EDP Energias de Portugal

EDP has successfully positioned itself with two profitable low-carbon business models. The first is a large renewable energy generation portfolio, which accounted for 66% of the company’s electricity generation in 2018 and 65% of earnings before interest, taxes, depreciation and amortisation (EBITDA). The second is EDP’s energy-as-a-service model. Through its distribution subsidiary, EDP Distribution, EDP connects customers to an intelligent distribution network and offers smart metering via ‘Energy Box’. Networks represent US$965 million of the company’s 2018 EBITDA. As part of its low-carbon transition plan, EDP has scheduled growth plans for both business models with targets to 2022 and 2030.

EDP has drawn up a comprehensive transition plan with targets for 2022 and 2030 focused on renewable energy expansion and customer solutions and networks. By 2030, EDP intends to phase out all coal-fired generation, increase its share of renewable energy generation to 90% and complete roll-out of smart meters across the Iberian Peninsula. EDP’s reporting of this plan sets out the company’s investment strategy to achieve its 2022 targets but not those for 2030. Importantly, the company has tested the resiliency of this strategy under various International Energy Agency scenarios. EDP could improve its leadership here by providing a long-term finance strategy to achieve its 2030 targets. The company should also endeavour to provide a clear schedule for gas phase-out.

EDP is on track to meet its target, approved by the Science Based Targets initiative (SBTi), to reduce emissions per unit of electricity generated by 75% by 2030 from a 2015 base year. This target is aligned with the company’s well-below 2-degree pathway. The company has also set an SBTi-approved scope 3 target across the same period, demonstrating its commitment to decarbonising the entire electricity system.

While EDP has scheduled the closure of its coal assets by 2030, its future planned assets show that the company will still have several gas-fired assets in Europe out to 2033 and beyond. The well-below 2-degree pathway requires rapid decarbonisation in Europe. Ongoing gas use in Europe is projected to result in a locked-in emissions budget – which are all of the emissions from the company’s installed and planned electric power plants up to 2033 – that exceeds the company’s decarbonisation budget for absolute emissions. These gas assets may be at risk of becoming stranded, particularly when there is no evidence that the company intends to develop carbon capture and storage technologies. EDP must rapidly increase its rate of absolute emissions reductions and schedule a gas phase-out if the company is to remain aligned with its low-carbon pathway.

EDP intends to reduce its emissions per unit of electricity produced by 75% by 2030 from a 2015 base year. The company will phase out coal-fired generation by 2030.

EDP plans to invest significantly in renewables to increase its renewably sourced generation to 78% of installed capacity by 2022 and 85% of installed capacity by 2030. Most of this growth is planned to occur in North and South America and Europe.

EDP’s low-carbon business models represent a significant portion of the company’s 2018 EBITDA. The company is on track to meet its 2030 emissions reduction target. No commitments have been made regarding a gas phase-out.

EDP’s emissions intensity fluctuated between 2013-2018, but shows an overall trend that is not aligned with the company’s low-carbon pathway.

EDP’s low-carbon transition plan, SBTi-approved targets and successful low-carbon business models demonstrate commitment to the low-carbon transition. However, a failure to drive meaningful emissions reductions in the past coupled with the lack of a clear gas phase-out strategy seem inconsistent with this commitment.