlobalData’s Thematic Intelligence uses proprietary data, research, and analysis to provide a forward-looking perspective on the key themes that will shape the future of the world’s largest industries and the organisations within them.