On November 5th, 2016 YES-DC hosted its biannual conference on the topic of stranded assets. Our inspiring speakers were (in order of the slides): Rick Bosman, Researcher, Dutch Research Institute for Transitions; Iancu Daramus, Communications and Engagement Associate, Carbon Tracker; Yvonne Hofman, Project Manager Responsible Investment, VBDO; Liset Meddens, Director, Fossilfree; and Reinout Wissenberg, Sustainability Creator, Stedin
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4. Conference Stranded Assets and the energy transition
13:30 Opening
13:35 Start programme
16:30 Plenary discussion
17:00 Drinks
Optional dinner at El mundo -> visit us during
break
POWERED BY :
5. Stranded in the energy
transition
Rick Bosman
DRIFT / Erasmus University Rotterdam
YES-DC Conference Stranded Assets, Utrecht 05-11-2016
8. Paris agreement
Article 2:
a) “Holding the increase in the global average temperature to well
below 2°C above pre-industrial levels and pursuing efforts to limit
the temperature increase to 1.5°C above pre-industrial levels”
c) “Making finance flows consistent with a pathway towards low
greenhouse gas emissions and climate-resilient development”
19. Huge overhang of carbon in our energy system
Carbon Tracker has allocated to fossil fuel companies a carbon budget to
2050 with 80% likelihood of staying below the 2˚C threshold.
Source:
Carbon Tracker,
Unburnable Carbon 2013
20. • The Paris Agreement is to limit global average warming to “well
below” 2˚C.
• The goal for net zero GHGs after 2050 implies an even earlier
phasing out of CO2 emissions by as early as 2050.
• 187 countries have submitted plans that cover around 95% of
global CO2 emissions and include China and India.
The Paris Climate Agreement sends a
clear signal to markets
The direction of travel towards
low-carbon is clear…
21. • BP is projecting a 24% increase in fossil fuel use by
2035
• Exxon expects a 27% increase by 2040
• Shell’s ‘Current Outlook’ 37% to 2040
• OPEC is suggesting 54% to 2040
…Yet
Companies are overstating energy demand, underestimating an
increasing role for renewables and ignoring looming changes in
energy.
Sources:
ExxonMobil (2016) The Outlook for Energy: A view to 2040, BP (2016) BP
Energy Outlook 2035, Shell (2014) Carbon Asset Risk response, OPEC (2015)
World Oil Outlook
22. Will history repeat
itself?
Half the names listed on the Fortune 500 in
2000 have disappeared
Source: https://www.weforum.org/agenda/2016/01/digital-disruption-has-only-just-begun/
23. Source: Rocky Mountain Institute
The Model T Ford’s nominal price fell 62% in 13 years (1908-21) and the market
flipped just as fast.
24. Within a decade, far-reaching changes can
occur faster than expected
N.B. The IEA has
now revised its
medium-term
forecast for wind
& solar up by
13% since 2015
IEA solar PV capacity forecasts against actual
Source: Carbon Tracker report: Lost in Transition (2015)
25. BloombergNEF – the tide has turned -
non-fossil dominate capacity additions
Power generation capacity additions (GW)
25
26. 26
Energy demand misread
Fossil fuels - a smaller share of a smaller pie
Source: Carbon Tracker, Lost in Transition report, Nov 2015
27. Capex trials & tribulations
Shell in the Arctic:
$2.6 bn impairment
Petrobras: 100 year
centurybond?
Canada and the oil sands: no
pipelines & emissions cap
Kashagan
$50 bn & counting
28. No new coal
mines required
Oil demand peak
in 2020,
no need for
continued growth
Growth in gas will
disappoint,
esp. capital-
intensive
LNG
The $2 trillion stranded assets danger zone
Source:
http://www.carbontracker.org/report/stranded-assets-danger-zone/
$220bn at risk
$1.4tn at risk
$520bn at risk
29. Regulators are taking increasing notice of the risk…
Mark Carney, Governor of the Bank
of England:
The carbon budget renders ‘the
vast majority of reserves “stranded”
– oil, gas and coal that will be
literally unburnable’
The abrupt transition to a low-carbon
future is ‘a financial stability risk’
30. … and so are investors
Source: EY, Tomorrow’s investment rules 2.0
EY survey: two-thirds of investors concerned about
stranded asset risk
• 38% of Exxon shareholders & 41% of Chevron shareholders vote
for 2°C stress test;
• After similar resolutions, Total & Shell release 2°C plans
32. Planning for lower demand can deliver value
The world’s 7 oil majors could
collectively be worth $100 billion more
by focusing on their low-cost, lower-
carbon production
Source: http://www.carbontracker.org/report/fossil-fuels-stress-test-paris-
agreement-managed-decline/
33. Challenging unrealistic assumptions
Source: Carbon Tracker, The End of the Load for Coal and Gas?;
EU reference for wind: https://ec.europa.eu/energy/sites/ener/files/documents/REF2016_report_FINAL-web.pdf
Coal plants work 80% of the time.
2016 average: 59%.
Gas plants work 60% of the time.
2016 average: 38%.
Offshore wind will cost 90€/ MWh by 2040.
2 bids in 2016: 72.70 €/ MWh (July) &
63.80 €/MWh (Sept)
34. Renewables are cheapest power source today
Source: Carbon Tracker, The End of the Load for Coal and Gas?, 2016
On average, wind and solar are cheaper than coal and gas.
The advantage does not depend on a carbon price (but will only
widen if one is implemented – e.g. in China)
41. What we do
Institutional
investors
Benchmarking NL
pension funds and
insurance companies
on RI
RI research
Knowledge sharing
Listed
companies
Benchmarking
companies on tax
transparency, supply
chain, human rights
Annual general
meetings
Stakeholder
consultations
51. Most material sustainability topics –
Oct’15
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Water scarcity Human rights Climate change
/ low carbon
economy
Resource
depletion
Biodiversity
conservation
Economic
development
Financial
inclusion
Poverty
alleviation
No opinion
Not relevant
Less relevant
Relevant
Most relevant
56. DNB: Investors view on stranded
assets risk
• No major risks related to climate policy that take the
form of a carbon bubble.
• Climate policy is a gradual process that they can
respond to.
• Fossil fuels will continue to be required for the next few
decades, with a shift from coal and oil to gas.
• For new investments climate risks are taken into
consideration as part of a wider risk assessment
Source: DNB, Time for transition, March 2016
57. RI instruments to mitigate
stranded asset risks
Integrate climate risks &opportunities
in investment decisions & valuations
Exclude carbon intensive companies
or industries from universe
Vote for low carbon strategies
Engage with carbon intensive
companies
Active
ownership
58. Barriers for a low carbon portfolio
• Uncertainties around (long-term) climate change impact
• Backward looking data instead of forward risk
management
• Minimum investment Euro 50 million
• Uncertainty on policy & regulation- energy Agreement
only runs to 2023:
• 39 Dutch companies including: Achmea, Aegon, Rabobank call for
climate legislation to implement ‘Paris
59. Green bonds growth
• Bonds earmarked towards financing `green' projects: eg
water management, energy efficiency, sustainable real
estate and infrastructure
• $70 billion of new issues so far this year compared to
$45 billion in 2015 (total bond market $80,000 billion)
• Dutch banks have issued more than €3.5 billion new
‘green bonds’
• Every green bond is oversubscribed
60. Example: PFZW
• Climate risks integration: Half carbon footprint &
increase investments in impact investments fourfold,
from €5bn to €20b in 2020 compared to 2015
• Engagement: Sent letter to 200 companies to announce
divestment plans if they don’t reduce footprint
• Divestment: Assets invested in companies with stocks of
fossil fuel will have been reduced by 30 %
61. Example: ABP
• Oct’15 : review entire investment portfolio of stock and
bonds by 2020, and divest from companies that don't
meet ABP’s sustainability criteria
• Carbon emissions cut by 25% in 2020 compared to 2016.
• Double investments that contribute to the solution of
societal problems by 2020, to 58 billion euros
62. Voting : Shell resolution
• Follow this on AGM Shell 2016: Shell to invest all profits
in renewables
• Actiam (Zwitserleven, Reaal and ASN Bank funds) only
large shareholder that voted in favour of –total 2,5%
• Sept 2016: Shell back in Dow Jones Sustainability Index
(DJSI)….
63. Reporting: Carbon footprint
• Industry data availability still limited
• UN Financial Stability Board aims to developed reporting
standard on climate change for companies
• Comparison problematic:
– Harmonisation in methodologies needed
– Mainly scope 1 and 2
65. Cooperation needed
• ASN Bank initiated the Platform Carbon Accounting
Financials (PCAF)
– Aim to jointly develop a method for calculating (indirect)
climate impact of investors.
• Also cooperation needed on 2degree alignment
methodology
• Engagement
67. Where do you stand?
Short term energy security is more important than short term renewable supply
Governments should compensate for closing coal fired power plants
The Dutch government should not permit any new gas production field
The build environment should be gas free within 10 years
Divestment does not result in CO2 reduction
70. Stranded Assets
And the effect of a lack of
climate change policy
Reinout Wissenburg
November 2016
71. ...to introduce you to the world of
infrastructure and its ability to lock us in
…to share with you how climate change
policy affects distribution system
operators
…to use our gas infrastructure as an
example of stranded assets
TODAY,
I WANT…
73. • Regulation obliges us to accept any
request to be connected to the gas
grid
• The entire gas grid costs ca. 100
million euro/year
• Annually,
• the NL connects an estimated
40.000 new houses to the gas
grid
• Of these, Stedin connects
roughly 10.000 new houses
• Typically, the gas grid is deployed for,
and depreciated over, 40 years
STEDIN’S
GAS GRID
74. • Paris Agreement sets global warming
below 2º C, and strive for 1,5º C
• For the EU, 2º C means by 2050:
• 80-95% carbon reduction
• Carbon neutral energy sector
• Carbon neutral built
environment
• 1,5º C means we have to achieve the
above possibly as early as 2035
• To tackle climate change the use of
natural gas has to stop
• However, in the Netherlands gas is
the primary source of heat
TACKLING
CLIMATE CHANGE
75. • If we continue to invest in the gas grid
while we cannot use it for the full 40
years, then the gas grid becomes a
stranded asset
• In simple terms, continued
investments until 2040, with a 10 year
transition after, yields:
• Investments until 2040: 2,4
billion euro
• Linear depreciation: 2,5 million
annually over every 100 million
euro investment
• Total depreciation in 2040: 750
million euro
• Stranded asset: 1,65 billion euro
GAS GRID AS
STRANDED ASSET
76. • Currently, regulation facilitates no
changes to this gas grid
• It is unknown who will bear the costs
of stranded assets
• The transition away from natural gas
is unlikely to be linear and smooth
• More likely is a fast increasing group
of individuals moving away from gas,
leaving a fast shrinking group to bear
the costs of the gas grid
• This intensifies as the majority of
costs are recouped through a
transport tariff, increasing the
incentive to step away from gas with
every customers doing so
WHO CARES ABOUT
STRANDED ASSETS
79. Where do you stand?
Short term energy security is more important than short term renewable supply
Governments should compensate for closing coal fired power plants
The Dutch government should not permit any new gas production field
The build environment should be gas free within 10 years
Divestment does not result in CO2 reduction
80. Become a board member of YES-DC 2017!
It’s a great experience and you expand your energy network!
YES-DC has open positions for next year
The 5 member board
The 5 member activity committee
Talk to us and find out why you want to join the board
Subscribe on the YES-DC website
Submissions are open now
The current YES-DC Board
Roel Stijl (president)
Remco Bal (finance)
Oskar Krabbe (internal affairs)
Robin Niessink (secretary)
Saskia Thies (external affairs)
