Russia's invasion of Ukraine and Europe's retaliatory shift away from Russian energy imports have set the scene for an expedited transition to net-zero emissions of greenhouse gases for the continent's major power and gas utilities.

Emissions reductions may falter in the short term, though, as coal generation enjoys a renaissance due to sky-high gas prices.

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The EU's €300 billion plan to become energy independent of Russia, known as REPowerEU, includes more ambitious renewables deployment targets that give the bloc a better chance of achieving net-zero by 2050.

"I have very little doubt that the likelihood of hitting the net-zero ambitions for the world and for Europe has gone up" since Russia invaded Ukraine, Mads Nipper, CEO of Danish renewables giant Ørsted A/S, said on an April 29 media call.

Ørsted and other major European utilities, including Italy's Enel SpA, Spain's Iberdrola SA and France's Engie SA, plan to get to net-zero sooner than 2050, having been early adopters of decarbonization and climate targets.

Geopolitical and energy market volatility could push those ambitions forward. Of 700 international energy executives polled by the World Energy Council, more than half said net-zero timelines are now set to be accelerated.

"You're going to end up with higher carbon emissions early on but you're going to transition harder and faster," Dominic Nash, head of European utilities research at Barclays, said in an interview.

Ever more ambitious

The REPowerEU strategy frontloads the EU's installation forecasts to 480 GW of wind and 600 GW of solar by 2030. Projections for 2050 by S&P Global Commodity Insights are now more than 100 GW higher for both wind and solar than forecasts made in the early days of the Ukraine invasion.

The plan also includes a commitment to accelerate permitting timelines for renewables projects — consistently one of the main barriers to the addition of new capacity — and to higher energy efficiency targets.

Meanwhile, strengthened ambitions by national governments in Europe also feed into the more ambitious projections. Germany, the U.K. and the Netherlands all recently added 10 GW to their 2030 offshore wind capacity targets. The Netherlands, Germany, Belgium and Denmark also agreed to deliver 160 GW of the EU's 300-GW offshore wind target by 2050 in a joint declaration May 18.

"Governments have surprised us in recent years with ever-more ambitious targets, so companies are well-advised to assume that [the current pathway] is not carved in stone," Derk Swider, vice president for group strategy, foresight and analytics at German utility E.ON SE, said in an interview, adding that politicians need to back up the stronger targets with concrete policies to achieve them.

Gas switching now obsolete

While countries like Germany have ramped up their clean power targets, they also acknowledge the need for increased coal burning in the immediate future as Europe's energy supply remains squeezed.

Despite its high emissions, coal has made a comeback in Europe's fuel mix in recent months due to its lower cost compared to gas. Gas prices have soared to record highs due to a global supply shortage, exacerbated by the war in Ukraine.

Global emissions from the power sector increased by 7% in 2021 — the biggest rise since 2010 — as coal generation rose by 9% to reach a record 10,042 TWh, according to a March report by energy and climate think tank Ember.

"Utilities are going to act in the best economic fashion for their business. For them to continue to generating gas rather than coal ... wouldn't have made economic sense," Sarah Brown, senior energy and climate analyst at Ember, said in an interview.

Still, the longer-term outlook for the fuel in Europe's power mix remains grim. Germany, for instance, is one of several European nations with plans to phase out coal completely, and at the end of 2021, its coalition government brought forward the exit date by eight years to 2030.

"I haven't seen much evidence of those already committing to [coal phaseouts] changing their minds," Brown said.

Some utilities are going even further by also getting out of gas. Enel, for instance, "is one of the few companies to come out with a 2040 gas phaseout," Brown said. Enel plans to exit coal by 2027.

A spokesperson for the Italian utility said the energy crisis and the Russia-Ukraine conflict are "increasing political consciousness over the urgent need to reduce the EU's exposure to gas [price] volatility as well as to phase out its import dependency from Russian gas as soon as possible."

Cutting red tape

Given concerns from governments and regulators around security of supply, companies' plans to close fossil fuel generation often "[collide] with red tape," Stefano Bezzato, head of European utilities research at Credit Suisse, said in an interview.

In mid-2021, German power producer Uniper SE, a subsidiary of Finnish utility Fortum Oyj, was prevented from closing its Heyden 4 coal plant in Germany because it was needed as backup capacity to ensure grid stability.

Companies looking to close gas generation may face similar obstacles, according to Barclays' Nash.

"Within reason, it is irresponsible to transition too quickly if it's to the detriment of society," Nash said. The war in Ukraine "has been an enormous wake-up call to the fact that to the EU and the U.K., security of supply is probably more important than we thought."

The prospect of a full embargo on gas receipts from Russia also remains alive, with Russia having already cut off supplies to Poland and Bulgaria, and more recently to Finland, over their nonpayment in rubles.

"We can't resolve one set of pain while creating another set of pain somewhere else," Angela Wilkinson, secretary-general and CEO of the World Energy Council, said about a gas embargo in an interview, adding that policymakers should instead ask themselves how Germany became so dependent on Russian gas in the first place.

Wrangling over divestment

Many European utilities have already sold off their coal assets with a view to transitioning faster to renewables and achieving their carbon neutrality goals.

"[Fossil fuel divestment] is allowing utilities to invest more rapidly in the renewable capacity and … allowing the system to solve the problem earlier," Bezzato said.

Nevertheless, Germany's RWE AG is one utility that is holding onto its coal assets.

RWE plans to invest €50 billion in renewables globally by 2030 and reach net-zero by 2040, but the company still owns a large amount of coal generation in Germany that it says it will eventually phase out.

Plant owners like RWE said that private buyers would lack the public or shareholder scrutiny that listed or state-owned utilities face.

"Selling coal and gas power plants improves one's own emissions profile, but not the global one," Jens Wiggershaus, head of sustainability at RWE, said in a May 6 email. "That does not help the climate."

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