A power shift

What a green recovery could mean for energy companies

October 2020 Feature / Text by Gavin Blair

On 8 March, a few days before the World Health Organization declared Covid-19 a pandemic, Saudi Arabia cut the price of oil as talks with Russia over production levels broke down. The ensuing price collapse saw the cost of crude oil fall into negative territory the following month for the first time in history.

Not every corner of the energy sector was as dramatically disrupted as oil by the events of this year, though nowhere escaped unscathed. However, if promises of a green recovery are kept, some fields and companies within the industry look set to benefit in the post-pandemic world.

“We have been facing three major challenges in 2020: an unprecedented pandemic, an economic crisis that has hit the oil and gas sector particularly hard, and a climate change emergency,” states Philip Olivier, country chair Japan for French energy group Total and president of Total International Japan.

Like other firms in the sector, Total has been delaying projects and reducing investments in response to both the drop in demand and the uncertain prospects for economic recovery. These actions — combined with Total’s strong balance sheet and other financial measures — will allow the company to weather the storm, according to Olivier.

However, he acknowledges the pandemic has raised awareness of “the climate change emergency” and that this may bring about a shift in the industry.

“The climate change facing us cannot be put on the back burner as it has a structural impact on the energy market,” adds Olivier.

In May, Total announced a target of net-zero emissions by 2050 — including those generated by its European customers — across all its businesses worldwide. The company has been diversifying its energy portfolio, and Olivier points out that it “currently allocates more than 10% of its capex to low carbon electricity”.

Total has two solar generation projects in operation in Japan and is currently working on a 52MW solar plant — enough to power 15,600 households — in Osato, Miyagi Prefecture, in collaboration with Tohoku Electric and SB Energy, a SoftBank subsidiary. Olivier notes that the firm has other renewable projects in the pipeline.

Increased use of renewables is one of the keys to combatting climate breakdown, and German-headquartered WPD has focused on developing onshore and offshore wind projects, along with some solar.

Hans-Christoph Brumberg, director of business development and execution for APAC at WPD, says the pandemic has helped to increase awareness of the need for renewables. He hopes that Europe’s recovery plan in particular will accelerate the shift towards them, but that it will depend on the details of implementation.

“The disruption of the pandemic is a big chance to change things and to use the financial support [from stimulus and recovery measures] to create a better and more sustainable energy supply,” says Brumberg. “The plans are ambitious; that is good. We need ambitious plans.”

With its presidency of the EU for the second half of this year, “Germany has a chance to lead on this for these six months and some people have high hopes — Merkel does seem somewhat interested in moving in that direction,” adds Brumberg. “But Germany has had big plans before for renewables and, in the end, the implementation has been a little slow.”

WPD opened its Japan office at the beginning of 2018 and is in the very early stages of developing onshore wind projects, working with local partners. It will participate in the upcoming auction for offshore wind projects.

Despite Japan’s “huge potential for offshore wind, with its long coastlines, there is no commercial offshore project here yet,” notes Brumberg.

A law that passed in 2019 allows 20-year permits for offshore projects, the minimum viable timeline, according to Brumberg.

“They have made it clear that Japanese developers will take the lead role, though we hope they will be as open as possible to using the experience of companies from abroad,” he adds.

Brumberg cautiously welcomes the plan to select up to 30 zones for offshore wind.

“That’s obviously a good sign,” he says. “But they have been talking about offshore for 10 years.”

EDF, the global energy firm more than 80% owned by the French state, also sees both potential and obstacles in developing renewables in Japan.   

“We are considering the opportunities available in Japan, but there are still some non-tariff barriers, particularly around ports that aren’t open to large ships carrying offshore wind turbines and some maritime routes that aren’t open to foreign vessels,” says Vincent Dufour, general representative of EDF for Japan and Korea.

“The Japanese government is looking for next-generation industries across all sectors,” he adds. “In the energy sector, I think this will give a push to offshore wind.”

As for Europe, Dufour is also waiting for the details of the recovery plan to emerge.

“The question for the Green New Deal is to what extent private–public investment will go to climate-neutral projects,” he says. “It’s not clear how much will go to the energy sector and how much will be for other sectors such as energy-efficient buildings and electric mobility, for instance.”

The nuclear question is crucial for EDF, which is Europe’s biggest producer of nuclear power.

“We need more clarity as to how far nuclear could be a part of the trajectory of the EU’s carbon-neutral target by 2050,” Dufour says. “Without EDF’s generation fleet in Europe, carbon emissions would be 30% higher, because 90% of our generation is carbon neutral, due to nuclear and renewables.”

Nuclear power’s image took a battering around the world after the Fukushima meltdowns, but countries such as Germany and Japan, which both cut its use in response, have burned more fossil fuels as a result. 

“We are committed to renewables but, technically speaking, when you have the issue of intermittency, you need a back-up,” says Dufour. “What kind of back-up can you have? Either fossil fuels, which are not CO₂ neutral, or nuclear, which is.”•