Carbon price shift could have major impact on utilities' earnings

Recent research by CDP suggests that European utilities are best placed to cease the opportunities presented by climate change. The research highlights those utilities which will benefit from regulatory change and those that will face difficulties without altering their business models.

The research, named “Flicking the switch: are electric utilities prepared for a low carbon future” is the second in the series. They include a league table based on a number of different emission related metrics. The metrics could have a significant impact on a company’s earnings in a market where the regulator is seeking to reduce greenhouse gas emissions in the EU by 40% by 2030 and by 80% by 2050, based on 1990 levels.

To be able to meet the target more than 45% of European electricity production would need to come from renewable energy sources by 2030. A move from coal generation to gas would also be necessary.

Paul Dickinson, executive chairman of CDP said: "This research provides investors with a specific tool in the form of data needed to engage with these companies on material issues. The top ranking electric utilities companies in the Super-League Table all have much lower exposure to coal, and are focusing their business towards cleaner energy sources. These companies' shares are held in the portfolios of the world's largest institutional investors and the way they approach regulation and invest in future technologies has a significant impact on their bottom line."

James Magness, Head of Investor Research at CDP added: "This research, the second in our series, has real value for investors at a time when the utilities sector is going through significant transformation. It is specifically tailored to enable investors to factor emissions data into their individual investment approaches. Investor feedback following the automotive sector report showed they want more of this detailed level of analysis. We will be researching further high emitting sectors over the next year, including materials, metals & mining, oil & gas and consumer goods."