As the world shifts to a net zero future, vast new green infrastructure must be developed while, at the same time, polluting, legacy assets must be removed, replaced, or retrofitted; assets such as coal and nuclear plants, less efficient gas plants and first generation solar and wind.
What has been widely missed in this context is that the asset decommissioning and repurposing ecosystem is a vital element of the energy transition. It’s a trillion-dollar undertaking and a make-or-break, financial burden or opportunity for asset owners and investors.
Rudy Koenig, Principal for Energy for your Success and Executive Advisor Energy Transition Solutions at Jacobs, explains: “As we build this new energy system in a fairly short period of time [by 2050] we need to be decommissioning and building something new at the same time.”
Julien Halfon, Head of Pension and Corporate Solutions at BNP Paribas Asset Management, emphasizes that “decommissioning becomes part of the new build of the new system. Decommissioning becomes a green investment.”
Halfon and Koenig highlight the importance of employing the right strategy to effectively bridge the Transition Gap between old and new energy systems, ensuring that assets are turned into a strategic advantage for those who own them.
Bridging the Transition Gap – Mitigating risks
The Transition Gap is inherent within all aspects of the energy transition, including strategies, financial models, systems, society and physical assets.
As we move our existing asset base towards future greener uses, it is critical to mitigate financial threats caused by:
• Stranded assets that no longer earn income and require financial resources to decommission; while simultaneously
• Finding capital for investments in new energy assets.
Halfon points out that these threats can be turned into opportunities offering financial and strategic advantages to first-movers, and that the future cash benefits of this advantage can be accessed immediately.
In order to successfully navigate this unchartered territory, Koenig and Halfon recommend the development of corporate know-how within a larger global framework, “an ecosystem of companies involved in bridging this gap”.
“It has turned from a mere technical challenge to a corporate strategic challenge,” said Koenig.
Bridging the Transition Gap – The strategy
In order to capitalise on the opportunities presented by decommissioning, repurposing and reusing, Koenig suggests not only employing best practices and new business models that embrace circularity rather than a linear approach to asset lifecycles, but also suggests that asset owners reassess their corporate decommissioning projects in the context of their repurposing needs and potential.
The assessment should begin with a top-down approach, explains Koenig, to gain an understanding of the range of issues and the state of readiness in the business.
This will highlight potential scenarios, challenges and issues which must be addressed, such as:
- Understanding investor expectations for diligent valuation of decommissioning liabilities and what needs to be done to meet them
- Identifying options and requirements to secure funding in line with long-term sustainability and optimised investment strategies
- Planning the re-purposing of existing infrastructure future use cases
- Guaranteeing successful performance of the decommissioning and re-purposing process in a resource-constrained industrial environment
- Mapping the implications for the corporate business model, governance framework and organisation
- Accounting for societal concerns and regional requirements
By conducting such an assessment, it creates the strategic groundwork for a business model based on reuse and circularity, rather than a scenario of simultaneous decommissioning and new build.
This, in turn, reduces investment, time and resource requirements and turns asset burdens into financial opportunities.
Episode one and two of the Decommissioning Ecosystem webcast series unpack case studies demonstrating how to overcome the Transition Gap. View the on demand discussions with Rudy Koenig, Julien Halfon, BNP Paribas Asset Management, as well as their guests Eric Ingersoll, Founder and Managing Director of TERRAPRAXIS and Oliver Then, Executive Managing Director, VGBE.
Rudy Koenig and Julien Halfon will be speaking at Enlit Europe in Frankfurt 29 Nov – 2 Dec 2022.
Join Enlit Europe in Frankfurt and be part of the conversation about the energy transition in Europe and beyond.
