“I am not against fossil fuels. I use them myself every day... They are some of my best friends.” This is quite a bold statement — even if made in jest — from someone who argues that investors in fossil fuels are doomed as the world transitions to a lower-carbon future. Yet this is exactly what environmental think-tank Carbon Tracker’s new energy strategist, Kingsmill Bond, told the FT Energy Transition Strategies summit in London this week. Carbon Tracker analyses how investments could be affected by a shift away from coal, oil and gas.
Neither Bond nor many other proponents of a speedier switch to renewables call for an immediate energy revolution. “We are not saying ‘let’s give up on all fossil fuels tomorrow’. It definitely is a transition,” says Carly Magee, a partner at investment firm Foresight Group in charge of raising and deploying capital in the renewable energy infrastructure sector.
For starters, there are still some significant technological riddles to be solved before renewable alternatives to fossil fuels become scalable and can provide power 24/7. It includes the need to store renewable energy reliably.
“I run an off-grid farm. I have wind, I have solar, and I have a good old backup diesel generator for those foggy days when there is no wind, and there is no light — normally around November,” BP chief financial officer Brian Gilvary says. “So I know what it is like to run an off-grid, 100-acre farm.”
And then there is an issue of balancing the need to meet growing energy demand around the world, namely in developing economies, and address climate challenges. There are as many as 1.5bn people without access to electricity, while the planet’s population is likely to increase by 2bn over the next two decades, Gilvary says.
“[In total] 3.5bn more people liking as much energy as you have today — and if they get as much as you have, forget about the Paris climate change targets... We have to get more efficient about it,” he says.
The oil and gas industry insists that the immediate focus should be on reducing carbon emissions, rather than hastily abandoning fossil fuels in favour of renewables. “The transition has to be at least as much about how we burn fossil fuels as about new sources of energy,” says Tony Hayward, trading and mining firm Glencore’s chairman and former BP chief executive. Centrica chief executive Iain Conn sees energy efficiency and the use of gas as “crucial in this next phase” of energy transition.
So how can each of us contribute to improved energy efficiency? Take cars, for example. A much talked-about switch to electric vehicles might be not as straightforward as it seems. “We need to go into this with eyes wide open in terms of the issues that come with very large-scale battery deployment,” Hayward says. Glencore provides raw materials for battery makers.
“If you look at the energy that comes out of a barrel of oil, you have to move around 500lb of stuff... To create the same energy out of a battery, you have to move around 500,000lb of stuff — you have to dig the stuff out of the ground, ship it around,” he says.
“One of the things we start to think about is — should we actually worry about whether there will be enough resources to supply battery materials for electric vehicles for everybody to own one as we own gasoline-fuelled vehicles?” Investec Asset Management’s portfolio manager, George Cheveley, says.
“Maybe what we should be looking at is whether there should be a new system where cars are not personally owned and governments bring in regulations, whereby you declare a city autonomous and everybody has to use autonomous vehicles that are not personally owned, and utilisation rates go from 10pc or less to 95pc a vehicle,” he says.
Providers of these autonomous vehicle services would be delighted, of course. But it remains to be seen whether policy makers and consumers will be ready to embrace such an idea.
Meanwhile, oil and gas firms are focusing on cultivating optionality within their portfolios, to convince investors that they can thrive in the energy transition.
“We will look to invest — as we did 20 years ago — in renewable low-carbon opportunities. But the difference from the past will be — it will be anchored to our existing businesses,” Gilvary says.