Investing in the US Energy Transition

How are corporates, banks and private equity helping to accelerate a low carbon future in the US to meet the Paris Agreement’s goals?

The energy transition remains among the most important challenges facing the world today—so much so that, according to a new report from the International Energy Agency (IEA), fossil-fuel exploration needs to cease immediately to meet the goals of the Paris Agreement – to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. The question remains: how do we make such a monumental leap without engendering massive energy and economic disruption?

This question served as the backdrop to “Accelerating US Energy Transition Via Technology and Infrastructure Investments,” a panel discussion at the annual VivaTech conference in June. Moderated by Billy Nauman, Reporter and Producer for the Financial Times’ Moral Money, the discussion focused on the renewable solutions, infrastructure and technology required to facilitate the transition, and how banks, corporates and private equity firms are working in the US to bring this to fruition.

Paths to net-zero

According to the IEA, coal-fired electricity generation accounted for 30% of global CO2 emissions in 2018. The path to net-zero therefore must run through an accelerated use of renewable energy. But the transition isn’t without hurdles.

Brian Savoy, Chief Commercial and Strategy Officer for North Carolina-based Duke Energy, spoke about the role natural gas will play as a transition fuel as Duke Energy seeks to halve its carbon emissions by 2030, on its way to achieving net zero status in 2050. This includes doubling the company’s current 8-gigawatt renewable footprint by 2025 and eventually reaching 24 gigawatts by 2030.

Not only do we need to decarbonise faster and smarter, we need to balance affordability and reliability for our customers,” said Savoy. “Of course, consumer behavior is a big part of that—the ability to automatically throttle appliances, air conditioners and heaters naturally saves energy, meaning that the cheapest and greenest electrons are the ones we never have to generate.”

In the path to net zero, banks need to provide financing solutions to accelerate the transition process, including green bonds, sustainability-linked financings and related initiatives. Ravina Advani, Head of Energy, Natural Resources and Renewables Coverage, BNP Paribas Americas, explained that the Bank continues to innovate its finance offerings to help incentivise clients to transition rapidly. Sustainable finance is a market that has grown exponentially over the past decade, with solutions currently ranging from green, social and transition bonds, to sustainability-linked loans and more, she noted, adding: “There are also myriad opportunities to finance renewable assets such as wind, solar, battery storage and fleet electrification.”

There are myriad opportunities to finance renewable assets such as wind, solar, battery storage and fleet electrification.

Ravina Advani, Head of Energy, Natural Resources and Renewables Coverage, BNP Paribas Americas

As a founding member of the Net-Zero Banking Alliance, a consortium of financial institutions focused on building a global zero-emissions economy in line with the Paris Agreement, BNP Paribas is going beyond financing in its path to net-zero. “BNP Paribas has implemented specific policies for sectors with high ESG risks. We continue to retreat from carbon-intensive sectors such as unconventional oil & gas and coal. We’ve also started benchmarking our loan portfolios against specific metrics to ensure ongoing alignment with the 2050 Paris goals,” Advani said.

While the transition effort has typically featured sizable projects requiring major infusions of capital, there are also more localised, bespoke endeavors that are no less important.

“Accordingly, there has been an increase in institutional financing for these [smaller] initiatives, particularly through alternative investment managers raising capital from pension funds and others lacking direct access to these markets,” said Penni Roll, Partner and Chief Financial Officer, Ares Credit Group. “Over the last two years alone, North American infrastructure funds have raised some $50 billion annually, which have been earmarked for equity, debt investments and other ESG-related opportunities. So as the technology improves and the cost of building out sustainable infrastructure declines, we expect to see more of this funding put to work.”

Paul Segal, Chief Executive Officer of power developer and asset owner LS Power, said his firm is particularly bullish about energy storage and renewables: “We’re focused on the likes of transmission, electric-vehicle charging, as well as renewable natural gas and microgrids, among others.” He added: “The bottom line is that demand for decarbonisation among US industries is extremely broad. At the same time, there will continue to be a need for stable resources for decades to come, which is why we’re still working with flexible natural gas that we expect will gradually be supplanted as we move forward into the decarbonized future.”

Policy as a lever for transition

The Biden Administration’s push to feature green energy initiatives as part of its proposed infrastructure legislation underscores the belief that government has an active role in the transitioning process.

“Smart policy is critical to achieve successful energy transition,” said Savoy of Duke Energy, noting that policy is not limited to the states but also at the federal level.

“As we move to retire certain assets before the end of their lifecycles, we’re naturally concerned about keeping consumers and investors from absorbing any extra costs,” he said. “Therefore, we believe this type of engaged policymaking will help industries maintain a sense of order and clarity in order to ensure a smooth transition in the years ahead.”

Watch the full replay here:
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