Electric utilities' transition still early but accelerating
Just under a third of electric utilities can be considered "green" with more than half their power generation coming from renewable energy while more than two-thirds still rely on fossil fuels, according to research by S&P Global Ratings.
The power sector accounted for roughly 25% of global emissions in 2024 but is decarbonising quickly as renewable power generation increases. More than half of all electric utilities could be green by the mid-2030s if the sector delivers on its transition plans, the research said.
S&P used its Climate Transition Assessment and "Shade of Green" analysis on 77 companies using public data. It is the first time that the ratings agency has produced this type of sector analysis, which is designed to give banks and investors an understanding of the financial risk of their assets.
"Where this research can potentially be helpful in terms of directing capital to cleaner projects, in my opinion, is that it sets a baseline," said Michael Ferguson, managing director and team leader for sustainable finance Americas at S&P.
The research said 32% of companies are green; 3% are considered dark green, 17% medium green and 12% light green, while 68% of companies rely on fossil fuels.
Most companies are yellow (39%) or orange (28%), which indicates unabated natural gas. Only 1% of companies are red, which indicates coal power, but 52% of the companies that S&P looked at have more than a 50% share of fossil fuel activities.
"The majority of companies today we see in the orange and yellow space, which is a bit of coal, some gas and maybe some renewables in the mix. We don't see that many red," said Terry Ellis, director of climate transition risk research at S&P.
A large subset of electric utilities are still in the early stage of their transition and are starting to integrate more renewable generation into their energy mix, the report said.
Diverse shades
The capital-intensive sector, which is crucial for electrification and the decarbonisation of other sectors, has long planning cycles and a range of shading from red, which shows high coal dependence, to dark green for firms that specialise in renewable energy.
Nearly all of the companies analysed (90%) have some kind of decarbonisation target, 80% aim to roll out renewables and 28% are looking at system upgrades.
The report said most companies focus on green generation, which is primarily wind, solar and hydro, and system upgrades and green hydrogen production.
"Utility companies are typically large investment-grade issuers that have regular access to the capital markets so there's a lot of progress made here, probably more so than other sectors," Ferguson said.
Although many companies are talking about renewables investments, relatively few are discussing plans for legacy assets and only 35% have plans to curtail fossil fuels, even in markets with more supportive climate policies. Security risk, especially in Europe, may also delay fossil fuel retirements.
"A third of utilities that have fossil fuels today have an action to phase them out, which means that two-thirds don't," Ellis said. "Most are investing in renewables but there's a limit to how green those companies can be because they don't have concrete plans to phase out fossil fuels."
Asia behind
Asia Pacific electric utilities are less likely to be green by the mid 2030s. The region has the largest global share of yellow and orange companies – new electricity generation is more likely to be through gas-fired plants – and red companies globally. Latin America has the highest regional share of green companies.
While the distribution of shades in North America is roughly the same as EMEA, the types of companies are different. EMEA is more likely to have multi-utilities with some renewables and some fossil fuels, whereas North America has more pure-play renewables and fossil fuel companies, the report said.
Although electric utilities are still highly reliant on fossil fuels despite the increasing adoption of low-carbon technologies, the pathways to decarbonisation are obvious and the technologies are scalable. Most companies are planning to accelerate their transition in the next five years despite policy uncertainty, the report said.
Given the sector's committed actions and investments, transition plans and the broader implementation factors, S&P expects a "materially different landscape for the global power sector in the coming years".