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An interesting report came out last week from Reclaim Finance. Reclaim Finance is a campaign group promoting renewable energy and professionally criticizing organisations that continue to invest in oil, gas, and coal. Last week, Reclaim Finance had reason to be angry.
According to its report, 30 global asset managers had as much as $82 billion in holdings in companies that are developing new coal projects. Even worse from Reclaim Finance’s perspective, these same asset managers had $468 billion in holdings in 12 major oil and gas companies. And some didn’t even have anti-fossil fuel policies in place.
“Leading asset managers are kicking the can down the road without even asking companies to stop worsening the climate crisis. Let’s be clear: drilling a new oil well or opening a new coal mine is not a normal thing to do in a widespread climate catastrophe,” said one Reclaim Finance campaigner (which is apparently a job title now) in comments on the data.
I would readily agree that, in the event of a catastrophe, doing more of the thing that caused the catastrophe is unwise, to put it mildly. However, one of the things that transition proponents regularly and with admirable diligence overlook is the actual lack of scientific consensus about there being a “climate catastrophe”.
What there is general consensus on, based on what I have been reading and hearing over the past six months, is an imbalance between the supply of and demand for energy that has led to exceedingly high prices for that energy. The most normal thing to do in such a situation is to invest in new coal mines and oil wells.
That asset managers are greenwashing their investments is hardy news or very much of a secret. They have publicly embraced net-zero targets and signed up for organizations that were set up to promote these targets but on the whole it has remained business as usual because, unlike NGOs funded by other NGOs, which is what Reclaim Finance essentially is, asset management firms exist to, well, manage assets.
This is a nice way of saying they are in the business of making money for their clients so they make money for themselves. As long as there is money to be made in an industry, asset managers will be there. The financial industry is perhaps the most cynical one but, again, this is neither news nor a secret. The energy transition may be a beautiful dream but the hard reality is that demand for oil, gas, and coal is higher than supply and there’s money to be made from this imbalance.
This is the crucial difference between climate NGOs and asset managers. The former are being paid to lobby for something that sounds well but doesn’t withstand the test of reality. The latter are being paid to make money for other people. They cannot afford to push technology that does not withstand the test of reality.
But enough about this report. It’s only the latest in a long string of such reports that NGOs generate on a continuous basis because this is what they get paid to do and because the business world will never fully align with their targets. Unless governments and courts force them to, as they did with Shell.
Here’s another report, however, this time from McKinsey and Co. Titled Outsprinting the energy crisis, the report suggests that industrial energy consumers act in a fast and bold manner in order to position themselves better for the net-zero future. The fast and bold manner of action, according to the authors, involves “a new approach to energy procurement and a radical focus on energy efficiency and decarbonization.”
Here’s the paragraph on the first element of the approach because I don’t want to offend the authors by trying to paraphrase them:
Hedges for future energy supply are currently priced above the levelized cost of electricity (LCOE) for renewable-energy projects. As a result, meeting some of a plant’s energy needs via the physical ownership of renewables assets or power purchase agreements (PPA) with renewables generators can cut short- and medium-term energy costs while also improving long-term price security.
I particularly like the first sentence. It reads as though it states an immutable fact, which, as we all know, is not the case. Apparently, the idea is that when people see LCOE they would freeze like deers in headlights and move on, convinced that if LCOE is mentioned, whatever follows it is the truth. I, meanwhile, need comparative figures to become convinced.
Moving on, we learn of the odd, I think, case of the plant that closed a power purchase agreement with itself.
Before the current energy crisis, one company in the chemicals sector acquired a two-square-kilometer plot of land next to its plant, intending to construct a solar farm. Under a PPA that provided power at €50 per megawatt hour, the project supplied 45 percent of the plant’s overall energy, with a payback period of only one year. At today’s prices, such a project would pay for itself in weeks.
I read this paragraph half a dozen times and I still suspect I’m missing something. I must be, otherwise the information does not make sense. Why would a company buy land, build a solar farm and then set up a scheme, in which it buys the power from itself, perhaps via a subsidiary, instead of just consuming that power it produces?
I am also a little concerned that the company is not mentioned by name, which opens the door to suspicions that the story might not be, strictly speaking, true. If there’s no name, you can’t verify the story, after all. From the couple of numbers provided, the project seems just dreamy but imagine all the costs of getting the land and all the necessary permits to build the farm and then striking a deal to sell the electricity for 50 euro per MWh. And getting your investment returned within a year. How exactly this panned out remains shrouded in mystery.
“At today’s prices, such a project would pay for itself in weeks,” the authors claim but fail to mention which prices. The prices of oil and gas? The prices of solar modules? The price of aluminium, perhaps? Or the price of electricity generated by the hypothetical new farm? Will it still sell the electricity for 50 euro per MWh? That story is raising more questions than it answers.
But on to the second point of the report: doubling down on energy efficiency and decarbonisation. Apparently, the authors like to talk about shortened timelines, so they’ve done it twice, saying that “Since [energy efficiency] projects that would have taken several years to pay back will now do so in months or even weeks, high prices have transformed the business case for energy efficiency.”
There is no backup for this claim in case anyone wondered how these payback times have shortened so much. They just have and that’s all the reader needs to know. It must be the expensive oil and gas. You know, the same oil and gas that are fueling inflation last seen decades ago, including in the industrial sector. Apparently, inflation has the secret ability to shorten payback times for certain projects while pumping up the prices of everything.
The argument here appears to be that investment in the acceleration of decarbonisation and energy efficiency enhancement plans already in place will pay off more quickly than previously expected for unspecified reasons, which is all the motivation an industrial company needs to roll up their sleeve and just do it.
“To reap the benefits of such [energy efficiency] technologies in the current energy crisis, industrial players will need aggressive schedules and advanced project delivery capabilities. They must streamline capital approval processes and reallocate resources, prioritizing engineering and procurement capacity for the highest-impact energy-efficiency projects.” I’m sure it won’t cost them a single eurocent to do that.
The report lists various specific energy efficiency technologies that companies can adopt in order to make some pretty substantial energy consumption cuts. This makes it even more confusing that not a single specific successful adopter is mentioned. All we get by way of examples is that “Some industrial companies already use these approaches and others to compress project timescales by up to 40 percent.”
McKinsey is an authoritative source of analytical information, one might say. It has no vested interest in pushing one or another agenda. It’s not an NGO that gets its funding from other NGOs and from people who basically pay to read things that resonate with their beliefs.
Alas, we no longer live in the times when there was independent analysis. We live in the era of the clickbait. Just look at my clickbaity headline — it features the word “horrors”, which is an emotionally triggering word that would make you click on my article to read it, even if you’re not a subscriber. But while I have made it my business to dig into the ugly part of reality without really questioning why it is so ugly (because I know the answer), McKinsey, Reclaim Finance and thousands of others seem to have made it their business to re-shape this reality.
Good luck with that.
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