Key trends impacting ESG performance in the mining sector
Credit: Bert van Dijk/Getty images.
All aspects of environmental, sustainability and governance (ESG) compliance are important, and in the power industry, companies must excel across all three. However, the ESG performance of companies in the power sector is shaped by technological advances and macro-economic factors. Here, we look at the key technology and macro-economic trends that companies should consider in order for their ESG initiatives to succeed.
Key technology trends impacting ESG performance
A key enabler of a decarbonised future is the universal provision of access to electricity. One of the UN’s Sustainable Development Goals (SDGs) posits that, by 2030, all populations worldwide should have access to electricity. An important element of this is making sure access is affordable to those in developing countries.
Urban electrification will be the heart of many technological advancements in the electricity market. New opportunities for developing smart grids, microgrids and heat pumps, among other technologies, will emerge as industrialising areas electrify.
The applications of energy storage systems (ESS) will pave the way for the next energy revolution. ESS can help manage power during peak load periods, enabling energy management, providing bridging power and enhancing the quality and reliability of power. It also facilitates the integration of distributed renewable energy sources into the grid.
Energy storage installations linked with the electricity grid and ancillary services are expected to surge in the coming years. According to the International Renewable Energy Agency's Renewable Energy Roadmap 2030, 475 GW of ESS would be required to meet the target of 45% power from renewable sources in the energy mix by 2030.
Demand for new renewable projects has risen dramatically in recent years due to a variety of reasons. Input costs and cost of generation have fallen for renewables, making them more competitive. Furthermore, consumers are increasingly seeking out low-carbon energy suppliers as governments accelerate the transition through subsidies.
It is expected that by 2030, 40% of global demand will be powered by renewables. The trend over the next 10 years shows an increase in renewables due to increasing investments in clean technologies. Post 2024, renewables are projected to lead the mix, overtaking coal-fired power generation.
Key macro-economic trends impacting ESG performance
Declining cost of renewables
The cost of renewable energy declined exponentially in the late 2010s and into the 2020s. This is due largely to technological advancements and large-scale deployment. Favourable government policies also aided price competitiveness.
According to Lazard’s Levelized Cost of Energy Analysis, in 2020, technologies including onshore wind and utility-scale solar maintained competitiveness with the marginal cost of existing conventional generation technologies. The cost of installation and maintenance of renewables has become more competitive than thermal plants, even without subsidies. However, the commodity price increases since 2020 have been a cause of concern for the sector.
Diversification to manage emissions risk
The global effort to transition the power industry is driving the demand for divestment and diversification among utilities. Power companies are trying to maintain a strong operating and financial performance. They are also focusing on improving the quality of people's lives and addressing environmental problems guided by the UN’s SDGs.
Diversifying into renewables helps utilities to protect themselves in the long run from political and economic downturns. Factors such as growing investments, favourable regulations for renewables and advancements in energy storage are forcing traditional coal-fired utilities to embrace the renewable generation.
Globally, regulations have been imposed on utilities related to air, water and waste; violation results in hefty penalties and, in some cases, cancellation of licenses.
Carbon taxes are imposed on burning carbon fuels to reduce their use and incentivise transition to renewables. According to the World Bank, as at the end of 2021, 27 national jurisdictions globally had implemented carbon tax initiatives while there were nine individual nations with an Emissions Trading Systems initiative (ETS), plus the EU ETS scheme, thus 38 in total. Carbon trading allows utilities to trade carbon dioxide emissions permits. This is gaining force in Asia, particularly India and China.
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.