By Tim Powers
According to a recent PwC survey of utility executives, 91% of respondents are increasing their investments in Environmental, Social, and Governance (ESG) spending, and 63% expect to reach their net-zero goals by 2050. One-quarter of the survey respondents expect to increase those investments by 50% or more in the next three years. To meet these rapidly developing goals, utilities will need to measure their progress through the three scopes of greenhouse gas emissions (GHG) standards and apply them to their integrated resource plans (IRP).
If you’re new to ESG emissions reporting, you’re not alone. Here’s a brief summary of the basics.
What is ESG?
ESG is a set of criteria or risk factors used to evaluate a company’s operations, specifically pertaining to environmental, social, and governance impacts, usually framed in the form of a goal and reported with specific metrics in a report delivered to stakeholders.
Environmental metrics are a primary concern for utility investors. These metrics help indicate the utility’s risk from the effects of climate change and estimate how a utility’s environmental risks will weigh on future fiscal stability. Social metrics pertain to human rights, work safety, diversity, and labor standard risks in a company’s human supply chain. Governance is the overall ethical and legal performance of a company and its owners or board members.
Regulators want utilities to invest in ESG plans to create a verifiable road map for reducing negative impacts like GHG emissions while ensuring accurate reporting to investors. Investors want transparency on the full scope of a utility’s assets and risks to determine their preparedness and resilience to business disruptions.
For utility ESG plans, GHG emissions are one of the most critical reporting metrics. They are categorized very specifically into three scopes, as outlined by the Environmental Protection Agency (EPA).
Examples of U.S. Government GHG Emission Scopes
Scope 1 – Direct Emissions
Scope 1 emissions are direct GHGs emitted as a result of business activities that occur from sources owned by the utility, in this case, a utility’s product — energy.
The direct sources that encompass scope 1 emissions from utilities are power products, fuel combustion, fleet vehicles, and building energy usage. Essentially any power that is directly produced or fuel combustion that is directly exercised by a company. For example, a company’s fleet of gas-powered vehicles or equipment, whether they burn gas or diesel, must be measured in this category and offset for the utility’s net-zero goals. Scope 1 includes transportation and non-transportation combustion sources like boilers, turbines, and heat processors.
Solar plays its largest role for utilities in eliminating scope 1 emissions. Building solar plants will have one of the most significant impacts on emissions in the transition from fossil fuel power sources and can help utilities achieve their net-zero goals rapidly.
In addition to direct point sources, there are less apparent emissions called “fugitive emissions.” These are hydrocarbons that escape into the atmosphere from air conditioning and refrigeration devices that fall in the category of scope 1 emissions. Fugitive emissions are not something that solar can help mitigate, as it is a direct result of the equipment. In this case, sourcing hydrofluorocarbon-free (HFC) refrigeration and alternative cooling systems will be the focal point for mitigation.
Scope 2 — Indirect Emissions
Scope 2 emissions are indirect sources of GHGs. They are indirect because the emissions are produced or controlled by another organization. Unlike another kind of industry, a utility’s building and operations may or may not own the supply of electricity that powers their own buildings, so that’s why tracking their scope 1 and 2 emission sources can be confusing.
In general, scope 2 emissions are quantified from the generation of acquired or consumed electricity from another source, including electricity, steam, heat, or cooling.
For example, when utilities purchase power from a third party via a power purchase agreement (PPA), indirect emissions associated with that type of power are counted toward scope 2 emissions.
Consequently, when utilities contract for a solar PPA, that clean power can offset scope 2 fossil fuel emissions of an externally owned or controlled fossil fuel PPA.
Similarly, for utilities that are buying or leasing EV fleets for their operations, charging those vehicles with a solar carport owned by another entity would offset indirect emissions. However, if the EVs were charged by utility-owned solar carports, then the EV’s charging would count toward offsetting scope 1 emissions.
Purchasing renewable energy credits (RECs) and Solar Renewable Energy Credits (SRECs) can also offset scope 2 indirect emissions by verifying the low or zero-emissions renewable energy source.
Scope 3 — All other Indirect Emissions
Everything that is not covered in the scope 2 definition of indirect emissions is included in scope 3 and consists of a wide range of supply chain products and their subsequent emissions. This is a catchall for responsible reporting and involves everything else that is needed to run a utility company down to the paper coffee cups and vehicle fleets and the energy it took to grow, harvest, manufacture, and transport supply chain items.
There are 15 categories within scope 3, but not all categories are relevant for every business. Examples include supply chain goods and services, capital goods, fuel, energy-related activities, transportation, distribution, waste generated in operations, business travel, employee consulting, end of life treatment of sold products, leased assets, franchises, and investments.
Scope 3 emissions tend to be more challenging to measure because they rely on data that is gathered –or not gathered–from vendors and other third-party manufacturers. Even when they desire to cooperate, these manufacturers must also rely on the scope 1 and scope 2 disclosures of their utility, then calculate the amount of dirty energy (GHG) it took to manufacture the pens, computers, cups, trucks, utility wire, utility poles, etc. purchased.
The good news is that solar energy projects and PPAs can indirectly offset these scope 3 emissions when manufacturers begin utilizing solar, wind, and other clean energy sources to produce those goods.
The more ESG emission reporting becomes standard practice for all global companies, the more accurate scope 3 reporting will become for every company.
These ESG standards are evolving, and the measurements and data collection process for reporting GHG emissions can be complex. Utilities that generate their own solar power or use solar PPAs can drastically offset emissions from scope 1 and scope 2 categories. As the grid gets greener, solar will also help indirectly address scope 3 emissions for the entire global supply chain.
