Avangrid, Inc. (AGR)

Company website 2020 Financial Report Stock Analysis 2020 ESG Report

90^%

of Avangrid's 8.82 GW electricity generating capacity is emissions-free

X Lower

in emissions compared to the average US utility company in 2020

100^%

Increase

Avangrid promises to increase renewable capacity by more than 100% by 2025 from 2015 baseline

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The Path to Drawdown: Solar, Wind and Hydroelectric

Addressing climate change and remaining below 1.5ºC of global warming means that the world’s electricity source needs to switch from fossil fuels to 100% emissions-free sources by 2050. Solar, wind, hydroelectric, and nuclear power are the electricity sources leading this transition.

Utility-Scale Solar

Photovoltaic (PV) solar panels are the main way of capturing sunlight and converting it into electricity. The industry has been growing fast and solar panels are now the cheapest source of electricity in most places in the world as of 2020.

Solar produces ~2% of global electricity today. According to Project Drawdown, to be on track to remain under 1.5ºC of warming, utility scale solar will have to generate a combined ~26% of global electricity by 2050.

To get there, the PV solar industry needs to keep scaling over the few next decades:

<::marker> 720 TWh of solar electricity generated in 2019
<::marker> 28,200 TWh needed by 2050
<::marker> CAGR of 12.56% from 2019 - 2050

Analysis from the IEA similarly forecasts that, to reach a 100% clean electricity grid by 2050, annual solar panel manufacturing capacity will need to scale from 134 GWs in 2020 to 630 GWs in 2030 (p. 74).

Onshore Wind

Onshore wind turbines account for 4.36% of global electricity generation in 2020.

Global wind capacity has risen steadily by around 20% per year for the past decade. Thanks to this expansion, the cost of electricity generated from onshore wind continues to fall, even in areas with low wind speeds.

According to Project Drawdown, to be on a path to remain under 1.5C° of warming, onshore wind turbines will need to be generating a combined 26.85% of global electricity by 2050.

To get there, the onshore wind industry will need to continue to scale over the next few decades

<::marker> 1,150 TWh of onshore wind electricity generated in 2018
<::marker> 19,460 TWh needed by 2050
<::marker> CAGR of 9.38% from 2019 - 2050

The IEA forecasts (p. 74) that, to reach a 100% clean electricity grid by 2050, annual onshore wind capacity additions will have to increase from 109 GWs in 2020 to 310 GWs in 2030.

Hydropower

Hydropower electricity generation accounts for 44.5% of global electricity. Next to solar and wind, hydropower is the third-largest (p. 45) energy source in the clean electricity mix.

According to the IEA, hydropower capacity additions need to accelerate significantly to reach the Sustainable Development Scenario level.

<::marker> 4,333 TWh of hydropower electricity generated in 2019
<::marker> 5,722 TWh needed by 2030

CAGR of 2.82% from 2019-2030

Importance of Utility Companies

Electric utilities are critical in the path to net-zero emissions. Through long-term power purchase agreements (PPAs) between renewable developers and utilities, renewable energy companies can rely on stable electricity buyers and unlock project finance. Utility companies also often control electrical grids, which can be outfitted for the intermittency inherent in solar and wind power generation. Accommodating variable renewable energy also requires large-scale energy storage, and utilities have the resources to build batteries at scale.

There are dozens publicly traded utilities on the NYSE (such as Duke, NextEra, Dominion, Xcel, PG&E, etc.) and many of them are purchasing or developing renewable capacities to provide clean electricity to customers across large regions. We use a stringent criteria to determine which utilities are significantly contributing to the low-carbon energy transition.

About

Avangrid, Inc. (stock ticker: AGR) is a utility company headquartered in Orange, Connecticut. Through its subsidiaries, including Avangrid Renewables, LLC and Avangrid Networks, Inc., it owns solar, onshore wind, thermal, hydroelectric, biomass and natural gas assets across the United States. They are in the process of building offshore wind farms on the US East Coast.

AGR's Role in Drawdown

According to IEA’s Net Zero by 2050 (p. 198) report, getting to net-zero emissions would mean increasing the combined capacity of solar, wind, and hydropower from 2,801 GWs in 2020 to 9,861 GWs by 2030, and to 25,322 GWs by 2050. AGR’s total renewable energy capacity was ~8 GWs in 2020, or 0.29% of the global capacity. To maintain this share, AGR needs to expand their capacity to 28.1 GWs by 2030, and to 72.2 GWs by 2050.

To achieve this rate of growth, AGR would need to scale their capacity expansion by 13.41% annually from now until 2030, and by 4.83% annually between 2030 and 2050. This projection means that AGR needs to aggressively accelerate their capacity expansion in this decade, given that their year-on-year capacity growth between 2017-2020 has been 5.96%.

AGR: What We Like

AGR has been a leader among utilities in providing renewable energy to its customers. Over 90% of its total generation capacity comes from renewable sources, and they have been steadily increasing this capacity over the past several years:

<::marker> 6.15% CAGR in wind capacity between 2017-2020
<::marker> 3.87% CAGR in solar capacity between 2017-2020

On top of this, AGR has also set out concrete commitments to continue increasing its renewable capacity and reducing GHG emissions:

<::marker> To increase installed renewable capacity by more than 100% (p. 33) by 2025, compared to the 2015 baseline

To reduce (p. 33) the intensity of scope 1 GHG emissions by 35% by 2025 compared to the 2015 baseline, and be scope 1 carbon neutral by 2035

What We Want to See Improve

Reduce Scope 3 Emissions

AGR’s commitment to reducing scope 1 emissions over the next fifteen years is very encouraging. They have also reduced their scope 2 emissions from 704,657 metric tons of CO2 equivalent in 2017 to 297,283 metric tons in 2020 - a 57.8% decrease and equivalent to more than 300,000 passenger vehicles taken off the road for one year. Yet their total emissions have increased by 132% over the same period, mainly due to a rise in scope 3 emissions. We would like to see AGR’s insisting on its suppliers to lower emissions by including climate-related requirements in its Supplier Code of Ethics.

Retire All Fossil Fuel Facilities

Fossil fuel facilities comprise a small component of AGR’s total generation capacity - diesel turbines ( 0.1%) and natural gas thermal power plants ( 7.32%). In order to become a 100% green utility company, we would like to see AGR retire these facilities in the near future.

Expand solar and hydro capacities

We applaud the fact that over 90% of AGR’s total generation capacity is renewable, and that their wind and solar capacities have steadily grown in the recent past. But wind and hydro are still a fraction of their total capacity - 1.5% and 1.36%, respectively. This is despite wind turbines’ falling cost, and hydro being expected to play a critical role in decarbonizing the energy sector. AGR’s development of offshore wind farms is encouraging, but we would like to see a more aggressive stance on expanding these renewable energy sources.

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3.32%	Exelon Corp. (EXC)	Exelon is one of the largest US electric utility and operates nuclear, wind, solar, hydro plants. They’re a key player in decarbonizing the power sector
2.61%	Sempra Energy (SRE)	Sempra Energy develops energy infrastructure and provides electricity and gas. Green utilities are the bedrock for developing more renewable energy
1.53%	Companhia Energética de Minas Gerais (CIG)	CIG is one of the largest power utilities in Brazil that generates its electricity from renewable sources. They’re a model of how utilities should go green
1.48%	PG&E (PCG)	PG&E is a public utility that offers electricity and natural gas to customers and growing their clean energy capacity. Green utilities are key to Drawdown
1.30%	Avangrid, Inc. (AGR)	Avangrid generates most of its electricity through solar, onshore wind, geothermal, hydroelectric and biomass - an exemplar of green utilities
0.71%	Algonquin Power & Utilities Corp. (AQN)	Algonquin Power & Utilities operates renewable and clean energy assets throughout North America. These are key sources of energy in a decarbonized world
0.19%	Enel Chile S.A. (ENIC)	Enel generates electricity from hydroelectric, solar, wind, and geothermal. They’re helping expand clean energy capacity
0.10%	Montauk Renewables, Inc. (MNTK)	Montauk has facilities that generate renewable natural gas, a sustainable fuel. Electric utilities like Montauk are key to expanding clean energy capacity