news - Powerful trends combine to ensure the twilight of the incumbent energy industry


Powerful trends combine to ensure the twilight of the incumbent energy industry

February 19, 2018

The global transition to clean energy is an ongoing saga with three big themes, each individually compelling, but presenting an extremely powerful, irreversible force when combined, according to social entrepreneur Jeremy Leggett.

Addressing the Making Solar Bankable conference, Leggett, founder of the companies Solar century and African Solar Lighting, said the three ‘narratives’ are the awakening of global society to the hazards that fossil fuel energy poses, the way renewable energies are fundamentally disrupting that energy ‘incumbency’, and the growing array of existential threats to it.

“The three in synergy are what makes solar and renewables so exciting, and gives the sense we can get to a decarbonised world,” Leggett said.

Governments and wider civil society are beginning to realise the need for action, evident in the 2015 Paris Climate Change agreement and others. Even with the proposed withdrawal of the US, other nations, city-states, corporate and organisations are determined to meet climate targets and effect a transition to cleaner energy.

China has acted to shut down coal plants, even ones in construction. “This is what we mean by ‘stranded assets’. For governments to say this is ‘irreversible’ is a big thing,” Leggett noted. Meanwhile cities like Paris, Mexico, Madrid and Athens have banned petrol and diesel vehicles by 2025.

Companies and investors are also acting, collectively and individually. “The corporate world has the single biggest role in achieving change and transition to clean energy,” Leggett told the 500 delegates attending to Amsterdam event. “They are sometimes behaving like campaign groups. Regulators are also getting involved.” Groups like the RE100 and the TCFD – the Task Force on Climate Related Financial Disclosures, are pressuring the worst companies (100 of which represent 2/3 of global GHG emissions), while sovereign wealth funds are asking their government sponsors for mandates to divest from oil and gas investments.

Increasing corporate accountability is now being backed up by legal challenges, as attribution science is now strong enough to withstand court scrutiny. Actions are already under way for rising sea levels and environmental damages, as well as for ‘deliberate deception and misrepresentation of climate change science’.

The third theme Leggett identified is the ‘possibly existential’ threat to incumbency interests. It is already cheaper to built new solar installations than operate old coal plants. In Europe, half of all coal plants are loss making. In the US, oil and gas was the least profitable industry last year. There is no finance for old supply chains and the demographics of employment show people believe in renewables and want to work in the industry. The opposite is true of incumbent energies.

Worse, incumbent companies are buying time by financing their debt interest with more debt, Leggett noted. “Shale has been built on a Ponzi scheme of debt. Bloomberg Finance has identified a US$200bn ‘debt servicing wall’ ailing incumbent industries, and that is before they face up to any environmental challenges. Cash return on capital invested in low, and investors are losing faith.”

Yet there are heartening stories. Dong Energy, formerly an oil and gas giant, managed a successful IPO in 2016, following by a name change in 2017 to Orsted, representing its ‘profound strategic transition from black to green energy’. Digitalisation is also providing new opportunities: witness the link between National Grid and Google in the UK. Disruption, once started, happens faster than most people expect, he concluded.

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