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YES-DC Conference on Stranded Assets

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YES-DC Conference on Stranded Assets

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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

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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YES-DC Conference on Stranded Assets

  1. 1. Conference | Stranded Assets
  2. 2. Conference Stranded Assets and the energy transition POWERED BY :
  3. 3. The Young Energy Specialists and Development Co-operation (YES-DC) Is an independent association for your energy professionals www.yes-dc.org Frequent event on Energy themes incl BBQ, networking, talks 300 active young energy professionals across NL Association founded in 1996 A forum to expand your knowledge and network in energy We are 100% member run and independent from sponsorship If we want to continue 20 years of association we need your support
  4. 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. 5. Stranded in the energy transition Rick Bosman DRIFT / Erasmus University Rotterdam YES-DC Conference Stranded Assets, Utrecht 05-11-2016
  6. 6. Transition s-curve Rotmans, 2005
  7. 7. Build-up and break-down Loorbach, 2014
  8. 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”
  9. 9. Primary energy world consumption Million tonnes oil equivalent BP Statistical Review of World Energy 2015 © BP p.l.c. 2015
  10. 10. The Netherlands – a fossil hub
  11. 11. Carbon bubble – stranded assets Source: Pfund et al., 2014
  12. 12. Carbon bubble timeline 2012 2014 2016
  13. 13. Is the bubble already bursting?
  14. 14. Programme 14:00 Iancu Daramus, Carbon Tracker Initiative 14:30 Yvonne Hofman, VBDO 15:00 Where do you stand? + coffee break 15:30 Liset Meddens, FossielvrijNL 16:00 Reinout Wissenburg, Stedin 16:30 Plenary discussion 17:00 Drinks
  15. 15. Conference | Stranded Assets
  16. 16. Navigating stranded assets Iancu Daramus Communications & Engagement Associate, Carbon Tracker Initiative www.carbontracker.org @carbonbubble
  17. 17. 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
  18. 18. • 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…
  19. 19. • 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
  20. 20. 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/
  21. 21. 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.
  22. 22. 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)
  23. 23. BloombergNEF – the tide has turned - non-fossil dominate capacity additions Power generation capacity additions (GW) 25
  24. 24. 26 Energy demand misread Fossil fuels - a smaller share of a smaller pie Source: Carbon Tracker, Lost in Transition report, Nov 2015
  25. 25. 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
  26. 26. 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
  27. 27. 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’
  28. 28. … 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
  29. 29. Keep what in the ground?
  30. 30. 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/
  31. 31. 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)
  32. 32. 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)
  33. 33. Recommendations
  34. 34. Thank you Iancu Daramus Communications & Engagement Associate, Carbon Tracker Initiative idaramus@carbontracker.org www.carbontracker.org @carbonbubble
  35. 35. Conference | Stranded Assets
  36. 36. Investors & climate risks Yvonne Hofman VBDO 5 November 2016
  37. 37. VBDO: Dutch Association of Investors for Sustainable Development
  38. 38. Focus: Responsible Investment Besides financial criteria also incorporating: - Environmental - Social - Governance
  39. 39. 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
  40. 40. Research: natural capital
  41. 41. Benchmarking NL pension funds 22-11-2016 www.vbdo.nl
  42. 42. Why Source: Global Pensions Asset Study 2016 Total pension fund assets 2015 NL: Euro 1132 billion
  43. 43. Small country, major pension funds
  44. 44. In progress: Climate change benchmark • Governance – Responsibility, Leadership • Policy & targets on climate change • Implementation – Risk assessment and mitigation – Investment in climate solutions – Active ownership on climate change – Carbon footprint • Accountability: public disclosure
  45. 45. Climate Risks • Policy & regulation • Liability re climate damages • Reputational risks: increasing societal concern about climate /fossil fuels • Technological changes • Market responses /consumer preferences • Physical climate risks
  46. 46. Source: DNB, Time for transition, 2016 Direct investments in renewable energy : 0.3% of total assets What’s a stake?
  47. 47. Source: DNB, Time for transition, 2016
  48. 48. 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
  49. 49. 27 Nov 2015
  50. 50. Paris Agreement 12 December 2015
  51. 51. Klimaattop NL, 26 Oct’16
  52. 52. 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
  53. 53. 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
  54. 54. 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
  55. 55. 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
  56. 56. 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 %
  57. 57. 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
  58. 58. 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)….
  59. 59. 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
  60. 60. How to measure? Source: Montréal Carbon Pledge, Novethic, 2016
  61. 61. 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
  62. 62. Conference | Stranded Assets
  63. 63. 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
  64. 64. Conference | Stranded Assets
  65. 65. Conference | Stranded Assets
  66. 66. Stranded Assets And the effect of a lack of climate change policy Reinout Wissenburg November 2016
  67. 67. ...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…
  68. 68. STEDIN OVERVIEW IN NUMBERS SUSTAINABLE ENERGY FOR ALL
  69. 69. • 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
  70. 70. • 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
  71. 71. • 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
  72. 72. • 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
  73. 73. Questions? Reinout Wissenburg reinout.wissenburg@stedin.net +31 6 1186 3789
  74. 74. Conference | Stranded Assets
  75. 75. 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
  76. 76. 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)

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