Energy Matters - People & Money | Networking Series

The event was centered around the future energy landscape and focused on initiatives that will both reduce carbon and make money for investors. The discussion was chaired by Lord John Browne, former CEO of BP, investor and Chairman of Beyond Net Zero. John provided us with an overview of the energy transition, addressing the big themes impacting carbon reduction and shareholder returns.

Key Themes and Takeaways

Global supply chain crises and the impact on alternative energy

Across the globe, the energy sector is in a period of tumultuous transition. Despite aggressive targets for decarbonization across the entire economy, we still rely on hydrocarbons to supply more than 80% of our global energy inputs at present.1 In this current operating environment, the release of pent-up demand has led us to witness the highest oil price since 2014 and in Europe specifically, some of the highest natural gas prices ever recorded.

Good news for renewable energy? Not necessarily. High energy prices can have negative implications for renewable energy businesses. Historically, the last time oil prices were comparably high, companies and investors began diverting capital away from alternative energy and back into hydrocarbon in search of attractive returns. 

There must be a reconfiguration of the shared role between government and the private sector in the move to Net Zero

The scale of investment and the pace of change needed to reach net zero by 2050 cannot be achieved without the private sector. To put this into perspective, annual investment in climate solutions across the entire value chain must rise from $1 to $3.5 trillion on average over the next decade. Government must move quickly to accept this reality and play its complementary role in the net zero eco-system by delivering a public policy environment that reduces both risk and burden on the renewable energy investor.
Government must also better facilitate the recognition of science-based targets and measurements tools against which progress in the private sector can be measured. However, progress in the space continues to be poor. A recent report found that 20% of 45,000 companies have emissions targets but 10% or less have a delivery plan in place to achieve necessary reductions (scope 1 and 2 is not enough). 

“COP 26 is about saving humanity, not the planet. A 3 degree increase in temperature means 1.5bn people would need to move!”

- Lord John Browne

The 35 guests then split into five tables to debate the following: What impact do the following themes have a) on carbon reductions and b) making money for investors?

Hydrogen. Answer: Impact on net-zero? Over-rated / Return for investors? Over-rated

Aggressive net zero targets have resulted in a burst of popularity around the deployment of hydrogen in the energy economy, touted by many as the key clean alternative to fossil fuels. Although hydrogen will be material for the global energy transition, reality will eventually show that hydrogen's projected role in the makeup of our future energy mix has been inflated for investors.

Sustainable Finance. Answer: Net Zero: Under-rated / Return for investors: Over-rated 

Finance is a key lever to driving sustainable outcomes. However, to realize its promising potential in shaping the transition there is an urgent need for more standardization and the implementation of meaningful governance (i.e., carbon tax). Without this, investments flows will continue to provide geo-politically uneven net-zero contributions with inconsistent financial returns for investors.

Emerging Markets. Net Zero: Under-rated / Return for investors: Under-rated 

Given the huge effect of climate change experienced by those in emerging market countries, making clean energy investments in these economies can be packaged as a moral imperative. Moreover, there are an incredible number of business opportunities for the informed investor with a slightly higher risk appetite. 

E-mobility. Answer: Net Zero: Over-rated / Return for investors: Over-rated

In the long term, e-Mobility will assume a significant role in shaping our new energy economy. At present however, the cost of producing electric cars and chargers in addition to disparate local frameworks and incentives to build e-mobility infrastructure including across grids and networks hamper the industry’s attractiveness as an investment opportunity as well as its contributions to net zero.

Oil and Gas. Answer: Net Zero: Under-rated / Return for investors: Under-rated

Big oil has shaped the energy industry and is underrated in the role it will play in the new eco-system. Oil and gas houses can focus on leading the charge in decarbonizing their assets in addition to moving into new opportunities, hydrogen, biofuels etc. where the transferable engineering capability is clear. Players in the industry also have more effective structures to drive both faster decarbonization and better returns (i.e., through spin offs, etc.)

Save the date:

Thursday, 24 March
8.30am – 10.00am, Almack House, 28 King Street, London SW1Y 6QW
Guest speaker: Leonid Mukhamedov, former Executive Committee Member and Chief Strategy Officer, Schneider Electric.
Leonid will talk us through the Energy As a Service (EAAS) landscape and investment opportunities across the grid. 

Wednesday, 25 May
8.30am – 10.00am, Almack House, 28 King Street, London SW1Y 6QW
Guest speaker: Shaun Kingsbury, Chairman of Just Climate.
The topic will focus on Mobility - Breaking down the key themes and market opportunities across the mobility markets. Specific debates on Marine, E-Mobility As a Service, Aviation and Heavy Trucking.
 

Authors

Chris Nicholson; a Partner in the firm’s Global Industrial & Natural Resource Practice, covering the Energy markets.

Abigail Skerrett; a member of the firm’s Global Industrial & Natural Resource Practice and co-lead of the Global Energy Transition Practice.

Shola Brown; a member of the firm’s Global Industrial & Natural Resource Practice.