Can European Electric Utilities Manage Asset Impairments Arising From Net Zero Carbon Targets?

29 Pages Posted: 2 Mar 2020

See all articles by Conor Hickey

Conor Hickey

University of Oxford

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems; University College Cork - Cork University Business School

Ben Caldecott

University of Oxford - Smith School of Enterprise and the Environment

Celine M. McInerney

University College Cork; University College Cork

Brian O'Gallachoir

University College Cork

Date Written: February 4, 2020

Abstract

This paper develops methodologies to assess the ability of electric utilities to sustain the forced impairment of carbon emitting power plants and applies those methods to the European market. We present a new method to measure asset impairment, for both the company and the industry, based on a database of power plants. We develop a novel framework to analyse a utility’s ability to transition by investing in renewables through the impact on its credit rating metrics. Finally, we apply our framework to European utilities under scenarios set out by the European Commission to limit global warming by imposing net zero carbon emissions constraints on companies. We conclude that most European utilities have the financial capacity to meet the requirements of net zero carbon emissions under the scenarios with timely action. However, a delay of as little as five years will cause serious financial problems across the sector.

Keywords: Stranded Assets; Asset Impairments; Climate Change; Utilities; Energy Transition

JEL Classification: G30

Suggested Citation

Hickey, Conor and O'Brien, John and Caldecott, Ben and McInerney, Celine M. and O'Gallachoir, Brian, Can European Electric Utilities Manage Asset Impairments Arising From Net Zero Carbon Targets? (February 4, 2020). Available at SSRN: https://ssrn.com/abstract=3531724 or http://dx.doi.org/10.2139/ssrn.3531724

Conor Hickey (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems ( email )

O'Rahilly Building
College Road
Cork
Ireland

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

Ben Caldecott

University of Oxford - Smith School of Enterprise and the Environment ( email )

United Kingdom

Celine M. McInerney

University College Cork ( email )

5 Bloomfield Terrace Western Road
Cork
Ireland

University College Cork ( email )

Room 3.12 O'Rahilly Building
College Road
Cork
Ireland

Brian O'Gallachoir

University College Cork ( email )

5 Bloomfield Terrace Western Road
Cork
Ireland

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