Tripling Renewables Powered by State-Owned Power Companies and Utilities

Achieving the goal of tripling renewables generation capacity by 2030, and more broadly decarbonizing the global electricity system, requires active SPCU involvement. Credit: Bigstock.

By Philippe Benoit and Leonardo Beltran
WASHINGTON DC, Sep 25 2024 (IPS)

The climate community, meeting this week once again on the margins of the UN General Assembly, is continuing to explore ways to triple the world’s installed renewable generation capacity by 2030, a target agreed at last year’s COP 28 international climate negotiations. Much of this discussion has been about mobilizing finance and otherwise getting the private sector, with its massive resources and competence, to step up to the challenge … and what government policies and incentives are needed to spur more investment.

This discourse, however, hides an important reality: much of the power sector is controlled by governments and their state-owned power companies and utilities (SPCUs). This is particularly true in emerging market and developing economies (EMDEs) where most of the future growth in global electricity demand is projected to occur. Consequently, tripling renewables by 2030 will need to involve SPCUs. More thought must be given to how to get these companies to contribute to the effort.

Much of the power sector is controlled by governments and their state-owned power companies and utilities (SPCUs). This is particularly true in emerging market and developing economies where most of the future growth in global electricity demand is projected to occur. Consequently, tripling renewables by 2030 will need to involve SPCUs

SPCUs are currently responsible for nearly half of global electricity sector CO2 emissions. This figure isn’t surprising given that a similar percentage of generating capacity worldwide is owned by SPCUs, including more than 50% in Asia and a substantially higher share in China.

Significantly, most EMDE governments favor state ownership and control over the strategic electricity sector. When this EMDE preference is coupled with the projected dominance of these countries in the future growth of global electricity demand (85% of the expected worldwide increase from 2022 to 2026), the already substantiial weight of government-owned power assets within the global electricity system can be expected to increase over time.

Moreover, even in advanced economies, SPCUs play an important role. This includes countries like France where Electricite de France has been the dominant power company for decades. SPCUs are also present elsewhere. For example, about 15% of generation in North America is SPCU-owned. This includes Hydro-Quebec, the largest provider of renewable energy to that continent. It also includes the U.S.’s iconic Tennessee Valley Authority, as well as other lesser-known SPCUs across the country at the state and municipal level.

Why are these elements significant? They point to the need for SPCU action in any effort to triple installed renewables capacity globally by 2030.

How can this be accomplished? There are several key ways.

• SPCUs need to invest more in renewables capacity. It is clear that in countries like China, Indonesia, Mexico, Vietnam, Egypt, Saudi Arabia and elsewhere, given the government’s preference for state-ownership of the strategic power sector, any major expansion of renewables generation capacity will inevitably need to be advanced in part through more public sector investment in government-controlled assets. For example, President-elect Sheinbaum of Mexico has proposed a large-scale $13 billion public investment program for generation focused on clean technologies — albeit, a figure that would need to more than double (and additionally be complemented by a similar amount of private sector investment) to triple the country’s renewables capacity by 2030.

• SPCU action should also target joint ventures with private investors. This could take various forms, such as co-investments in new renewables capacity or new government-owned plants operated by the private sector.

• SPCUs are in many systems the purchasers of electricity produced by private independent power producers (IPPs). So even if it doesn’t own the power plant, an SPCU can help to promote new renewables generation by providing prospective private investors with a commercially reliable counterparty to buy the IPP’s electricity, as well as supporting robust and transparent competitive bidding processes and other tools to encourage private investment in clean energy.

• SPCUs can provide critical complementary/associated infrastructure and systems to back private sector investment in the plants themselves. This might include building a dedicated transmission line to connect a large but remotely situated renewables IPP to the grid. It should also include, at a much smaller scale, SPCU support to households interested in rooftop solar systems which are frequently managed in cooperation with a local publicly-owned utility.

Increasing generation capacity, however, is just a means to an end. Rather, the key is translating additional generation capacity into clean electrons flowing through to users. And here, SPCUs have a critical role to play in two additional dimensions.

First, activating additional renewables capacity requires massive investments in the grid to link that new production to actual consumers. In order to transform investments in renewables generation into a greener electricity system, grid investments need to double by 2030 to over $600 billion.

This was a lesson learned in part from the experience in China where new renewables generation outpaced network expansion, a shortcoming that required investment in specifically the grid to overcome. Because in many, if not most, countries worldwide, the grid is government-owned, SPCUs will be key to expanding the electricity network to enable the integration of larger amounts of renewables generation.

A second dimension often overlooked is that usually even in power systems where there is significant renewables generation, there are also fossil fuel plants. The decision as to which plants are called upon at any moment to produce electricity is often made by a grid system operator.

In many countries — from Mexico to China and more — that entity is once again government-owned and controlled. Ensuring that additional renewables capacity actually translates into a decarbonized electricity supply will require complementary and supportive action by the government-owned grid operator to dispatch that renewable power into the network to serve customers.

For all these reasons, achieving the goal of tripling renewables generation capacity by 2030, and more broadly decarbonizing the global electricity system, requires active SPCU involvement.

This is particularly true in emerging economies and other developing countries whose electricity sector emissions are projected to grow absent robust decarbonization actions. But it is also true in the United States and other advanced economies. More attention needs to be given to SPCUs, key players in achieving global climate goals.

Philippe Benoit is managing director for Global Infrastructure Advisory Services 2050. He previously held management positions at the International Energy Agency and World Bank, and worked as adjunct senior research scholar at Columbia University-SIPA’s Center on Global Energy Policy and an investment banker. He is currently a visiting professor at the University of SciencesPo-Paris.

Leonardo Beltran is a senior advisor at Iniciativa Climática de México. He was Mexico´s Deputy Secretary of Energy in charge of the Energy Transition (2012- 2018), and member of the board of directors of Pemex and CFE. He currently holds fellowships at the Institute of the Americas and the School of Public Policy of the University of Calgary.