Roundtable 'From Fossil Fuels to Renewable Energy': Turning the demand for fossil fuels

August 2, 2023

^{This report was written in Dutch. This article is an English translation.}

Companies sometimes still have to overcome enormous financial obstacles to make the transition from fossil fuels to renewable energy. But there is hope: the investment opportunities for renewable energy are getting better and the high profits of fossil companies will soon come to an end.

The participants in the Roundtable 'From Fossil Fuels to Renewable Energy' concluded with a discussion of the impending tipping point in the energy transition from fossil fuels to renewable energy.

This is part 3 of the report.

By Ronald Bruins

Other destination

Van Berkel points to the enormous financial obstacles that some companies have to overcome to get rid of fossil fuels. 'Much of the existing infrastructure, for example in the port of Rotterdam, must be given a different destination. Don't take that lightly. In the 1980s, shipbuilders were located in the most beautiful places at the ports of Rotterdam and Amsterdam. Those activities diminished and it took thirty years for those places to be redeveloped.'

Van Baal also sees this challenge. He subsequently concludes that management teams of corporates will more often be held responsible for their climate policy. 'We're seeing that happening now. If you don't do enough for the climate, you don't take your responsibility seriously enough. And then you as a board can be held responsible before a judge if your policy is not in line with the Paris Agreement.'

Hutten returns to the carrot-or-stick discussion. 'I'd go for the carrot. Also because it points investors in the right direction, generates impact and protects them and pension funds from stranded assets.'

The right people?

Gilligan wonders if the right people are at the top of oil companies. 'They are often directors who have been active in the oil and gas market for a long time. Are they the right people to lead the transition? I agree with the statement that institutional investors should stay away from new investments in oil and gas fields as much as possible. This sends out a good signal.'

The question is whether you also make the 12% profit with renewable energy that companies make with fossil fuels. But those high profits will soon be over. After all, this does not yet include the costs of climate change.

Van Baal applauds that. 'The question is whether you also make the 12% profit with renewable energy that companies make with fossil fuels. But those high profits will soon be over. After all, this does not yet include the costs of climate change. Add in the subsidies on fossil fuels and it becomes clear that oil and gas companies will stick to this business model for as long as possible. In addition, I think that shareholders should get involved more than they do now. Under the motto 'we are in constructive talks with the board', they still vote too little for resolutions that are climate-friendly.

Labbat also expects oil companies to want to harvest the cash flows from their existing business models for as long as possible. 'But I also see them investing more aggressively in renewable gas and renewable fuels. They see that this is where their future lies and they can use their existing hydrocarbon infrastructure.'

Increase pressure

Financiers can say that they will no longer step into new oil and gas fields, but insurers can also take steps. 'By not insuring these activities anymore,' says Gilligan. 'That also increases the pressure.' He notes that an estimated 40-60% of oil end users are vehicle owners. 'As fleet electrification continues, we will also see a tilt in demand for petroleum products.'

Reznik: 'In that sense, the demand for grid solutions to connect all those electrical assets is also a major investment case. That case will only get better with high gas and oil prices.' Toledo: 'That is also because the risks run by non-sustainable companies are increasingly being priced into the valuation.'

Labbat also finds that old infrastructure, such as a pipeline or a refinery, can be used for renewable energy. 'That is also sustainable, because it gives old infrastructure a new lease of life. For example, an old refinery can be used to make renewable diesel. Made from the fats they used in a fast food chain.'

I see oil companies investing more aggressively in renewable gas and renewable fuels. They see that this is where their future lies and they can use their existing hydrocarbon infrastructure.

An optimist

It is time for the closing remarks, says master of speech Gerritsen. Toledo calls on investors to 'do as much as possible' to make the transition to renewable raw materials. 'We have that task, also for future generations. I am an optimist in this. I think we can make this transition and that we as investors can accelerate it. But we can't do it alone, we need everyone.'

Hutten: 'I agree. The task is large and complex. We need everyone – and therefore also investors – to tackle the task.' Labbat: 'The world is well on its way with the energy transition and the introduction of renewable energy. But we still need a plan to ensure consumers have access to both reliable and affordable energy. Even when the sun goes down or the wind stops blowing. That backup technology continues to evolve and improve. I am also encouraged that the US government is supporting investors to make meaningful investments in a range of impactful alternatives to decarbonising the economy. It has never been more exciting to participate in an investment case for the energy transition.'

Toledo: 'Let's keep up the good work.' Van Baal: 'I'm glad I met like-minded people.' Van Berkel emphasizes once again the importance of good analyzes of the investment cases. 'What contribution do you really make by realizing a project? Take a good look at that. That is also important because we don't really have a good method for it yet.'

Reznik expresses the hope that in the near future the need to transition from fossil fuels to renewable energy will become apparent to most companies. 'I hope they are more likely to look at the possibilities behind such a transition.'

Gilligan: 'The biggest issue is how we get to zero emissions and who pays for that transition. But it is more than clear that there are attractive investment cases for this transition.'

Read part 1 of the Round Table 'From Fossil Fuels to Renewable Energy' here and part 2 here.