Macquarie GIG Green Energy Conference 2021 recap

20 October 2021

The Macquarie GIG Green Energy Conference (GEC) 2021 convened a line-up of leading voices across industry, finance, and policy to discuss how to raise and deliver climate ambition. Mitigating climate change will require incredible levels of investment – up to $US90 trillion by 20301 – and global system transformation at a pace unlike anything the world has experienced before. Progress is being made but not quickly enough. GEC 2021 served to discuss what key actions, policies and breakthroughs are needed to put us in line with goals of the Paris Agreement.

Here are our 7 takeaways from the conference.

The limit is not the money, it’s not the opportunities, the limit is the number of people we can put to work safely … the limit of our growth is the number of clever people we can put together at work."

Francesco Starace, CEO and GM of Enel Group

Meeting the climate change challenge presents an opportunity to tackle other societal issues like rising youth unemployment and redundancies from the restructuring of carbon-intensive industries. However, this opportunity requires proactivity from the public and private sectors to help youth and the labour force develop the right skills and knowledge. Macquarie is actively invested in the labour force transition including through our work with Generation UK, a UK-based charity helping unemployed and under-employed young people secure green jobs.

Beyond getting the right people staffed, the scale and pace of activity needed for the energy transition will require changes to organisational culture across industries to spur innovation and efficiency. For historic energy companies, this means moving from a culture focused on a limited number of large projects, where failure is unacceptable, to a focus on pursuing hundreds of smaller project development opportunities and accepting that many will end up being unsuccessful.  This shift towards a focus on innovation, talent and partnership was a red thread throughout the discussions at this year’s GEC and we expect it to be a central feature of high-performing companies amidst the ever-increasing competition in the energy transition.

The IEA’s 2050 net zero pathway estimates electricity having a 50 per cent share of final energy consumption in 2050 up from 20 per cent in 20201 - a level that underrepresents the role of electricity in the mix as deriving energy from fuel typically is less efficient than using a wholly electric process.

This growing consensus around the surge in electricity supply needed to decarbonise heating, transport, and industry, is helping the debate around new entrants and competition in the power sector evolve from recent years. Whilst everyone agrees that competition is at an all-time high, Francesco Starace welcomed oil and gas companies’ increased presence in clean energy development as they bring institutional rigour to a market where it has sometimes been lacking, and as electricity demand is set to grow enough to create space for new entrants.

Discussions also centred on the strain that the simultaneous ramp up of variable renewables generation and electricity demand will put on grids, and the opportunity greater decentralisation offers as a cost-effective alternative to large capital investment in increasing network capacity. Declining costs of rooftop solar and battery storage are making self-generation an affordable option for many households while electric heating, cooling and transport are also becoming more accessible. Few places better display the potential upside of decentralisation than Australia.

Australians will be saving a few hundred dollars a year, as early as next year on whole household electrification, a few thousand dollars a year by 2024 and by 2030 … $A5,000 or $A6,000 per home per year for the average Australian household".

Saul Griffith, Founder and Chief Scientist of OtherLabs

Still, the current surge in energy prices across the globe highlight the volatility and inflationary effect that rapid changes to demand and supply dynamics in the energy system can have, raising the importance of anticipating the impact the energy transition can have on energy poverty in the near term. Speakers noted that zero carbon household energy use can provide savings in the long run compared to conventional alternatives but often comes with higher upfront costs, so innovation is needed in financing and incentives to help households transition.

A key takeaway was the need for a plurality of solutions to be adopted. Net zero will not be achieved with exclusive solutions in each sector but rather a combination of solutions optimised to the unique attributes of different countries and industries. A key example of this surfaced in a discussion on green vs blue hydrogen – hydrogen produced from electrolysis of water and steam reformation of natural gas with carbon capture, respectively.

The UK has a geology well-suited to gas storage, co-located carbon-intensive industries, experience in developing carbon capture technology and low fugitive emissions in natural gas production making it well-placed to produce blue hydrogen at scale. However, the abundant solar resource in Australia and consequent low-cost renewable electricity position it favourably for green hydrogen production.

The power industry likes a diversity of assets. There is no silver bullet out there. It is really a combination of lots of different kinds of approaches that I think will succeed."

Mateo Jaramillo, Co-Founder and CEO of Form Energy

New sustainable infrastructure deployment requirements to deliver net zero will put immense pressure on resource supply chains and energy demand – signs of this are already observable in recent global base metal market trends. Several speakers highlighted the need for climate innovation to prioritise the use of cheap and abundant materials suitable for circular supply chains wherever possible. One such innovation discussed at GEC21 is the long duration battery being developed by Form Energy, a battery that uses an anode made of iron, a low-cost, high abundance metal with strong and established supply chains, and air as the cathode.

One of our challenges [in the HyNet hydrogen industrial cluster project] is we need to integrate a number of new business model structures. There's a new contract for difference (CfD) for hydrogen production, contract for difference for carbon capture from industry, a new regulatory asset structure for carbon capture and storage infrastructure. All of that needs to go together."

David Parkin, Director at Progressive Energy

Key business model challenges discussed at GEC21 included supporting carbon capture and storage (CCS) investment, making low carbon hydrogen competitive with natural gas, supporting the rollout of EV charging networks and funding climate resilient infrastructure like seawalls. It was clear that public sector commitment will be indispensable in this effort as it can mobilise private capital into nascent markets through deployment targets, mandates, investment, and operational incentives, and by co-investment of public finance alongside private capital. This role of public finance as a catalyst for greater private investment in the energy transition can also play a crucial role in supporting developing countries set up the structures that encourage investment.

One of the ways of [driving private finance into developing countries] is working with developing countries and helping them to set up revenue mechanisms which will allow the private sector to invest and get a return."

Alok Sharma, President of COP26

The business model challenge is substantial but there is a good track record of success, especially in sectors like offshore wind and electric vehicles. Participants discussed the many promising new proposals coming out of recent UK government consultations, such as the Regulated Asset Base (RAB) model for CCS transport and storage infrastructure and contracts for difference (CfDs) for carbon capture, utilisation and storage in the power sector and hydrogen production.

A key priority of the voluntary carbon market in driving scale is credibility. While offset accreditation has matured significantly in recent years, it is still evolving. GEC21 speakers outlined that credible offsetting programs require standards on offset eligibility, independent auditing of offsets, clear accounting methodologies that demonstrate additionality, and transparency.

All greenhouse gas cutting programs [need to] have a transparent registry that's publicly available, that's used to track all credits that are issued and linked to all the project documentation, including the monitoring reports, auditing reports etc. This serves to provide transparency and avoid double counting."

David Antonioli, CEO of VERRA

Another discussion was around temporary versus permanent emissions removal. Permanent removal involves primarily technology-based solutions such as carbon capture and storage and direct air capture. Temporary removal is primarily nature-based and includes solutions like afforestation and soil and wetland carbon sequestration. The panel noted that while permanent removal must be the long-term focus, temporary removal with nature-based solutions has a major part to play in the short term and many associated benefits.

Current capacity for permanent removal is far outstripped by demand for carbon offsets but nature-based solutions offer a larger scale, lower cost alternative. It was also highlighted that nature-based offsets are a channel through which climate action and investment in the transition to net zero can go to developing countries, delivering many positive externalities such as job creation, cleaner air, and improved biodiversity.

Commenting on challenges to further unlock the potential of voluntary carbon markets, speakers stated that standards and accounting methodologies need to keep pace with the advancement of technology and policy. Mechanisms need to be implemented to mitigate the risk of reversal of offsets (e.g. through wildfires or soil tilling) and regulation needs to be resolved around corresponding adjustments – transferring mitigation outcomes across jurisdictions – to improve liquidity and price signals in the market.

We're being very disciplined on our capital allocation. We're directing capital to transition areas, and we see huge business opportunity in the energy transition … We're not really seeing any trade-offs between our purpose that we've declared and profit. We will be purpose led but performance driven.”

Felipe Arbelaez, SVP Zero Carbon Energy at bp

Still, the discussion on asset owners and asset managers highlighted the need to accelerate the alignment of investment decisions with net zero and investigate creative pathways to transition carbon-intensive assets to avoid the potential of future stranded assets. This long-term view is critical from a profit perspective with most global economies raising climate ambition and enforcing regulation to increase the cost of emissions. GEC21 participants noted that investments in carbon-intensive assets must be underscored by a deep understanding of their decarbonisation strategy, necessitating partnerships by investors to develop this expertise.

If you can assess the transformation [of the asset] and the risk linked with it, then you may be able to underwrite, but this expertise needs to evolve, it needs to be developed, meaning there are lots of sectors that we, at the moment, cannot go into because we simply lack that expertise."

Dr. Guenther Thallinger, Member of the Board of Management at Allianz SE

Concerted and coordinated global effort is needed to keep the world within a 1.5C temperature increase in line with the Paris Agreement of 2015. For this to happen, there needs to be partnership between governments, multilateral development banks (MDB) and development finance institutions (DFI) to de-risk investments and drive private capital towards infrastructure in developing countries. GEC21 speakers emphasised the major role MDBs play in de-risking private capital investment in developing countries with innovative finance products including guarantees, green bonds and blended finance. MDBs are also able to utilise their footprint in developing countries to support private finance institutions with local market knowledge and expertise.

Beyond financing, there needs to be regular engagement on best practices in creating suitable enabling environments, as well as hands-on knowledge and skills transfer, to support developing countries in accelerating the decoupling of economic and emissions growth.

Attention now shifts to Glasgow and beyond

The conversations at GEC21 reflected the junction the world is at in its efforts to overcome the climate challenge. Net zero commitments have brought an unprecedented level of cross-industry consensus on the timeline to decarbonise the global economy, and the mix of climate solutions that can deliver the transition is increasingly clear, if not yet fully ready to scale. Still, delivering the transformation required by net zero targets will require deep partnership across public and private actors to deploy investment, talent and technology at an unprecedented scale and speed.

The criticality of partnerships is why we at Macquarie are looking forward to coming together with leaders from across the globe at COP26 in Glasgow.


Dario Traum
Head of the Climate Intelligence Unit, Macquarie