Morningstar Magazine - October/November 2017 - 59

EXHIBIT 2

Generation Mix Utilities generate power with a wide range of sources. How they do it directly affects their carbon
emissions intensity.
Carbon Intensity (gCO2e/kwh)
900

Generation
Fuel Mix
Coal
Oil
Oil & Gas
Natural Gas
Biopower
Hydro
Renewables
Nuclear

600

300

0
WEC
Energy
Group

Great
Plains
Energy

Alliant
Energy

DTE
Energy

Ameren Westar
Energy

NRG American FirstEnergy SCANA
Energy Electric
Power Co.

Source: Sustainalytics.

Nuclear power in the United States generates an
average of 16 grams of carbon dioxide equivalent
per kilowatt-hour, according to the U.S.
Department of Energy ( E XH I B I T 1 ). This output is
comparable to that of renewable energy, on
average. In fact, nuclear slightly outperforms solar
and biopower on a lifecycle basis. Coal and
petroleum are the highest carbon emitters. Natural
gas has a significantly lower carbon-intensity
profile than coal and oil but is still well above
nuclear and renewable energy.
Most U.S. utilities are responding to long-term
pressure from regulators and investors to cut
emissions. Many of the largest utilities, including
Duke Energy DUK and American Electric Power AEP,
have made notable reductions. With new-build
nuclear plants uneconomic, U.S. utilities have
achieved the bulk of these reductions by tilting
their generation mix toward renewable energy and
gas. However, U.S. utilities still trail their
European counterparts, such as Spain's Iberdrola
IBE:ES, Italy's Enel ENEL:IT, and the United
Kingdom's SSE SSE:GB, in emissions performance.
U.S. utilities' carbon emissions intensity
varies dramatically. Carbon intensity is a function
of generation mix. Utilities that are overweight
nuclear and renewable energy have a lower
carbon intensity, while utilities that are long on

Xcel Pinnacle Public Dominion Entergy NextEra
Duke
The
Energy
Energy Southern Energy West Service Energy
Capital Enterprise
Company
Group

fossil generation-especially coal-have a
higher carbon intensity ( EXHIB IT 2 ).
The financial materiality of this differential
depends to a large degree on uncertain U.S.
environmental policies. But we think utilities with
superior carbon-intensity profiles are best prepared
to adapt to rising investor expectations for
emissions performance and tightening carbon
regulations, which we believe is a given in the
United States in the long run.

PG&E

Exelon

tons in 2016. Most of this reduction comes
from much higher natural gas and renewable
energy generation offsetting a steep drop
in coal generation. Our forecasts assume nuclear
generation grows slightly as uprates and
new-build capacity offset planned and possible
retirements. Achieving these carbon emissions
reductions would put the U.S. power sector
ahead of schedule to meet the Clean Power
Plan's targeted 32% reduction from 2005 levels
( EXHIB IT 3 ).

Morningstar's Carbon Emissions Outlook

Waste Management: Avoiding Pitfalls

Utilities have made significant progress in reducing
carbon emissions. Carbon emissions from
power generators are down 26% since their 2007
peak. We expect decarbonization to continue
through 2030 even after considering the Trump
administration's decision to suspend the
Obama administration's Clean Power Plan and
withdraw from the Paris Agreement.

Waste management is a crucial concern for
all power generators, but it is particularly
important for nuclear operators because of the
long-term health and environmental impacts
associated with radioactive waste. Ultimately, we
view waste management as an unfavorable
ESG issue for nuclear power. Radioactive waste
and other hazardous waste produced at
nuclear sites are subject to strict regulation.
Violations can result in penalties or even the loss
of operating licenses.

We think utilities can achieve at least a 31%
drop in carbon emissions from 2005 levels by 2025,
primarily based on our forecast for state-level
renewable portfolio standards, underconstruction
gas generation capacity, and changes in
nuclear generation. Through 2025, we expect
utilities to reduce their carbon emissions
by 119 million metric tons, from 1,797 million metric

The Department of Energy is responsible
for developing a long-term storage solution for
high-level nuclear waste, but those efforts
have met social and political roadblocks. In the
meantime, utilities remain responsible for

global.morningstar.com/Morningstarmagazine

http://global.morningstar.com/Morningstarmagazine

Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017