This article is sponsored by Meridiam
What issues are driving the energy transition today?
One is technology and the role of renewables in our energy mix. That’s really the backbone of the shift in terms of emissions in the energy sector. The other major consideration is to think about the social consequences that flow from the energy transition. For example, when you electrify mobility, what is the impact? How do you help heavy industries transition from grey hydrogen to green hydrogen in a way that is affordable for them?
At the end of the day, these two themes lead to different infrastructure assets. But they are the two big drivers of our philosophy for investing in the energy transition.
How important is electrification as we aim for net-zero?
First of all, net-zero is an extremely ambitious objective and we have a duty to act everywhere we can before we consider carbon capture and storage, which will probably be essential to reach that goal. We need to electrify everything that can be electrified. In our day-to-day lives, that means heating and driving – the two big ways that individuals consume energy.
We can decarbonise with renewables – or nuclear if a country considers it acceptable – but it has to be economically competitive. And renewables also create some new issues, such as intermittency and the quality of supply. We will need to work with regulators and investors to design flexibility into electricity systems to ensure we can match demand and supply. But I believe we are equipped to find those solutions.
How would you assess performance on electrification so far?
Europe is clearly paving the way globally. We should be grateful to the UK for not compromising on its very ambitious climate targets – the EU also. If we have affordable electric vehicles globally today, it’s because the EU decided to have standards of 95 grams of CO2/km on fleets sold by carmakers. That has meant that manufacturers have taken off-the-shelf battery technology and pushed it. The shift by carmakers like Volkswagen and GM was ultimately born in Brussels.
Where we are not so good is at the nexus between industrial capabilities, financing, investment and innovation. You see now that for successful green European companies, going down the SPAC route in the US is probably the most efficient way to raise capital. It could mean that we end up with a significant portion of European companies listed in the US. The capital able to move quickly and strongly to finance growth is not that available in Europe.
What about adoption in other parts of the world?
Joe Biden’s win in the presidential election is good news because it will offer more opportunities to access infrastructure in the US market. It also means that the US is back in the game when it comes to green industry initiatives and capital for those.
Following Brexit, the UK could be in front of the EU on sustainability. The country may be more European at practically adopting the European sustainability directive than France, Germany or even best-in-class Finland. I think their approach will be best-in-class.
In which sectors do you see opportunities in electrification?
In advanced markets, such as Europe, we believe we can be one of the enablers of the transition by acting on demand. Smart EV charging infrastructure is a big theme for us and a space we expect to invest close to €1 billion into over the coming years. Our agreement to roll out 2,000 charging terminals – including standard and rapid charging – across Carrefour hypermarkets in France is an example of that.
Demand response is also something quite innovative. We have invested in a company in the technology space called Voltalis which enables you to cut the heating for a few seconds at peak times to reduce pressure on the grid. At the macro level, it means that in two years in France we will be able to remove the equivalent consumption of a nuclear power plant.
What about those assets that deliver that flexibility to the grid?
Interconnectors are interesting assets that provide synergy between electricity grids and reduce the risk of power not being available when it is needed. We are developing an interconnector from northern Germany to southern England. It means that you could have a household in the UK using electrons coming from offshore wind in Germany and, conversely, you may have an excess of energy from offshore wind in the UK that can be channelled to Germany. If you have the capacity, you can use it across borders to optimise at an international, rather than local, scale.
Another area is long-duration storage. We see potential for hydrogen storage projects like the one we are creating in French Guiana. These projects make sense on big islands with isolated power grids – but not for the time being on mainland Europe, where they have to be adapted to reduce their cost.
We are also looking at some potential hydropower storage projects in the UK and Italy. This is still at an early stage and will take a few years to develop. But these projects have the big advantage of contributing inertia, which improves the quality of the electricity you inject into the grid.
How can energy transition initiatives be applied to businesses?
We are exploring energy efficiency for industrials very actively. We have a partnership with a French utility to offer biomass solutions to industrials that are still burning coal or gas, or to help them improve their boilers as they shift to green sources.
Hydrogen is first and foremost an industrial play, but it brings a lot of questions. How do you handle the counterparty risk with an industrial over the long term? How do you deal with the interface between the energy process and the industrial process of the company – because you are in the plant of the industrial. And how do you ensure you have a contract that is as robust as with a PPP? Those are questions investors have to deal with.
What are the risks in energy transition and how do you address those?
The fiercest competitor of a hydrogen electrolyser today will be the electrolyser built five years from now. It will be 50 percent cheaper, if not even cheaper still. But it will only exist if the electrolyser today is built first.
The only solution for an investor is a stable long-term contract. More than that, the contract needs to be balanced. You have to factor in incentives to lower the cost of the assets, such as maintaining and upgrading with cheaper and more efficient components. You have to find ways to make the whole competitive.
We need to think collectively of the long-term objectives, think collectively of the solutions and choose the smartest ones today. But we also have to be consistent in 15 years and not forget that when we built the project it was expensive – hence the remuneration we are asking 15 years from now when things will be cheaper.
The financing situation is also evolving. Tomorrow, you will have technology companies financing some things. You will have project finance. You will have green corporate finance. The financing industry is evolving because the industry and the society are evolving.
In what other ways can infrastructure investors support the energy transition?
A big challenge for us is to ‘mainstream’ the energy transition into all our assets and projects. So, when we are building schools in Wales or Finland, we make them extremely efficient from an energy perspective.
At the end of the day, this is as important from a carbon-footprint perspective as installing a new technology device to manage energy use. Traditional infrastructure owners have a lot to bring to the table because this is another area where we can make a difference.
Green power in the rainforest
What is the energy project you are developing in French Guiana and why is it important?
We recently obtained first regulatory approval for a plant that combines solar PV with a battery, as well as an electrolyser to create hydrogen and hydrogen storage. Guiana is very reliant on fossil fuels and wants to improve its mix.
While the cost of this project is relatively high compared with a power plant in mainland Europe, in the west of Guiana, in the Amazon rainforest, this is exactly what the country needs. It will provide reliable supply to the local community during the day, as well as at night.
What are the challenges of such a project?
Being isolated, the French Guiana grid cannot tolerate much intermittency and needs stable renewables sources. The solution is a technical challenge, so we have a world-class EPC taking over to deliver the project. But once built, you rely on predictable solar radiation and don’t have any risk of the electricity not being available.
We have also had to consider the indigenous population. We are working with the Amerindian and Bushinengués communities to develop several initiatives, such as access to electricity, telecoms and public transport. Other measures include access to education for local children and young adults, and job opportunities for adults. These actions have helped us to get the support of the community and ultimately get approval for the project.
What are the benefits?
In addition to energy resilience for French Guiana, the plant will help to prevent the release of 475,000 tons of CO2 into the atmosphere and provide energy for some 10,000 households in western Guiana. The project will deliver 200 jobs in construction and an additional 12 long-term jobs in one of the poorest regions. It will also contribute to the building of vocational training programmes offering high-level qualifications to the young Guianan inhabitants at the core of the energy transition. It can also pave the way for similar hydrogen power across the region.