More private investment needed in low-emission energy post-covid

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More private investment needed in low-emission energy post-covid

27 May 2020 | Business Desk

Published: Mon, 25 May 2020

By Gavin Evans

Keeping the world’s transition to a lower carbon economy on track post-covid will require greater private sector investment, New Zealand energy executives heard last week.

The public spending that will be required to get countries out of the global recession underway will leave little for on-going research and development needed in low-carbon technologies like hydrogen and carbon capture and storage, alternative energy specialist Massimiliano Cervo said on a webinar hosted by the Sustainability Society and the BusinessNZ Energy Council.

Many of the world’s oil companies are investing in renewables and other lower-carbon energy options, Cervo said from Argentina, but the pace of that work is going to have to accelerate.

And he said international partnerships involving major energy companies will be needed to develop products like hydrogen at the pace and scale required.

Governments, now short of cash, will need to get smaller developers in their countries to “partner up” with those international players, he said.

“We can’t keep relying on governments to keep injecting money. We should bring private capital in instead of taking money from the government and the people’s taxes,” Cervo said on Friday’s webinar.

“I’m not saying take the oil companies out - I’m telling you to bring the oil companies into renewables.”

Already investing

Many of the world’s largest oil companies are already investing in solar, wind, hydrogen, and electric vehicle charging to reduce their emissions and transition into lower-carbon businesses.

BP, which in February set a target to be net-zero by 2050, earlier this month committed A$2.7 million to test the feasibility of an export hydrogen development at Geraldton in Western Australia. If developed, a commercial-scale operation would produce a million tonnes of ammonia annually, utilising up to 1.5 gigawatts of new wind and solar power generation in the region.

In New Zealand, the Labour-led coalition government is promoting hydrogen development after banning new offshore exploration in 2018. It is investing almost $20 million in a green-hydrogen project being developed at Ballance Agri-Nutrients’ Kapuni ammonia-urea plant in Taranaki.

But to date it has resisted calls to use hydrogen made from natural gas to help develop the industry, or to fund carbon capture and storage technology the International Energy Agency and the UN’s Intergovernmental Panel on Climate Change consider key to limiting global warming.

Cervo, a future energy leader with the World Energy Council, said that instead of “going against the oil and gas industry” governments should be working with major firms to mobilise their capital and expertise to develop low-emission energy options.

Oil would remain an important hydrocarbon source for chemicals, clothing and other products, but can be removed from the energy sector over time, he said.

Gas would also remain an important transition fuel until 2040-2050 at the earliest.

Pursue many options

Cervo said the key for a successful transition would be to make it as smooth as possible, and to give oil companies the space to pursue a wide range of different options.

Gardiner Hill, BP’s vice-president for carbon management, said the new targets the firm set in February will fundamentally change the business and how it operates.

The range of measures involved will include prioritising development of lower-emission oil and gas fields, greater use of renewable energy at its own sites, reducing methane leakage, improving the efficiency of its operations, carbon capture and storage and investing in offsets.

Hill said hydrogen will be a “really important” energy vector in future, given its potential as a heating fuel and for heavy transport. It may also be a key technology for hard-to-decarbonise sectors like steel making and petrochemicals.

Speaking from Scotland, Hill said very little of the sector was without investment risk.

Long-term there was potential for a big drop in demand for oil, and right now there was real risk from the drop in prices.

Costs for solar and wind development had dropped dramatically, so may represent lower risk in future, he said.

Hill said more direct investment in renewables is being considered by BP, given increasing demand in the US, Europe and UK, and they are likely to form a bigger part of the firm’s portfolio over time.

But he noted the company had planned to invest about US$8 billion in wind and solar in the mid-2000s when costs were much higher. The hoped-for demand didn’t eventuate and a lot of shareholder value was destroyed.

Hill said whatever the company does in renewables has to be sustainable, and that meant it had to make money.

Contact: Gavin Evans