The opportunities and challenges of the global energy transition are driving discussions on the second day of the BNEF Summit in New York. The push to slash emissions is expected to attract $196 trillion in investments through 2050, according to BloombergNEF.
(Bloomberg) — The opportunities and challenges of the global energy transition are driving discussions on the second day of the BNEF Summit in New York. The push to slash emissions is expected to attract $196 trillion in investments through 2050, according to BloombergNEF.
Still, the transition is proving bumpy, even after the US passed landmark climate legislation that promises to supercharge the clean-energy boom. A backlash against renewable energy in Texas threatens to chill solar and wind development in its biggest market. Extreme weather is taking a toll on power grids that increasingly rely on renewables. And some technologies designed to slash emissions, including carbon capture and sequestration, haven’t quite taken off.
Time stamps are New York.
PPA Prices Still Rising After More Than Doubling (6:45 p.m.)
Contracts for buying power or the renewable credits from wind and solar farms – known as power purchase agreements – are still rising after already doubling or tripling in the last few years, said Hans Royal, senior director of renewable energy and carbon advisory at Schneider Electric, the largest adviser of PPAs in the US and globally.
US PPA prices jumped to $30 to $50 per megawatt-hour by mid last year, compared with $15 to $20 before the pandemic, because of widespread inflation and supply-chain issues, Royal said in an interview. While many of those supply-side problems have been addressed, costs for building renewables are increasing, he said.
Many developers are chasing a new option that opened up with the Inflation Reduction Act: allowing companies to buy tax credits without taking a stake in projects for at least five years, based on tax equity requirements, Royal said. Schneider has “many gigawatts” of projects it is working on with clients to take advantage of transferable tax credits, and expects to cement those deals once the Internal Revenue Service finalizes the rules, he said.
World Bank Sees Developing Nations Hurt by IRA (5:50 p.m.)
The massive incentives under the US Inflation Reduction Act will boost competition for resources, including human capital, that Latin America relies on to invest in clean energy, according to Demetrios Papathanasiou, global director for the World Bank’s Energy and Extractives Global Practice.
“We have been thinking a lot in the World Bank how we still try to get investment in clean energy in the developing world, where countries do not have a fiscal space and can’t afford to put in place all these incentives,” he said during a panel discussion.
Green Hydrogen Not Economically Feasible in Brazil, Omega Says (5:30 p.m.)
It still isn’t economically feasible to produce green hydrogen in Brazil because of the costs involved, said Andrea Sztajn, chief financial officer of Omega Energia.
Incentives included in the US Inflation Reduction Act have accelerated discussions in Brazil on the best way to develop the industry, she said in a panel discussion. Brazil’s offshore wind industry also needs subsidies and a regulatory framework to become viable, and it makes more sense to develop wind projects on land because there is plenty of acreage available and it costs less, she said.
Omega, which is developing a wind farm in Texas, is eyeing further expansion in the US and assessing investment possibilities under the IRA, Sztajn said in an interview on the sidelines.
US Borrowers Paying Less Attention to ESG Bond Labels (4:55 p.m.)
Sustainable bond labels are become less important to US borrowers, who are are finding other ways to integrate ESG, such as through disclosures and commitments to cut emissions, according to Anjuli Pandit, head of sustainable bonds for EMEA and the Americas at HSBC.
Sales of ethical bonds fell more than 50% in the US in the first quarter, data compiled by Bloomberg show. HSBC is the seventh-biggest underwriter of green bonds this year, according to Bloomberg rankings.
“We’re realizing more and more that potentially the future of sustainable finance in debt capital markets in the US is not going to be obvious from ESG bond framework numbers,” Pandit said at a panel discussion. “That’s not really the most important thing for what the US markets need right now.”
Hydrogen Suppliers Have Incentives, But Need Buyers (4:30 p.m.)
The hydrogen industry is expected to get a big boost from a generous incentive that’s included in the Inflation Reduction Act, but that only addresses half of the equation, said Sunita Satyapal, director of the US Energy Department’s office for hydrogen and fuel cell technologies. The agency is still working out the details for the payment that may provide suppliers as much as $3 per kilogram.
While that incentive may make the gas more affordable, there’s concern about whether companies will want to buy it. “We still needs strong demand-side incentives,” Satyapal said.
Carbon Capture Is Finally Getting Its Moment With IRA (4:25 p.m.)
The US Energy Department has been working on carbon management for two decades, but companies have struggled to find a viable business model, said Noah Deich, the department’s deputy assistant secretary for carbon management. “The IRA changes all of that,” he said, adding that direct air capture is especially exciting for him. Infrastructure funding should bring “complete sea change” in voluntary carbon credits that will support development of these technologies, he said.
There is still a lot work to demonstrate that carbon capture and storage can work on a commercial scale at natural gas, steel and cement industries, said Damien Gerard, vice president of carbon solutions at SLB. While there is a momentum, this may still take years, he said.
Rising Rates Lead to Competition for Bank Funding (4:10 p.m.)
Interest rates close to zero have long boosted clean energy development, but rising borrowing costs have forced renewable developers to compete with other infrastructure projects, said Beth Waters, a managing director in project finance at Mitsubishi UFJ Financial Group. Financing can get tight once some banks reach their maximum investment budgets late in the year, she said.
“There’s only so much capacity that banks have,” said Waters. “Some banks put their pens down in September or October and they’re done.”
US Has a ‘Clogged Process’ to Connect Renewables (3:10 p.m.)
The US has about 900 gigawatts of projects — akin to 900 nuclear reactors — stuck in so-called interconnection queues, where they have to be evaluated before they can supply grids, said Leonardo Moreno, president of clean energy at AES. Currently, only 30 gigawatts are connected every year, he said, calling it “a clogged process.” Most of those waiting projects are solar and wind farms.
The capital for projects will eventually evaporate if they can’t get connected, said Caroline Golin, global head of energy markets and policy at Google.
First 90% of Power Industry Can Be Decarbonized With Existing Tech (2:45 p.m.)
The power industry can be decarbonized 85% to 90% of the way with existing solar, wind and energy storage technologies, said Leonardo Moreno, president of clean energy with AES, a power company that works with Google to deliver around-the-clock clean power.
But getting the last 10% to go green in the power or even transportation sector will require long-duration storage, green fuels and hydrogen, he said.
Google Says No US Power Market Built to Fully Decarbonize Grids (2:43 p.m.)
US power grids are “not designed for whole-grid decarbonization,” Caroline Golin, global head of energy markets and policy at Google, said on a panel about the changes needed to deliver 24/7 clean power.
For the grid to move away from fossil fuels, there needs to be change at multiple points in the system: the capacity markets that dole out payouts to power plant owners so they’re always ready to supply the grid, the interconnection queue that evaluates new generation before it can be connected and the expansion of transmission lines that move power around.
“You have got to commoditize clean energy and create the market structures,” she said.
Full-Time Carbon-Free Electricity Is a Long Way Away (2:37 p.m.)
Even the big US companies that buy huge amounts of clean energy for their operations, like Amazon and Google, are a long way from reaching the point where all their electricity comes from clean power at every hour of every day, said Kyle Harrison, head of sustainability research at BloombergNEF. “We’re talking about systemwide decarbonization,” said Harrison. “This is a big challenge.”
Companies — and eventually the entire global economy — can get closer to running on clean power 24/7 by building an expertise in buying clean power and improving their power demand flexibility. There also needs to be a deeper penetration of renewables into electrical grids, Harrison said.
Read More: Google’s CEO Opens Up on Company’s Biggest Moonshot Yet
Fusion Companies Avoid Burden of Nuclear Regulations (2:21 p.m.)
Companies seeking to commercialize fusion energy are praising a decision earlier this month by US officials not to regulate their industry with the same safety standards developed for conventional nuclear power plants.
“Fusion is very different from fission,” said Rick Needham, chief commercial officer for Commonwealth Fusion Systems. “This is a big deal.”
Read More: How Two Approaches to Nuclear Fusion Could Create Endless Clean Energy
Blackstone Sees ESG Debt Momentum Amid ‘Significant Obstacles’ (1:22 p.m.)
There’s an enormous amount of capital that’s needed from the private credit space for the energy transition, according to Mark Rutledge, managing director at Blackstone Credit. Green loans continued to grow last year despite the global sustainable debt market posting its first decline on record in 2022 amid a credit rout and US borrowers issuing less debt linked to ESG, according to BNEF.
“That just gives you an idea of the amount of momentum and capital required for this transition, even in the face of some significant obstacles,” he said during a panel discussion. “Capital allocators and borrowers are seeing the value of private credit and that capital is going to this space, so I’m optimistic.”
Google Solar Projects to Help Low-Income Customers (12:45pm)
Finding ways to help local communities in an equitable manner is a critical part of any successful plan to decarbonize and address climate change, according to Amanda Peterson Corio, the global head of data center energy at Google.
That’s the framework for the deal Google announced Monday with EDPR NA Distributed Generation to build 80 small scale solar projects totaling 500 megawatts, which is equivalent to the output of a modest-sized natural gas-fired plant, beginning in Ohio. The financial savings generated by the panels will be used to create a community fund to benefit more than 25,000 low-income families, possibly through rebates to their power bills, according to EDPR.
Google and EDPR will release the blueprint of their project to make it easier for corporations and financiers to make them economic, EDPR Chief Investment Officer Richard Dovere said during a panel discussion.
Climate Finance Groups Are Misunderstood, BMO’s Barclay Says (12:51 p.m.)
Climate finance groups that press companies to decarbonize are wrongly confused as being regulators that set rules for businesses to reach net zero emissions, according to Dan Barclay, head of Bank of Montreal’s BMO Capital Markets.
Climate groups such as the Glasgow Financial Alliance for Net Zero, or GFANZ, don’t set rules and there is no “regulatory” outcome from what they do, Barclay said in a panel discussion.
GFANZ was created two years ago ahead of a key United Nations-led climate conference in Scotland. The group is co-chaired by Mark Carney, a former governor of the Bank of England, and Michael Bloomberg, founder of Bloomberg News parent Bloomberg LP.
BP in Talks With Linde to Send Gas to Blue Hydrogen Project (12:34 p.m.)
BP Plc is in talks with Linde Plc to provide natural gas to its blue hydrogen project on the Gulf Coast, said Kirsty McCormack, vice president for special projects.
Blue hydrogen is an industry term for hydrogen produced from natural gas. BP had already agreed to sequester the project’s carbon dioxide emissions.
Emerging Markets Aren’t Spending Enough on Energy Transition (12:02 p.m.)
Emerging markets aren’t investing enough in the energy transition compared to the size of the challenge, said BNEF’s head of energy transitions Luiza Demoro.
Only 8% of total investments in energy-transition technologies went to emerging markets in 2021, down from a record 20% in 2012, according to a BNEF presentation. Most spending is concentrated in Brazil and India, while many emerging economies aren’t receiving any investments at all, Demoro said. The pipeline of clean-energy projects in such markets has fallen since 2019 partly because of the impact of the pandemic, she said.
Bank Financing Needs to Go Green (11:03 a.m.)
Banks need to shift their financing priorities to help avert the worst consequences of climate change, according to Katrina White, a sustainable finance associate at BNEF.
Read More: Banks Need Even Bigger Low-Carbon Pivot to Avert Climate Crisis
BNEF has devised a metric that calculates the ratio of clean-energy lending and equity underwriting relative to the amount flowing to fossil fuels. That ratio was roughly 0.8-to-1 at the end of 2021. But it needs to hit 4-to-1 by 2030 if the planet is to meet the goals laid out in the Paris Agreement of 2015, White said during a presentation.
Anti-ESG Backlash Forces Precise Communications, Apollo Says (10:26 a.m.)
Republicans attacking environmental, social and governance investing is forcing Apollo Global Management to be more precise in how it communicates its strategy, according to Dave Stangis, chief sustainability officer.
“The conversation, the rhetoric isn’t changing the way we do business,” he said. “But it’s definitely helped the conversation inside the firm to be more precise” when discussing ESG topics, he said.
Carbon Management Opportunities Under IRA May Be Underappreciated (10:07 a.m.)
Energy companies haven’t yet realized the full scope of opportunities to develop carbon sequestration and storage projects in the US under the Biden administration’s Inflation Reduction Act, according to Noah Deich, the deputy assistant secretary for carbon management at the US Energy Department.
“We’re still thinking of carbon management predominantly as a regulatory defensive mechanism, how we’re going to keep our existing assets working in a mid-century net-zero strategy,” Deich said during a panel discussion. “That’s no longer the opportunity with the IRA and the Infrastructure Law in the US — it’s really about how we turn North America into a leader in carbon management.”
Inflation Is Accelerating Energy Transition, Blackstone Says (9:52 a.m.)
Inflation is hastening the shift to cleaner technologies such as electric vehicles, said Rob Horn, global head of the sustainable resources group at Blackstone Inc.’s credit group.
“Inflation is acting as an accelerate of the energy transition, making electric vehicles economic,” Horn said.
Blackstone was investing in residential solar in the US and Europe, as well as carbon-intensive industries to help them shift to cleaner fuels, according to Horn. President Joe Biden’s landmark Inflation Reduction Act made the market bigger for clean projects, he said. Horn added that the world is focusing on an “energy trifecta” — climate change, energy reliability and affordability. “We need an inclusive process.”
AI Is Critical to Energy Transition, Schneider Says (9:34 a.m.)
The energy transition can’t happen without artificial intelligence to help manage increasingly complex power grids as households and businesses become bigger energy users, Schneider Electric SE’s Gwenaelle Avice-Huet said in an interview on the sidelines of BNEF’s event.
AI can also help better predict and manage electricity usage, such as by tapping electric vehicles, household solar, batteries, heating pumps and other appliances, said the chief strategy and sustainability officer of Schneider, which has an in-house AI team. The technology can also help companies perform maintenance before power plants break down.
Clean-Energy Deals Hobbled by Challenging Economy (9:19 a.m.)
The volatile economy is slowing clean energy deals, according to veteran financiers. High interest rates, inflation and the failure of Silicon Valley Bank have made it more challenging to put together financing packages. Transactions are taking longer to complete, valuations are down and initial public offerings have become much less common.
It also means startups are facing more scrutiny as they pursue funding. Growth potential is always important, but the people providing capital are also paying more attention to other factors including potential returns, scalability and when a company might reach break-even status, said Sucharita Dasa, a Citigroup Inc. managing director for clean energy investment banking.
“All of those have become more important in the past 12 months,” Dasa said during a panel discussion Monday night. “It’s literally the year of the complex deal.”
Canadian Oil Sands Have Decarbonizing Advantage, Group Says (8:57 a.m.)
Canada’s oil-sands explorers are well positioned to decarbonize their production relative to most other basins around the world, according to Kendall Dilling, president of producer coalition Pathways Alliance.
The region has the competitive advantage of scale over other basins, with roughly 3.5 million barrels a day of production concentrated among just a few suppliers. Also, the western Canadian region sits on a geological formation that is “absolutely tailor-made” for carbon storage, Dilling said in Tuesday’s panel discussion.
–With assistance from Brendan Walsh, Anne Riley Moffat and Kara Wetzel.
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