Climate Change

The chapter on climate change starts by disclosing how climate-related considerations are factored into the remuneration of members of the administrative, management and supervisory bodes. In Alpiq’s case, no climate-related considerations are directly factored into the remuneration of members of the EB and BoD.

The following section describes how Alpiq assessed physical and transition risks related to climate change. Based on the usage by the Task Force on Climate-Related Financial Disclosures (TCFD), physical risks are defined as risks related to the physical impacts of climate change and can be event-driven (acute) or due to longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organisations such as direct damage to assets and indirect impacts from supply chain disruption, damage of premises, interrupted operations etc. On the other hand, transition risks are risks related to the transition to a lower-carbon economy, created by policy, legal, technology and market changes established to address mitigation and adaptation requirements related to climate change. Transitional risks may pose financial as well as reputational risk to organisations. Gross risks are existing risks prior to the implementation of any mitigation measures, while net risks are residual risks remaining after mitigation measures have been taken.

Alpiq conducted a climate scenario analysis to assess physical and transition risks (further details on the scenario analysis can be found under ESRS E1 IRO-1 20). Physical risks were assessed for Alpiq’s own operations and parts of the upstream value chain (for assets in which Alpiq has a minority shareholding), while the assessment of transition risks comprised the full value chain, including all upstream and downstream parts. The scenario analysis that was conducted can be seen as the first step towards a resilience analysis.

To ensure resilience with regards to climate change, Alpiq’s strategy is constantly being reviewed and adapted. More concretely, in order to stay resilient or become even more resilient in the context of climate change challenges, Alpiq has already taken the following strategic decisions and actions:

• Focusing on flexibility by investing in flexible plants as well as storage capacity (flexibility becomes more important as RES capacity is added to the energy system and weather becomes potentially more extreme and unpredictable)
• Investing in hydropower plants to take advantage of potentially different water inflow patterns due to glacier melting and changes in precipitation and to contribute to security of supply, especially in winter.
• Investing in new technologies which have minimal impact on the climate (i.e. BESS).
• Strengthening the Trading divisions to allow for fast reaction to changing circumstances, thereby limiting market risks
• Closing PPA deals with industrial clients to decarbonise their businesses and guarantee power supply.

The results of the scenario analysis show that Alpiq is well protected against physical risks, since its plants already fulfil very high safety standards and Alpiq invests continuously in maintaining these standards at a very high level. For example, Alpiq’s hydropower plants are already constructed and protected in such a way as to withstand floods which, statistically speaking, only happen once in a thousand years (a 1,000-year flood has a 0.1% change of occurring in any given year). Taking into consideration the uncertainty related to climate change and given the many floods that occurred in 2024, Alpiq will challenge its approach to flood protection and, if assessed to be necessary, make adaptations to ensure protection against potential future impacts caused by climate change. In addition, short plant outages due to potential disruption by a flood or similar events can be balanced by Alpiq’s Trading division.

In contrast, transition risks are expected to have a bigger impact on Alpiq, as transition events may influence energy and CO₂ prices, which in turn have a direct impact on the company’s cash flow. Transition risks are described in more detail under IRO-1 20 (c).

Climate-related IROs, including the impact of Alpiq’s GHG emissions, were identified by conducting the DMA as described under ESRS 2 SBM-3 48.

As part of this process, climate-related material hazards in Alpiq’s own operations and for parts of the upstream value chain (for minority shareholdings) were identified with the aid of the MunichRe Location Risk Intelligence Tool, which assesses the hazard probability over four different time horizons (current, 2030, 2050, 2100) and three different climate scenarios (SSP1, SSP2 and SSP5), based on the asset type and asset location (latitude and longitude). From this data, covering 126 Alpiq locations with a building or construction (e.g. dam, trans­formation station, water withdrawal unit), the 31 locations with the highest risk scores were identified and further assessed. Alpiq has identified the following current and potential future climate-related hazards to which its assets and business activities could be exposed over the short, medium and long term: cold stress, drought stress, extratropical storm, fire weather stress, flash floods, hail, landslide, river floods, precipitation stress, and water stress. Flooding and landslides were identified to be the most relevant potential hazards for Alpiq. Each Alpiq asset has been assessed in terms of its exposure to these current and potential future hazards to determine the physical risk.

Three climate scenarios were used to assess material hazards and estimate physical risk:

1. IPCC SSP1 (low-emissions scenario, global warming below 2 degrees Celsius)
2. IPCC SSP2 (mid-emissions scenario, global warming 2 to 3 degrees Celsius)
3. IPCC SSP5 (high-emissions scenario, global warming 3.3 to 5.7 degrees Celsius)

These Shared Socio-Economic Pathways (SSPs) were used in the Sixth Assessment Report on Climate Change by the Intergovernmental Panel on Climate Change (IPCC) and serve as a well-known scenario standard. It is plausible to use these three different emissions scenarios to determine physical risks, as the probability and severity of potential hazards change depending on how much temperatures increase and, having two scenarios, SSP1 and SSP5, at opposite ends of the potential temperature increases the spectrum that is covered.

In Alpiq’s case, the calculation of gross physical risk is challenging, since many measures taken during asset construction already mitigate a large proportion of the gross physical risk. The following description of the calculation of physical risk therefore refers to the risk already mitigated to a certain extent due to the measures taken during asset construction.

The physical risk in Alpiq’s own operations and upstream minority shareholdings was calculated per asset, using the MunichRe Location Risk Intelligence Tool, which assesses climate-related risks based on the location of the asset. The probability of occurrence of different climate events and the estimated number of shutdowns of each asset served as an input to estimate the financial impact of the physical risks.

Physical risk was assessed for Alpiq’s own operations as well as for part of the upstream value chain, i.e. for assets in which Alpiq holds minority shareholdings, since an outage of one of these assets could have major implications for Alpiq’s business. However, other parts of the upstream value chain, such as the supply chain and the downstream value chain, were not included in the physical risk assessment, as they are of comparatively lower relevance for business continuity.

The following physical risks were found to be material:

The impacts described in the table could lead to a situation of reduced pro­duction capacity and production rates, increased overhead costs, deterioration of market position (which in turn could lead to a high employee turnover), all of which could affect the company’s profitability.

However, as mentioned previously, many adaptation measures are inherent to Alpiq assets and therefore the overall physical risk for Alpiq remains moderate.

In the section below, we turn from looking at the physical risks to considering the transition risks and opportunities.

Climate-related transition events and the related gross risks and opportunities in Alpiq’s own operations and along the value chain were identified for a climate scenario in line with limiting global warming to 1.5°C by the year 2050 (IEA Net Zero 2050). It was decided to work with a 1.5°C scenario since this creates the potentially biggest transition risk and it is of interest to the regulator to see the impact of a worst-case scenario.

The gross transition risks and opportunities were identified through a qualitative assessment of potential transition events in the following clusters: Political & Legal, Technology, Market and Reputation (for risks); Resource Efficiency, Energy Source, Products & Services, Markets and Resilience (for opportunities). The assessment was conducted by experts attributing scores to the estimated impact and likelihood of occurrence of the different risks and opportunities created by transition events. The risks and opportunities were evaluated for a short-, medium- and long-term time horizon (short-term = 1 year, medium-term = 2 to 5 years, long-term = more than 5 years).

The following transition events and related gross transition risks were identified to be material (by cluster):

The potential impacts described in the table could lead to a decrease in revenues and profitability.

The following transition events and related opportunities were identified to be material (by cluster):

The above table illustrates that transition events not only present risks but can also create a lot of opportunities for Alpiq, which may positively impact market valuation, financing conditions, costs and revenues.

A qualitative assessment of transition risks serves as a good baseline to better understand the potential impacts of transition risks and to explore the potential opportunities arising from the transition to net zero. However, due to the complexity of transition risks and to gain a more comprehensive understanding of the financial implications these transition risks might entail, Alpiq is currently in the process of quantifying both the risks and opportunities associated with a transition to net zero. The impact on the company’s financials was modelled using a complex, Alpiq internal financial model for three different climate scenarios (base case, RCP2.6, RCP8.5). The model results indicate that climate change has an impact on financials; however, the magnitude and direction of this impact is largely dependent on price trends in the market.

Alpiq has set itself the target of reaching net zero for Scope 1 and 2 emissions by 2040, but no further sub-targets/milestones have been defined yet. In accordance with the Swiss Climate Ordinance (see SCO index in the Appendix), Alpiq acknowledges the obligation to disclose a transition plan and is currently developing such a plan.

Decarbonisation levers mainly exist for CCGT power plants, as these are the plants that create the main part of the company’s direct GHG emissions. Alpiq strives to continuously optimise CCGT power plants by implementing the latest available technology to maximise efficiency (e.g. by installing new turbines), which makes further efficiency gains challenging. However, Alpiq remains committed to exploring innovative solutions such as H₂ blending, demonstrating its commitment to achieving future GHG emissions reduction targets.

Despite CCGT power plants creating a major part of Alpiq’s GHG emissions, Alpiq also assumes responsibility for reducing GHG emissions from other sources, by continuously analysing new solutions and technologies that could contribute to the goal of fossil-free power production. Alpiq deploys certified management systems in accordance with each specific production technology and country regulations framework to track the effectiveness of its progress in limiting emissions and monitors its activities and performance in limiting GHG and nitrogen oxides emissions by means of specific environmental key performance indicators.

Alpiq is currently developing a Group-level environmental policy to harmonise its environmental principles and objectives across locations and activities. This policy and the related guidelines will be further developed to manage the material IROs identified.

Alpiq’s energy production assets in Hungary, Italy and Spain as well as its hydropower plants in Switzerland implement Environmental Management Systems such as ISO 14001 and EMAS. These currently address long-term environmental management practices in the context of climate change mitigation, with a key focus on continuous improvement.

Alpiq has reported its GHG emissions, covering Scopes 1, 2 and 3, since 2020. Until the reporting year 2023, the methodology was based on Alpiq’s equity share in each of its assets according to the GHG Protocol, following these principles:

• All direct emissions were reported as Scope 1.
• For all majority assets (> 50% share), indirect emissions were reported as Scope 2.
• For all minority assets (< 50% share), indirect emissions were reported as Scope 3.

In all cases, values were taken as being proportional to the shares of asset ownership.

ESRS guidelines define an alternate consolidation principle, based on operational control. Assets under operational control are defined as fully consolidated entities, for which Alpiq has the full authority to introduce and implement operating policies. The consolidation method therefore requires consideration:

• All fully consolidated assets, to be reported in Scopes 1 and 2 (100% of the emissions values).
• All non-fully consolidated assets, to be reported in Scope 3 (values proportional to ownership shares).

The ESRS consolidation method, particularly the GHG emissions boundaries, affects the reported GHG balance in the context of Alpiq activities. Indeed, most of Alpiq’s assets in Switzerland are partner plants (so-called “Partnerwerke” in German) and are minority shareholdings, in some cases owned through specific contracts, which, according to the ESRS operational control logic, are not fully consolidated, even in cases where Alpiq has the management mandate. Moreover, this principle leads to a notable reporting gap, as some major energy production assets fall out of any shareholder’s direct scope.

Alpiq considers that all its assets under management are core parts of its activities. Therefore, the equity share consolidation method is far more representative of Alpiq’s overall business. Alpiq intends to carry on reporting GHG emissions according to its equity shares, in addition to the strict ESRS consolidation per operational control.

Therefore, both consolidation methods are presented in the following sections.

Standards, methodologies, assumptions and calculation tools used

The 2024 calculation process and GHG declaration were conducted according to the GHG protocol and ESRS E1 requirements. Furthermore, they were checked externally by a third-party expert. Scope 3 values relative to energy trading (physical deliveries of power and gas) were recalculated for the year 2023, following a deeper assessment of the correct allocation of Alpiq’s trading activities to Scope 3 emissions. This results in significant effects on the total reported Scope 3 emissions. No other recalculation has been applied.

GHG emissions of CCGT power plants are based on indirect site measurements and are reported in the relevant national registries. The other principal sources of GHG emissions are based on power plants’ energy consumption as well as owned offices. Vehicle emissions based on reported kilometres travelled by Alpiq staff are considered. Upstream and downstream emissions relative to trading activities (physical deliveries of power and gas) are based on reported sale values. Emissions coefficients are updated annually, based on the most recent and approved references in consultation with the external expert, as follows:

1. Emissions factor, fuel consumption: BAFU, Faktenblatt CO₂-Emissionsfaktoren des Treibhausgasinventars der Schweiz, April 2024 – Greenhouse gas inventory of Switzerland (admin.ch)
2. National average emissions factors, European Residual Mixes 2023 Association of Issuing Bodies: Table 4: Total Supplier Mix 2023 – 2023 | AIB
3. Emissions factor by technology, power generation: Treibhausgas-Emissionsfaktoren für den Gebäudesektor, intep, 26.02.2024, V2.0 – Emissionsfaktoren für den Gebäudesektor (intep.com)
4. Conversion factor for mobility, km to energy: Mobitool 3.0 – Facteurs mobitool v3.0 - mobitool
5. Scope 3 emission factor, nuclear – IPCC values, Technology-specific Cost and Performance Parameters, 2014, Tab A.III.2 – ipcc_wg3_ar5_annex-iii.pdf
6. Location-based emission factor for Swiss electricity mix 2023 – REIDA Treibhausgasemissionsfaktoren
7. Electricity generation mix for certain European countries – Our world in data – electricity 2023

For internal purposes, to guarantee consistency from year to year, energy consumption and the respective GHG emissions are evaluated for each production site, office building and business unit. However, emissions are not declared per site or per country in the public report.

Base data is collected through various internal data owners, using specific checklists. Calculations are made in an Excel tool, initially developed by our external consultant and internally updated yearly to include all new documented emissions sources.

The declaration is provided in CO₂ equivalents, including all applicable greenhouse gases. The emissions are based on the most recent and approved reference coefficient factors, which include all main gases with known GHG effects, according to the requirements of the UNFCCC/Kyoto Protocol: carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF₆).

As stated above, Alpiq considers that all its assets under management are integral to its activities. Therefore, the equity share consolidation method is far more representative of the entire business. Alpiq intends to continue reporting GHG emissions according to its equity share in addition to the ESRS methodology.

Scope 1 GHG emissions inclunding share in emissions trading schemes (ETS)

Scope 1 emissions cover direct emissions from fossil fuels. Regarding Alpiq’s activities, electricity production from CCGT power plants is the main source of direct emissions. Scope 1 emissions of Alpiq CCGT power plants are aligned with their respective national registry declarations. Emissions resulting from the fuel consumption of buildings and vehicles owned by the company are also included.

Alpiq is reporting its GHG emissions according to the ESRS standards for the first time in 2024. According to ESRS E1-6 AR 40, 100% of the GHG emissions of the entities it operationally controls are considered, regardless of the effective ownership share.

2024 CCGT power plant production values are in line with 2023, increasing by approximately 8%, resulting in a proportional increase of Scope 1 GHG emissions. The running hours of the CCGTs depend on local market conditions, which differ each year. In 2024, the running hours of the Italian CCGTs increased compared to 2023, while the Hungarian running hours were lower than 2023. The increase in Italy is attributed to the exceptionally dry summer in southern Italy in 2024, which resulted in higher energy demand and nearly continuous operation of the San Severo power plant for four months. Additionally, the San Severo plant experienced a 60-day maintenance shutdown in 2023, compared to only 15 days in 2024. Furthermore, the new gas turbine in Vercelli became operational in 2024, enabling the plant to increase its operation time to approximately 1000 hours, up from around 350 hours in 2023. This increased production is due to the higher activation by Terna (Italy’s TSO), through which Vercelli contributes to the security of supply in Italy. In terms of GHG intensity, CCGT-related emissions are stable compared to 2023.

Likewise, Scope 1 emissions of owned administrative buildings show values in line with the previous two years. Conversely, mobility-linked emissions show a decrease, mainly benefiting from the switch to hybrid or fully electric vehicles instead of petrol or diesel in countries where the longest distances are carried out (mainly Italy and France).

Alpiq activities include no significant combustion or biodegradation of biomass. Nevertheless, a few hydropower production sites use wood pellets for heating, which falls within the scope of biogenic emissions (out of scope). These sites are not within Alpiq’s operational control and are thus not included in the ESRS consolidation.

Biogenic emissions total 149 T CO₂ eq for the reporting period, 23% lower than the previous year’s value. Year-on-year variations are due to fluctuating heating demand (building occupancy, weather conditions) as well as changing monitoring methods, which are based on fuel deliveries, not directly on the amounts consumed.

Scope 2 covers indirect emissions from electricity consumption and district heating of majority shareholding power plants, leased buildings and all-electric vehicles. The declaration of Scope 2 emissions generally considers the location-based approach, which reflects the average emissions intensity of grids in which energy consumption occurs (using country or grid-average emissions factor data).

An effective market-based approach derives emissions factors from contractual instruments, which include any type of contract between two parties for the sale and purchase of energy bundled with attributes about the energy generation energy mix (through certificates or delivery contracts).

Alpiq’s electricity procurement, especially for its production assets, involves various and complex contracts, the majority of which do not specify a guarantee of origin. Consequently, only a marginal part of the electricity used to run Alpiq’s assets can be linked to a specific market-based energy mix and corresponding emissions factors. For this reason, only location-based data is reported below, with total market-based reductions according to documented guarantees of origin.

Gross energy indirect (Scope 2) GHG emissions in metric tons of CO₂ equivalents:

Global Scope 2 emissions show a 3% decrease compared to 2023 but do not reveal a clear trend.

The main drivers of Scope 2 emissions variations are:

• Stand-by electricity consumption by CCGT power plants, which depends indirectly on the total running hours.
• Hydropower pumping consumption, which depends on the yearly natural intakes and production planning.
• Variations of the average electricity consumption mix in countries with significant consumption, and related emissions factors.

Scope 3 covers all other indirect emissions that occur in Alpiq’s value chain, according to the GHG protocol framework. A full assessment of Alpiq Scope 3 GHG emissions was conducted with the support of an external consultant in 2023. Based on this comprehensive assessment, this report addresses the most relevant emitting categories, which encompass over 98% of Group Scope 3 emissions. This includes the following categories:

• Emissions of not fully consolidated power plants.
• CAT 3.3 – Upstream emissions relative to Alpiq’s own energy consumption as well as energy sold to end users
• CAT 3.6 – Business travel emissions (flights, rented vehicles for all business units, personal vehicles and trains for business unit Switzerland)
• CAT 3.11 – Emissions originating from the end use of goods and services sold by Alpiq (gas sold to end users).

Business travel CAT. 3.6 is included for internal environmental awareness even though it is not very impactful in terms of relative magnitude.

Gross other indirect (Scope 3) GHG emissions in metric tons of CO₂ equivalents:

Overall, Scope 3 emissions show a 9% decrease compared to 2023 (incl. recal­culation), but with significant variations in some categories. The main drivers of the variations are the following:

Energy procurement – minority / non-controlled assets: –16%

• Update of the average emissions factor for electricity consumption in Switzerland for 2023, from 18.0 g CO₂eq/kWh to 13.4 g CO₂eq/kWh (–26%), leading to a decrease in the calculated emissions of energy procurement from nuclear, storage and pump storage power plants.

CAT 3.3: Upstream emissions of energy-related activities: –9%

• Limited increase in the amount of natural gas used in our CCGT power plants and associated upstream emissions, in line with the increase in production compared to 2023.
• Limited decrease in the total amount of electricity sold to end users and associated upstream emissions, including a more comprehensive integration of the energy sales of all Alpiq country branches and an update of the 2023 values.

CAT 3.6: Business mobility: +34%

• Significant increase in the number of business flights and associated emissions in 2024 compared to 2023.
• Decrease in emissions linked to rented and personal car use, both due to an ongoing shift from fuel to hybrid and electric vehicle use and unreported data from some country branches.

CAT 3.11: Downstream emissions of energy-related activities: –10%

• Decrease in the total amount of gas sold to end users.

By consolidating the total GHG emissions values, including Scopes 1, 2 and 3, as well as Alpiq’s overall net revenue, a global GHG intensity per net revenue can be calculated according to ESRS requirements, as follows:

The net revenue used to calculate GHG emission intensity per net revenue is the net revenue as presented in the chapter Consolidate Income Statement of the Financial Report.

In addition to the ESRS-aligned total emissions per net revenue presented above, two complementary GHG intensity ratios are reported here. These values provide interesting insights into the emissions intensity of CCGT production as well as Alpiq’s overall electricity production.

GHG intensity of CCGT power plants, Scope 1 and 2 emissions:

The CCGT power plant production in 2024 is largely in line with the 2023 values, with the 8% increase in total production resulting in a proportional increase in total direct emissions. In terms of intensity, the CCGT emissions do not show a significant variation (–1.4 g CO₂ eq/kWh) from the previous year, as the global load factors did not change much.

GHG intensity of electricity production at the Alpiq Group level, including all power plants:

At the Alpiq Group level, our renewable and nuclear assets contribute signi­ficantly lower greenhouse gas intensity than electricity produced from natural gas. The ESRS consolidation approach considers only the production and emissions of assets under operational control (Scope 1 and 2) and shows significant differences with the equity share consolidation approach, which considers both production and emissions values based on Alpiq’s shares, including minority assets. Other Scope 3 emissions in Alpiq’s value chain not directly related to power production are not included in the production intensity.

For 2024, the 8% increase in CCGT power plant production is balanced by a 21% increase in hydropower production, due to a good hydrological year. The overall intensity value is mainly driven by the annual fossil / non-fossil production ratio and 2024 is closely aligned with 2023 in that regard. Based on the equity share method, the production intensity consequently shows a marginal decrease (–1.4g CO₂ eq/kWh). Conversely, the ESRS consolidation method results in a very different picture, with higher total emissions and all Alpiq nuclear and a significant part of hydropower production out of scope.