Thursday, 20 February 2014

Parents: your pensions are screwing up your children's future

When pension funds and investment managers are opposed to governments, they can be ruthless. These otherwise behind the scenes organisations played a big role in killing the EU's Robin Hood Tax (also known as the Financial Transaction Tax), claiming that it would harm their members.Now we want to harness this power for a much bigger goal – to help ensure we don't sleepwalk into climate catastrophe. It truly is, as the US secretary of state John Kerry has just called it, a "weapon of mass destruction".

That wouldn't be good for pension returns – as Anne Simpson, a senior official at one of the world's biggest pension funds says: "There will be no place for CalPERS to invest in a 4 degree climate warming world." And it won't be very good for us, young people, either. Who wants to live in that kind of dystopian world?

Protests can do a lot to raise awareness, but they lack a very important ingredient: Money. This is why the environmental movement turned to investors as a powerful lever of change. The fossil fuel divestment campaign with its focus on "easy" targets, such as universities and charitable organisations, has given a big boost to climate change activism. These institutions can give a powerful message. But their financial power is dwarfed compared to the trillion pounds average citizens jointly own in their pensions.

Pension funds are cruising along, unsuspecting of the large iceberg coming their way. The companies they own spend our parents' retirement savings in the search for new fossil fuels – at a time when existing reserves are already sufficient to lock us into potentially 5°C of global warming. What's worse, they also seek to manipulate public opinion and lobby governments, ensuring nothing stands in the way of profits.

Meanwhile, few global leaders are displaying the courage to address the issue of climate change. The blunt reality is that it's the older generation who largely ignored scientists' warnings, and many of them are still in denial about climate change. It is their culture of irresponsibility that created this mess, and their generation is over-represented among the political and business decision-makers. Yet it's we– the younger generation – who are going to suffer the consequences of their passivity. It is down to us to make our voice heard and to find a way around our lack of representation.

Most young people have no funds, but our parents collectively have a very large pot of money in their pensions. Whether they are concerned about climate change or not, they do really care about their children. If asked directly, what parent would want their money to fuel an economy which harms their children's prospects for the possibility of a little extra performance in the short term? And who is better suited to ask them to have their say on this trade off than us, their own children?

This is the thinking behind the Push Your Parents campaign: young people's future is at stake, so we encourage them to ask their parents to take two minutes to email their pension funds. Parents can find an emailing tool and a letter template online asking pension funds to act on climate change risks for their investments.

Alongside our own research on investment and pension funds, we received help from Share Action, the Asset Owners Disclosure Project and the experts on our advisory council. As it turns out, investing is not as complicated as it sounds, and with a fresh eye, you can actually notice inconsistencies that the experts have just learnt to ignore.

Pension funds engage in short-term trading, or "beauty contest" investing as Keynes called it. This is harmful to long-term returns and clearly ignores the fact that pension members often have investment horizons of decades. If the financial system carries on with business as usual, atmospheric carbon concentrations will rise alarmingly with the real risk that pension assets will be wiped out along with the world as we know it.

Because of their long-term horizon, pension funds can and should be the drivers of the transition to the low carbon economy. Pioneers include the Norwegian fund Store brand, which recently divested from 29 coal and oil sands companies, taking a strong engagement position on the climate change issue.

Many funds are also requesting fossil fuel companies to assess and report on their carbon assets risk. Yet these are exceptions. Public pressure is needed for pension funds to become the active owners of companies they ought to be. The laggards need to be cajoled, and the leaders rewarded. The good news is pension funds are accountable to pension members. If you or your parents have a pension, the power is in your hands. Please demand that your fund stops fucking up our future!

This article was originally posted online at the Guardian's website and reposted here. As an owner of this blog I do not claim any right on this article and I am grateful to the Guardian and the authors who are: Antoine Thalmann is a masters student in economics at Oxford University and co-founder and member of the coordinating team of the Push Your Parents campaign. Maria is a PhD Student in Biomedical Engineering at the Oxford University. She is in charge of social media and communication for the Push Your Parents campaign.

Tuesday, 19 November 2013

Energy Storage: a review from Berlin.

I am glad to find myself in Berlin this week to attend the 8th International Conference on Renewable Energy Storage. This is the core European research and industry event on energy storage. There is a balance of excellent academic and industry speakers but at any instance anyone can notice that this event is dominated by German activity. The German academia and German industry are serious about energy storage... Storage for electricity grid stability, for industrial energy management, for households, for off-grid isolated consumers and on-grid consumers and most importantly storage for vehicles.

Norwich Business School is part of the event with 2 studies. A first one on the "Utility-scale energy storage for the regulation of wholesale electricity prices" and a second one on "The multiple role of energy storage in the industrial sector". The first study is a detailed examination of the arbitrage value of electricity storage for the Greek electricity market. The core theme of this work is currently developed through an institutional innovation framework for the UK electricity market by our NBS team.

The second study is the result of a collaboration with our colleagues in the Technological Education Institute of Piraeus in Greece and the Institute of Power electronics and Electrical Drives of RWTH Aachen. Nevertheless, this project would have never taken place without the contribution of our industrial partners Systems Sunlight SA in Greece and AEG in Germany. We looked into the potential revenue streams for the development of demand management and energy storage for energy intensive industries. For the first time commercialisation analytics were combined energy billing savings, participation in the spot market and a lookout for potential governmental subsidies that the value of storage is worth for.

In fact this second study has inspired our research group for further discussions for the development of a larger consortium that will enable us to apply at the forthcoming EU Horizon 2020 funding competition. Being at this conference is really the right place to explore the dynamics of possible collaborations. Simply put, most of the potential industry and academic partners we would wish for are already here. Clearly the contribution of NBS in an engineering intensive consortium is essential. Our partners do not expect us to develop technological R&D. They do however, expect us to develop innovative architectural and institutional business models that will enable mainstreaming of energy storage. They also expect us to inform policy making and inform governments about the financial and utility value of energy storage.  

Following from that last issue, our German colleagues and the panellists at the conference's sessions discuss quite extensively that funding for energy storage should not for much longer be directed to R&D but to market implementation. They are looking for direct subsidies similar to those that started-up the markets for wind energy and PV-panels. Perhaps the UK's subsidy for electric vehicles is already doing that?

Tuesday, 15 October 2013

Carbon reporting became mandatory!

The UK Government has regulated for carbon (ore more precisely - carbon dioxide - CO2, methane -CH4, nitrous oxide - N2O), hydrofluorocarbons - HFCs, perfluorocarbons -PFCs and sulphur hexafluoride - SF6) reporting to become mandatory since the beginning of October 2013. The legislation was introduced as part of the Companies Act 2006 (Strategic and Directors Report) Regulations and requires companies to include in their Directors' report carbon disclosures for the financial years ending on or after 30 September 2013. The legislation affects all UK quoted companies which essentially includes all UK incorporated companies whose equity share capital is listed on the Main Market of the London Stock Exchange UK or in an EEA State, or admitted to trading on the New York Stock Exchange or Nasdaq. 

Relevant guidance has been published under the broader "Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance" scheme. The current guidance allows a lot of freedom with regards to the format and layout that the reporting should take place. Therefore companies that are already using the Greenhouse Gas Protocol Corporate Standard  or even ISO 14064-1 will not be surprised by the requirements. However, it is expected that the reporting framework will be reviewed by 2015 and 2016 with the intent to enhance its scope. 

This development can be criticised widely; lack of mandatory and comparable reporting framework; lack of commitment or even strategic reference to reducing emissions rather than just merely reporting them and the list can go on.  But the fact is that this initiative puts the UK in the lead of climate change action in the world since this is the first and only scheme currently operational in the world. The consequences of this regulation will not be limited in the UK. Quite clearly the scheme involves companies with a strong presence in international stock exchanges and their reporting in one region (UK or even the EU or EEA) will not leave unaffected their activities in the rest of the world. 

Some may even argue that the majority of companies affected were already reporting their greenhouse gas emissions. But, Delloit's "UK Carbon Reporting Survey - Lip service or leadership?" shows that this is only partially true. Indeed a very large number of companies choose to report on their emissions but  only a fraction of them does so in a transparent, accurate and complete way. Very rarely companies provide details about their emissions calculation methodologies or have their reporting verified by external auditors.

Nothing can be improved if it's not measured. The Government has made a first step in the right direction and it looks like more developments will follow. 

Monday, 12 August 2013

Capacity market and strike prices

Earlier this summer the UK Government issued a press release about the new energy infrastructure investment and reforms vital to “keeping the lights on and emissions and bills down”. In more detail, the Government expects to unlock £110 bn of investment and secure 250,000 jobs until 2020; it expects to achieve this with two main policies. The first is the Strike Prices for renewable technologies, which aims to reduce exposure of renewable generators to volatile energy prices. The second is the introduction of a capacity market, which the Government hopes will incentivise a new generation of gas plants that will be needed to support the increased role of intermittent sources.

These policies supplement the Electricity Market Reform which introduced the Contracts for Difference (CfDs) and is part of the more comprehensive Energy Bill. The strike prices for renewable energy recommended by the Government will shield investors from volatile wholesale electricity prices and in this way encourage investment. The strike price for offshore wind is £155/MWh for 2014/15 declining gradually to £135/MWh in 2018/19 while the respective figures for onshore wind are £100/MWh and £95/MWh. Solar PV projects are set to receive £125/MWh declining to £110/MWh for the same period. There are strike prices for most types of renewable sources apart from tidal range, which, according to the Government, will be further considered by DECC.

A certain degree of number-crunching is required to compare the CfDs with the existing RO and FiTs, but the Government claims that the support given by CfDs is in line with that offered by the existing schemes. The main advantage now is protection against wholesale price volatility. Price volatility and uncertainty over climate change and renewable energy targets have been blamed for deterring investment worth billions of pounds in the UK. This is not a UK specific issue, but is reported across the EU, where slow economic recovery has made governments hesitant to commit to new targets. It can therefore be assumed that if the financial support offered by the UK Government removes uncertainty in addition to being similar to existing schemes, the results will be positive.

The predicted increase in renewable energy in the UK's electricity fuel mix has forced the Government to introduce a capacity market, whereby certain generators are paid for the essential service of stand-by operation. The increased role of intermittent generation makes this auxiliary service particularly valuable for the system operator, and the introduction of the capacity market acknowledges that. Quite disappointingly, Davey was fast to name gas-fired power plants as the main benefactors of the capacity market. Plants that could use renewable energy to offer capacity services have not been mentioned and they will be examined on a case by case basis by DECC. Unfortunately, that means that there is no news for medium/large-scale hydro and tidal range plants. Their dual role of renewable energy generation and storage has been overlooked in favour of gas (and the Government's ambitions for a shale gas sector boom in the UK).

Sunday, 30 June 2013

Shale gas for the UK?

It's already been a few years since shale gas started making headlines in mainstream media. Despite some first doubts now it is clear to everyone that shale gas is a "game changer" for the US energy supply. Increased gas supply meant that prices plummeted and for the first time the link between oil and gas price was broken. Gas is a very flexible resource as it can be used for power generation with very efficient combined cycle gas turbines, for industrial processes, for domestic heating and cooking or even for transport. When burnt it is cleaner than any other mainstream fossil fuel; therefore the benefits of lower gas prices can be felt across every sector of the economy. Low energy prices make the US an attractive place for energy intensive industries, some of which have already started relocating. 

It all sounds rosy about shale gas but leaving open space for the industry to operate freely (see lack of regulation) meant that shale gas operations caused numerous light tremors and in some cases were accused for water contamination. Drilling for shale gas makes use of hydraulic fracturing which is the source of all the aforementioned problems.

What about shale gas in the UK then? Do we have enough resources here? Can we drill for them in ways that will control and limit the environmental impact? Should we just let shale gas where it is because more gas will only keep us hooked to fossil fuels for longer? Recent reports show that although the UK is not among the top shale gas countries outside of the US, the indigenous reserves are not negligible. Even more recently the British Geological Survey estimated the total reserves to be at 40 trillon cubic metres (tcm).

I'll straight-forward say that if we can control and limit the industry's environmental impact then there is no good reason for not drilling. Why?

With UK's conventional gas extraction being pretty low while US LNG is ready for shipments there is no doubt that the UK gas intensive industry will sooner or later start importing. Centrica already signed a 20+10 years contract for gas deliveries starting in 2018. That's shale gas converted to LNG. Although I have no proper estimations it is fair to assume that the embedded emissions of imported LNG from shale gas is higher than indigenous LNG. I wonder how the embedded emissions comparison looks like for imported LNG from conventional Qatar's sources and indigenous shale.

Will a success story for shale gas lock-in the UK in a high carbon (gas) future? There is no need to go very far to realise that this is not necessarily the case. The US, with huge coal reserves and production made a fast shift as soon as a new and better resource (shale gas) became available. In the same way, the UK will shift away from shale gas as soon as other, better resources (wind? wave? nuclear?) become available.    

The government should be wise enough to regulate the environmental impact of the industry, arrange for community compensations and do not favour the gas industry against the low carbon energy industries.