GlobalData’s latest power sector rankings for the global energy transition assesses the top 40 utility companies by market capitalisation and displays noticeable regional trends.
The ranking shows that companies based in western and northern Europe lead, while North American utilities rank lower and are more intermittently placed. What factors explain this phenomenon?
The initial success of the IRA
Passed in August of 2022, the Inflation Reduction Act (IRA) was the largest piece of federal legislation regarding climate change in US history. Offering $663bn in tax incentives, it aimed to turn the tide towards the energy transition – with renewable power generation and electric vehicles (EVs) representing key facets. Research group the Clean Investment Monitor found evidence of a strong response to the wide-ranging federal legislation. For example, sales figures of zero-emission vehicles (ZEVs) in 2023 came in at the top end of the range for post-IRA projections, accounting for 9.2% of total light-duty vehicle sales (up from 6.8% and 2.2% in 2022 and 2020 respectively). ZEV sales also dramatically exceeded 2023 projections by the Energy Information Administration, which predicted 580,000 sales compared to the 1.43 million sold.
Likewise, the IRA showed a positive impact on renewable capacity additions in 2023. According to The Clean Investment Monitor, there was a record 32.3 GW of generation and storage capacity added to the US grid, up 32% from 2022. However, the report outlines concern that future projections of added capacity will fall short of the 40% net greenhouse gases reduction pathway by 2030 (as well as the 50 to 52% reduction pledge the country made under the 2015 Paris Agreement). Projections suggest that to keep up with emissions reduction aims, 60 to 127GW of capacity must be added to the grid in 2024.
The IRA has shown promising results, but multiple factors threaten to curtail its ongoing impact.
A reluctant industry?
A report published in January 2024 by climate think tank CERES investigated the stance of the 12 largest electricity utility companies in the US towards the energy transition. In general, it found that the utility companies were ‘highly engaged’ with climate policy in the US, with 92% of utilities demonstrating commitment to policies aligned with the Paris Agreement.
Yet equally, and rather paradoxically, while the sector has in some areas supported Paris-aligned policies, it has also contradicted them in others. The CERES report found that all twelve companies had opposed Paris-aligned climate policies in the last three years. Examples include American Electric Power lobbying against a federal clean electricity standard, instead advocating for continued use of coal in the energy mix. Companies such as Dominion, Duke and Southern "advocated to federal policymakers to increase research and development funding towards fossil gas (as opposed to renewable natural gas)".
This supports the scores found in GlobalData’s power company rankings. US utilities performed worse overall regarding the coal phase-out than their European counterparts, but Southern and Dominion in particular were graded with the lowest mark (1) for this metric. We can therefore see reluctance towards a complete energy transition, with some companies tending towards maintaining their existing base of fossil fuel capacity.
Inadequate grid connection
The success of the IRA is reflected in the large levels of investment in renewable capacity. However, this has created its own set of problems. Developers can construct new renewable projects, but to distribute the electricity generated to satisfy demand, these must be connected to the national grid. The boom in renewable projects has created a backlog in grid interconnection. As of December 2023, 2.6 terawatts of project capacity – mainly solar and batteries – was waiting to be hooked up. The scale of this issue becomes apparent considering that the 2.6 TW backlog is about double the size of the entire existing US electrical grid. In November 2023, the federal government announced an investment of $1.3bn to build three transmission grid lines across six states.
However, material investment may only solve part of the issue, with bureaucratic hurdles and backlogs hindering the eventual connection of projects to the grid, meaning that ultimately many interconnection requests end up cancelled or withdrawn. Lori Bird, director of the global research organisation US Energy for the World Resources Institute, is optimistic nevertheless. Bird said that the issue may be addressed by the Federal Energy Regulatory Commission (FERC) changing its assessment policy to consider projects based on regional clusters rather than order in the queue, resulting in faster overall assessment.
If greater grid interconnection is realised, this then presents huge potential for increasing the proportion of renewable generation and the overall success of the energy transition in the US.
Political instability
Perhaps the greatest barrier to the success of the energy transition in the US is the result of November’s presidential election. Should Donald Trump be re-elected later this year, the progress achieved may come under threat. Trump has in the past shown scepticism towards climate change as a whole – not least during his presidency when he announced the country’s withdrawal from the Paris Agreement in June 2017. More recently his rhetoric has shown hostility to the IRA as well as an intention to intensify fossil fuel drilling. Meeting with GOP [Grand Old Party, or Republican]lawmakers in June 2024, Trump discussed the state of US energy, and although he did not address policy points directly, according to Republican senator Roger Marshall, “he spoke about how [Democratic President] Joe Biden has weaponised the federal government against American energy”. Another GOP senator, Shelley Moore Capito, a member of the Environment and Public Works Committee, stated: “We are looking at things – IRA and other things – we’d like to redo or undo”.
This political instability will have negative effects on the outlook and planning of utility companies, with the return on investment for clean technologies becoming increasingly uncertain if a second Trump presidency becomes a reality. Long-term projects will potentially become financially untenable, threatening the hard-won achievements of the IRA.
The picture is therefore confusing. Recent achievements, largely a result of the IRA, show optimistic trends towards a wholesale energy transition. However, several obstacles – ot necessarily cost-related in nature – are stalling project progress and may prove tricky to rectify. Should the political winds dictate a Trump victory in November 2024, an inadequate grid and piecemeal industry commitment to the transition will spell serious problems for the US energy transition.
