COMMODITIES 2025: US utilities could reassess emissions reduction goals, unlikely to scrap them

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

US investor-owned utilities could pull back on energy transition plans in 2025 as they juggle resource adequacy and rising electricity demand, as well as expected policy changes under a government more favorable to fossil fuels.

Long-term decarbonization targets, however, are expected to remain intact for the vast majority of companies, according to industry experts.

"I highly doubt companies are going to be changing their long-term strategies," Scotia Capital (USA) analyst Andrew Weisel told S&P Global Commodity Insights. "What we might see more of is companies that have interim targets deemphasizing or even eliminating those interim goals."

Weisel noted that "companies really emphasize that their plans are very long term in nature" and not based on an individual presidential administration.

"In terms of the corporate policies, most of these decarbonization strategies are multi-decade outlooks," the analyst added. "So, if a company has an emission reduction strategy, it is not going to be for the next four, six or eight years. It is going to be for the next 15, 20 or 40 years."

However, the new head of Columbus, Ohio-headquartered utility American Electric Power Co. Inc. (AEP) indicated there could be a shift in the company's decarbonization strategy.

AEP, at an analyst day in October 2022, adjusted its near-term carbon dioxide emission reduction target to a 2005 baseline from a 2000 baseline, upgraded its 80% emissions reduction target to include full Scope 1 emissions, and accelerated its net-zero goal to 2045, up from a previous aspirational goal of 2050.

"That is going to change ... because that was arbitrarily set without discussions with the states," AEP President and CEO Bill Fehrman said in an interview during the Edison Electric Institute Financial Conference in Hollywood, Florida, in November. "That is actually what has gotten us into a bit of hot water with the states, which is when AEP set that goal, it was basically pushed down into these states."

"A state like West Virginia probably wasn't excited about having an AEP corporate carbon goal set," Fehrman added. "I understand why AEP did it — that is what companies were doing back in those days, and that's all fine. But at this stage though, I want to understand what our states want and we'll be adjusting to account for which direction they want to head."

Executives at Entergy Corp. and Exelon Corp. indicated their clean energy goals will stay in place.

"I would say our strategy doesn't change," Exelon Executive Vice President and CFO Jeanne Jones said in an interview on the sidelines of the Edison Electric Institute Financial Conference. "We're focused on meeting the demand growth, creating a more resilient grid and working with our states who have clean energy goals and making sure that we achieve those goals."

Exelon's "Path to Clean" initiative includes a commitment to a 50% reduction in greenhouse gas emissions from operations by 2030 and net-zero emissions by 2050. This target includes Scope 1 and Scope 2 emissions.

The CFO said the Chicago-headquartered utility, which does not own power plants, remains on track with its decarbonization strategy, including electrifying its fleet and replacing its gas main lines with more efficient pipes.

"All of that helps us meet our Path to Clean and our goal to be net-zero by 2050," Jones said. "We don't see a change to that."

What customers want

In September 2020, New Orleans-headquartered Entergy pledged to achieve net-zero carbon emissions by 2050 through adding renewable resources and energy storage to its portfolio. The company also has an interim goal to achieve a 50% carbon intensity reduction goal by 2030 by retiring its coal fleet and investing in cleaner resources.

Entergy Chairman and CEO Drew Marsh said the company's emissions reduction targets are unlikely to change.

"First of all, all of our objectives are customer-driven," Marsh said in a Dec. 4 interview. "And just to remind you, we actually set all of these objectives up during the first Trump administration. So, we don't have to go do anything special with legislators or the federal government or anything else because our customers are taking us there."

Marsh also pointed out that hyperscalers, such as Meta Platforms Inc., are looking for "clean energy to drive their facilities."

Entergy is teaming with Meta to power a massive, $10 billion datacenter in northern Louisiana.

"We are fully on board with them to try and create a clean energy future," Marsh said.

The CEO pointed out that Entergy's traditional customers, which include steel manufacturers, petrochemical plants and LNG facilities, also want clean energy.

"So, our customers are really driving this," Marsh said. "And certainly, the administration may move things around, and we'll just work with wherever they go because that is where our customers want to go."

A win for coal

CreditSights analysts, in a report issued shortly after the presidential election, said "a major beneficiary of President Trump's second term will be coal plants," with the president-elect expected to roll back US Environmental Protection Agency emissions-reduction mandates.

In April, the EPA finalized a rule requiring 90% carbon capture at all existing coal-fired power plants and at new natural gas combined-cycle plants with a capacity factor greater than 40%. Plants expected to retire between 2032 and 2039 would face less stringent CO2 reduction requirements, and those expected to retire by 2032 are exempt from the rule.

Weisel said scrapping the April rule, issued under Section 111 of the Clean Air Act, will open the door for companies looking to build gas-fired power plants and run them at higher capacity factors.

"That will add a lot of flexibility for companies in terms of their long-term generation plans, and it will really help them to serve the incremental demand for electricity that we're seeing, both from datacenters and from domestic manufacturing," Weisel said. "So, that would be really, really helpful in terms of balancing this supply-demand outlook, which a lot of people worry about."

AEP's Fehrman pointed out that Trump won 10 of the 11 states the company serves, with the exception of Virginia, and these states support the continued operation of coal and gas plants.

"Clearly, one of the topics on my mind is the environmental rules around 111(d) and [coal combustion residuals]," Fehrman said. "If [Trump] does what he says he's going to do, which is to essentially repeal both of those, then that will be very positive for us because it will allow us to actually think about building combined-cycle gas that is not limited to 40%."

CreditSights said beneficiaries of such a move could be limited to independent power producers and "the dozens of coal plants owned by private equity" throughout the PJM Interconnection LLC's 13-state region.

"We remind investors that most states and companies already have their own pledges to reduce carbon, close coal, or both, and we don't see any changes from these from a Trump White House," analysts wrote. "However, if currently lofty datacenter demand estimates hold, some coal plants targeted for retirement will likely run longer than planned."

A lot of companies are likely to keep coal plants available as a backup resource, Weisel said.

"That does not mean they are going to plan to burn a lot of coal on a day-to-day dispatch," the analyst added. "They can have the coal plants available as a last resort, as a backup plan, as an emergency capacity reserve option for the days when nothing else is available."

A loss for ESG

There has also been less discussion around environmental, social and governance practices among investor-owned utilities. This trend is expected to continue.

"The ESG pendulum has no doubt pulled back," Weisel said. "A lot of states have been proactive about deemphasizing it, whether by legislation or culture."

ESG also will "continue to be deprioritized in investment decisions," the analyst added.

"The other thing to keep in mind, almost every company's aspiration is net-zero. That means even in the outer years, it's OK to still have some carbon emissions as long as you're able to find offsets," Weisel said.