Investor-owned utilities in the United States have underestimated the financial risks of stranded assets, future carbon costs, and penalties for inaction, which will cost them more than the expenses of rapidly decarbonizing now, according to a Deloitte report.
The cost of not investing in needed adaptations can be “much higher than the assumptions utilities have today,” said Jim Thomson, the management consulting giant’s vice chair and U.S. power, utilities and renewables leader.
His company’s review of public filings by investor-owned utilities found they anticipate carbon costs of US$3 to $55 per tonne by 2030, and $60 to $120 by 2050, reports Utility Drive.
But those figures fall short of Wood Mackenzie’s pricing estimates for the next decade.
“To be on a 1.5°C pathway, carbon support prices will need to reach US$160 per tonne of CO2 by 2030,” said Prakash Sharma, WoodMac’s Asia Pacific head of markets and transitions. He said it was back in 2020 that global average carbon prices stood at a lower cost of US$22 per tonne.
Deloitte warned that utilities are likely to be saddled with stranded assets due to the stalled rollout of decarbonization plans for natural gas infrastructure. They’re overlooking potential cybersecurity risks associated with the rapid buildout of renewable generation and transmission projects, and many of them have failed to consider the physical threats posed by climate change, according to Deloitte. Thomson said decarbonization could lessen the probability of extreme weather events that will risk physical damage to facilities and infrastructure.
While many utilities have plans to achieve decarbonization by 2050, writes Utility Drive, moving the target to 2035 could result in “considerable savings for utilities by reducing risks associated with carbon taxation, penalties for emissions noncompliance, and lost investment opportunities.” Within the United States, the Northeast is best prepared, but individual utilities in the Midwest and South could face $2.5 and $3.6 billion additional costs annually. Some regions will be harder hit than others, but “the potential financial impact of climate change to utilities exceeds the likely cost of climate adaptation in all cases.”
Thomson told Utility Dive that spurring decarbonization will require action from regulators, and more accurate representations of the costs of climate inaction to inspire urgency.
“Utilities can get stuff done,” he said. “But they can’t do it if they build something new and there’s a massive multi-year backlog for transmission line approval.”