Eduardo Monteiro, Co-CIO of Victory Hill Capital Partners, outlines the key components to achieving energy security during the transition.
When the UK national grid system was created in 1926, the goal was to create a network to link power stations that were already located near demand centres. In its original form, the grid was composed of 6,400 kilometres of cables – mostly overhead – linking the 122 most efficiently located power stations.
The new system was a marvel. During the blitz when London’s Battersea Power Station could not operate, power plants in South Wales could provide electricity to meet the nation’s demands.
But when the environmental and health impacts of chimney stacks became apparent, efforts to reduce pollution in UK cities and the advent of larger power plants led to the widespread closure of inner-city power stations.
Now, most power production now occurs outside of cities, with the majority of power plants located far from demand centres. Why does this matter? One reason is that transporting electricity over long distances is extraordinarily inefficient. As much as 20% of electricity produced by power plants located away from the point of consumption is lost in resistance on transmission lines.
A wilful blindness to look beyond emissions statistics is compromising supposedly sustainable portfolios.
Too often, the measure of a portfolio’s ESG pedigree is based on a single emissions figure that hides further environmental impacts, such as deforestation; governance concerns, such as poor data protection; and social implications, such as human rights violations.
In the world of renewable energy, we are now seeing the emergence of a number of increasingly accepted methodologies being employed to calculate the impact of renewable energy schemes. When a renewable power source, such as a solar farm, is added to the grid, the emissions avoided by the assumed displacement of more carbon intensive power plants can be added up to gain a figure indicative of that energy source’s environmental impact. A calculation validates a solar project as sustainable, giving a green light to investors looking to add a project to their ESG-forward portfolio.
But that big green stamp masks a more complex story. Before those solar panels were connected to the grid, lighting up homes with eco-friendly power and burnishing ESG ratings in tandem, they were built with thousands of components from across the world.
Tough questions are the most powerful tool in an ESG investor’s arsenal to hold asset managers to account.
Although macroeconomic and geopolitical turbulence have hit fundraising globally, infrastructure has been performing well and managers remain bullish on the future of the asset class.
Growing demand for Green Energy infrastructure in particular, along with the ability of the asset class to demonstrate its resilience during turbulent times, adds up to a positive forecast.
“Managers need to look beyond the obvious assets to maximise performance” says Richard. “There is an incredibly large opportunity in enabling the transition for the hardest-to-decarbonise industries,” he adds. “E-fuels, hydrogen and similar solutions have the potential to revolutionise transportation and will have a bigger impact and higher margins than, for example, producing renewable energy in a market that is saturated with renewable energy.”
One of the most in-demand industrial gases, carbon dioxide is essential in everything from food production to cooling nuclear power plants.
In recent years, supply chain disruptions caused by Covid restrictions and the war in Ukraine have meant the gas is in ever shorter supply. This is most acutely felt in the food industry where companies have struggled to secure CO2 for carbonated drinks and food preservation.
BY RICHARD LUM (Co-CIO of Victory Hill Capital Partners)
As the UK races to decarbonise its energy mix, it is often the power generation announcements promising gigawatts of new sustainable energy that make headlines. But recently, the debate has shifted subtly toward the underlying architecture that will make this transition possible. Headlines have now begun to show that renewable energy projects can wait as much as 15 years before they receive grid connections.
The revelations mean the pressure has mounted on the UK regulator, Ofgem, for risking government investments in, and legally binding targets for, renewable energy output in the UK. The issue has led to a new government mandate that requires Ofgem to prioritise net zero. It recognises a fact that the energy industry has long understood – the grid regulator cannot be a neutral party in the transition to a low carbon economy.
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