What is the energy transition about?
While it is not a new concept, the transition will take longer – and require more capital – than many people realise, argues Asterion’s Nicole Hildebrand
Energy transition is a mighty expression. We see it everywhere, every day: in the news, in political statements, in investor strategies. It encompasses a dramatic change of one of the largest industries in the world, which touches everything from electricity and heat generation to fuel for transport to manufacturing of goods used in our everyday life.
Energy generation specifically has been transitioning for a long time already, with its early beginnings in hydro, biomass heat and the use of local wind sources. As these developed into large-scale energy generation from fossil fuels, the initial focus was on finding ways to simply generate more energy, particularly accompanying and enabling economic growth and prosperity.
With this growth, the expanding impact of generating energy from fossil fuels in large quantities has become very apparent in its negative effects on health, environment and climate. While certain negative effects from some of the emissions have been mitigated, their contribution to temperature rises has not.
While recognising the necessity for change, it is equally important to realise that standards of living are difficult to reverse and also to accept population growth and economic development are fundamental drivers of increased energy consumption.
Therefore, we believe in maintaining a sustainable energy system, using good, clean, environmentally sustainable sources going forward. The energy transition is based around these major tenets, which is widely accepted as a crucial path for the future of the industry.
While the idea is not new, it took a long time to get global attention, including substantial government subsidy programmes for renewables, political debates and reforms as well as several commodity price crises, before becoming mainstream. Like every major transition, the energy transition has meant rethinking every part of the system: fuels, generation technology, location, size, networks, storage, metering, efficiency.
The energy transition is a huge and complex issue to address, and the resolution or approach will not be universal on a global basis; it will require the development of different forms of generation, capture and efficiency, including green hydrogen, biomethane, wind, solar, batteries, carbon capture and many others form of decarbonisation. There is not one solution that will fix it all.
Finally, capital matters. The energy system which took decades to build up, mainly by state monopolies with government regulation, will require further investment for the transition and a sustainable footing for the future of the industry. Private capital can play a role in continuing to provide this required investment to help extend and further develop what governments initiated with large investments.
Nicole Hildebrand is a partner at Asterion Industrial Partners
“Like every major transition, the energy transition has meant rethinking every part of the system”
How to transition energy?
As an obvious start, replacing fossil fuel energy generation with renewable generation is fundamental. Renewable power sources can include hydro, wind and solar, but, despite having mastered the economics of these technologies over several decades now, they are also not completely without challenges. They need a lot of space, are intermittent, and they are dislocated, leading to the need for transmission, storage and back-up capacity.
In addition, there are green fuels like biomass, biogas and green hydrogen that benefit from the traditional transport logistic to overcome the dislocation of the other sources but are more limited in available volumes and dependent on associated infrastructure. Nuclear has a special position in between conventional and new fuels, but the complexity of the debate around the technology would go beyond the capacity of this article.
With the exception of hydro, that has largely been built out, all of these sources require investment into new generation capacity, reinforcement of networks, new storage or fuel production and new back-up capacity. The latter often comes as a surprise in the public debate when acknowledging that the speed of reduction of conventional generation capacity is or will be too fast to maintain security of supply while rebuilding the system with the above-mentioned tools.
With Asterion’s differentiated, industrial and deep-sectoral approach, we are able to understand the entire complexity of the energy system and the requirements of each technology. Our approach to investing in energy encompasses energy transition around the following aspects:
A leap forward with technology: evaluate the development, construction and operation of the new generation of renewable energy or green intermediary fuel in the right places and with the right partners. This enhances our ability to replace long-term conventionally generated energy with renewable energy.
Drive energy efficiency: implement new energy solutions and improve energy use at the consumer side to reduce the waste of energy in processes. The approach is a decentral one and focuses on heat and distributed generation. This supports the ability to transition and to balance the increasing energy usage in our lives with efficiency gains.
Secure back-up capacity: maintain existing conventional capacity as available back-up or develop new capacity where and to the extent needed to maintain security of supply and the grid stability in the short to medium term. This flexible approach enables us to remain at the forefront of a safe and stable transition but also invest behind new technologies today that will be relevant and sustainable for tomorrow.
Digitalisation: use IT tools for decentralised monitoring and control to help improve efficiency gains, avoid losses and optimise backup solutions (including on the demand side).
We are aware that the overall time horizon for this transition will likely be longer than expected and will also likely require more capital than has been budgeted. For the time being, we believe it is important to be part of the energy transition and, through the power of our investment approach, make an effective contribution to achieving the goal of making energy reliable, accessible, affordable but importantly sustainable and friendly for the long run.
The overall time horizon for this transition will likely be longer than expected and will also likely require more capital than has been budgeted”
Putting it into practice
Asterion has been supporting the energy transition in Western Europe since 2018, backing both renewable generation and energy efficiency initiatives.
Aligned with our energy transition strategy and our industrial DNA, we have played a number of facets of the energy transition in Europe since inception in 2018. These include investments into various generation technologies and types. We are operating large-scale gas power plants providing capacity back up and system services in Sorgenia and in CEB (France). With the team at AMP Clean Energy (UK) we have developed Urban Reserve, a portfolio of small-scale gas generation, close to demand. Both are supporting the increase in renewable capacity through stabilising the grid and securing supply.
Our investments in Barter (Spain), Samso (Italy) and in AMP Clean Energy develop and operate decentral generation assets, with solar rooftop installations and biomass boilers as well as battery storage systems. Samso is also active in upgrading buildings to improve energy efficiency. Proxiserve (France) and EAG (UK) are helping improve energy efficiency through individual metering and the upgrade to smart metering systems.
Most recently, we signed the acquisition of Steag (Germany) whose activities touch upon most aspects of the energy transition. We aim to continue developing Steag into a sustainable energy generator with its own climate-friendly capacity, and support its goal to transform its generation park and become carbon neutral. Steag is very well positioned to be a relevant player in Germany and in Europe in the process of transformation towards a cleaner energy mix.