FREE

The UK’s Net-Zero Commitment Impact on the Structure of the Power Sector

In this commentary, DBRS Morningstar examines the UK’s net-zero emissions targets, the impact they have had on the structure of the power sector, and how these changes may affect the credit of companies in the UK power sector.

Summary highlights include:
-- As the first major economy to make a legally binding commitment to achieve net-zero greenhouse gas (GHG) emissions by 2050, the UK government developed a strategy to deliver on its net-zero goals by encouraging companies to adopt low-carbon technologies while continuing to grow the economy.
-- The power sector has been the largest contributor to emissions reduction in the UK as the economy is switching from coal-fired generation to more renewable energy with its installed capacity increasing from 8 gigawatts (GW) in 2009 to 48 GW in 2020.
-- The future of a net-zero power sector will likely be composed of wind and solar energy complemented by nuclear; gas with carbon capture, usage, and storage; and other flexible low-carbon technologies like batteries, pumped storage, demand-side response, and interconnectors to ensure no disruption in electricity supply and continued reliability of the grid.

“Decarbonisation plans may have an impact on issuer's financial strength and creditworthiness in terms of short- or long-term pressure associated with transitional plans that may result in additional risks from capital investments and/or retirements, operations, and integration as well as additional costs resulting from carbon trading and offsetting”, said Rana Toukan, Vice President of European Corporate Credits at DBRS Morningstar. “We review such risks and determine whether they have been factored into the core assessment or may have an additional rating impact.”