Companhia Energética de Minas Gerais (CIG)

Company website 2020 Financial Report Stock Analysis 2020 ESG Report

Gigawatts

or 100% of CIG’s electricity generation capacity is based on renewable sources

Million Tons

of GHG emissions (7.28% year-on-year) reduced since 2017

200

Hectares of Forest

will be planted by CIG by end of 2021

View Our Analysis

The Path to Drawdown: Hydroelectric, Solar, and Wind

To fight climate change and remain below 1.5ºC of global warming, the world’s electricity source needs to switch from fossil fuels to 100% emissions free sources by 2050. Hydro, solar, and wind are some of the electricity sources leading this transition.

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
<::marker> CAGR of 2.82% from 2019-2030

Utility-Scale Solar

Photovoltaic (PV) solar panels are the predominant way of capturing the sun's energy and converting it into electricity. The industry has been growing fast and solar panels are now the cheapest source of electricity in most places on earth 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.

Importance of Utility Companies

Electric utilities play an fundamental role in the path to a decarbonized energy system. They are the lynchpin between key Drawdown solutions: renewable energy generation and energy storage. Through long-term power purchase agreements (PPAs), utilities enable renewable energy developers to secure buyers for their power and unlock project finance. Utility companies also control electrical grids, putting them in the position to prioritize (or deprioritize) the extent to which the grid is outfitted for the intermittency of solar and wind power generation. They also are key players in greenlighting the development of large-scale energy storage.

There are dozens of investor-owned utilities traded on the New York stock exchange (such as Duke, NextEra, Dominion, Xcel, PG&E, etc.), and many of them are purchasing or developing renewable power 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

Companhia Energética de Minas Gerais (stock ticker: CIG) is a holding company headquartered in Belo Horizonte in the Brazilian state of Minas Gerais. Its main business is the generation, transmission and distribution of electricity from hydropower in Brazil.

CIG's Role in Drawdown

Achieving net-zero requires the world’s combined generation capacities of solar, wind and hydro to grow from 2,801 GWs in 2020 to 9,861 GWs by 2030, and to 25,322 GWs by 2050. CIG’s total capacity in these areas was 6.09 GWs, or 0.22% of the global market share. CIG would need to increase 21.43 GWs by 2030, and to 55.02 GWs by 2050 to maintain this market share.

To achieve this growth, CIG would need to expand their capacity annually by 13.41% between now and 2030, and 4.83% between 2030 and 2050. This is bad news for CIG, whose renewable capacity shrank annually by 4.09% between 2017 and 2020, due in large part to the auctioning off of several of their hydroelectric plants (p. 13) by the Brazilian government in 2017 and 2018. Their total capacity has been on the rise again more recently, but this expansion needs to accelerate in order to maintain their place in a growing global renewable energy sector.

CIG: What We Like

CIG is arguably the greenest utility in the Climate Index. They’ve increased their renewable generation capacity, shut down fossil fuel-based capacity, and reduced overall GHG emissions:

<::marker> CIG retired (p. 17) their only fossil fuel-powered thermal plant at the end of 2019, making its installed capacity 100% emissions-free.
<::marker> CIG’s installed wind capacity has grown annually by 23.8% since 2017. In 2020, hydro, wind, and solar account for 98%, 1.89%, and 0.02%, respectively
<::marker> Their scope 1, 2 and 3 emissions combined went down by ~26% between 2017-2020

In addition to their track record in generating renewable electricity and reducing emissions, CIG’s communication with investors about their climate-related strategy is exceptionally clear:

<::marker> CIG’s GHG emissions reports are very detailed and transparent, explicitly laying out categories, measurements, and calculation methodologies of emissions

Their reports relating to sustainability are complete and extensive

What We Want to See Improve

Expand Solar and Wind Capacity

We applaud CIG’s leading edge in providing hydroelectric power to their Brazilian customers. But large-scale hydroelectric projects can impact natural and human habitat, high upfront costs to build. Instead, wind and solar energy capacities are much more cost-effective and environmentally sustainable, making them the more favorable choice for expanding renewable capacity. Given that CIG’s solar and wind capacity comprise a small fraction of total installed capacity, we would like to see them invest more aggressively in these areas.

Divest from Gasmig

One of CIG’s subsidiaries is Companhia de Gás de Minas Gerais (Gasmig), a distributor of piped natural gas. Aside from the fact that a gas pipeline business enables the survival of the natural gas in the energy system, CIG faces considerable risks from economic, political and regulatory uncertainties (pp. 38-42) in the Brazilian gas-powered energy sector. For the sake of the world’s transition to net zero and the stability of CIG’s future business operations, we would like to see CIG divest from gas pipelines.

Commit to Becoming a Zero-Carbon Company

We acknowledge that CIG has made commitments (p. 271) to reduce scope 1 and 2 GHG emissions further than they already have. But these commitments tend to be piecemeal and modest in their ambition. Instead, we would like to see them set a bold goal of completely eliminating scope 1, 2 and 3 emissions on a clear timeline, and in the meantime offsetting their emissions by expanding their renewable power generation.

Related Green Energy Stocks in the Climate Index

View All Climate Index Stocks →

Allocated	Company	Description
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