Inside Energy Episode 3: Maintaining Living Standards Whilst Embracing the Energy Transition

We are pleased to release the latest episode of Inside Energy, in which we share professional insights on some of the key topics in the ever-evolving Energy Transition arena.

This third episode, Maintaining Living Standards Whilst Embracing the Energy Transition, explores the implications of the transition for wider society. Frazer Blyth‘s conversation with our Chief Operating Officer Mark Dickinson and Director Marcello Stroppa touches on one of the central dilemmas: how we meet growing global energy demand while reducing carbon emissions.

Full Transcript

Frazer Blyth – Director of Investor Relations & Marketing: Welcome to the third edition of inside energy with Bluewater. Thanks, guys, for joining us today. Really appreciate it. Today we’re going to get the deal team’s insights, your own personal insights on what energy transition means for general public. What carbon footprint means etc.? So, carbon footprint, give me a definition.

Marcello Stroppa – Director: Carbon footprint is the total amount of greenhouse gases that are produced as part of our day-to-day lives so everything we do: from living our ordinary lives, to traveling, to economic activities produce gases. The most common ones we know are more about are CO2 and methane and they are responsible for temperature rises. Hence the debates and importance to keep them under control.

Frazer Blyth – Director of Investor Relations & Marketing: Carbon footprint markets come into our language in the two-three years as being important for investment. How does it affect what you do now in the investment team?

Mark Dickinson – Chief Operating Officer: massively, I think. I mean in terms of the existing investments that we’ve got, it’s now a topic on the board agenda. Things that we’re looking at new business, new deals etc. Maybe it’s because we’ve opened our eyes a bit. We’re seeing tonnes and tonnes of new business opportunities, some great businesses, some great ideas, some rubbish ideas as well. Just brings up a new level of interest engagement excitement.

Frazer Blyth – Director of Investor Relations & Marketing: We use energy every day in our lives. You know is that is that flat or is it growing?

Mark Dickinson – Chief Operating Officer: It’s definitely growing. I mean if you look at the world now: the population is going to grow in about 80 million people every single year. The demand for energy is marching, you know, upwards in relation to population growth. You know the growth of the middle classes, people wanting to, you know, get on and improve their lives etc.  

Frazer Blyth – Director of Investor Relations & Marketing: So how on earth are we going to reduce carbon then if the growth is so severe and we’re struggling to control carbon as it currently is? How are we going to control the increase?

Marcello Stroppa – Director: That’s the whole energy dilemma. How do you produce more energy but reduce emissions. That has to do with shifting from traditional sources moving to cleaner alternative sources, which is why we’ve seen a growth in renewables, like offshore wind and solar, and we’ll see more hydrogen in the future and over time as the energy mix changes, we’ll be able to do the same things, but with cleaner sources and that will drive the reduction in emissions. 

Frazer Blyth – Director of Investor Relations & Marketing: So, is wind and solar the solution? Is that going to power Mark’s toaster in the morning?

Marcello Stroppa – Director: It does already, I think, it won’t be the only solution because there are issues with it. Intermittency, if there’s no wind you have no electricity. Part of the challenge is getting there in a balanced way such that we don’t find ourselves having shortages of energy which then drives price peaks and create instability. So, it’s a long-term game and it will happen over time. 

Mark Dickinson – Chief Operating Officer: Over time you can see there are potential kind of solutions out there, but the technology isn’t quite there yet and it’s more expensive right now. But over time technology improves, costs do kind of come down and we’ve seen that in wind and solar which are now cost comparable with some of the primary sources of energy, whether that’s coal or gas or oil or nuclear whatever. So, it’s going to take a lot of time. There will be a mix, there’s going to have to be, everyone calls it an energy transition, because there will have to be a transition from where we are now to that sort of carbon free.

Frazer Blyth – Director of Investor Relations & Marketing: In a previous series, I had Tom and Fiorello with me. One of the subjects that came up was: is gas the solution the transition fuel, the new green fuel? Is gas an important part in helping reduce carbon emissions here?

Marcello Stroppa – Director: Definitely, I mean I think if we look at the mix by fuel, oil and coal have gradually gone down. Renewable is coming up, but gas is required because gas provides stability to the system. So, if there’s a weak output in renewable energy, then we can switch on gas-fired power stations and that provides stability to the system. So, gas is definitely staying and actually last year, with outages in the renewable space we saw a great increase in gas demand. So definitely gas is expected to be a very important part of the energy mix.

Frazer Blyth – Director of Investor Relations & Marketing:  And burning gas, is that is a lesser CO2 output than burning oil and coal?

Marcello Stroppa – Director: It’s lesser than burning those two but it’s still a fossil fuel so it’s still considered more polluting than renewable energy or nuclear as well.

Frazer Blyth – Director of Investor Relations & Marketing:  Big industry, you touched on this, we can all kind of buy electric cars, we can do whatever, but what are big industry doing?

Mark Dickinson – Chief Operating Officer: I mean it’s very much on the board agendas to measure the carbon footprint, which is a good start. People have to think through what the different solutions are but measuring it and having targets to reduce it is a massive start really.

Marcello Stroppa – Director: The first step is to measure emissions and the way companies typically do that is to segment them in three scopes. Scope one – is direct ones like the fuel used in vehicles or burning fossil fuel as part of an industrial process. Scope 2 – the indirect ones, for example, purchasing electricity for this office, is it done by a gas fired and if so, what are the emissions? those would be the indirect ones in scope 2. And scope 3 are everything else indirect so if you travel by car to come here that’s an indirect emission captured in scope 3. So, by putting number against these then companies are able to take actions and say okay I’ll source my electricity by renewable sources that will reduce the scope to emissions and so on and that’s how you see then a downward trend. And we see that through our companies already.

Mark Dickinson – Chief Operating Officer: Many companies are doing that, and they’ve all got slightly different initiatives and all getting involved in slightly different carbon offset schemes, but the direction of travel here is going to become in my opinion at least a sort of a license, really to operate for many businesses.

Frazer Blyth – Director of Investor Relations & Marketing:  So, guys, let’s cut to the chase here. You’re both investors. You both try and make a lot of money out of whatever you invest in. where are the opportunities? Is reducing our carbon going to give us investment opportunities?

Marcello Stroppa – Director: Definitely, I think there are various spaces. I think the exciting part about energy is that it’s always there and it’s a growing market. It’s just about figuring out the mix and where to look. I think some of the themes that we are looking at, circular economy, recycling, you know, if you recycle the product, you don’t need to produce a new one so you’re avoiding emissions. So, we looked at companies that recycle lubricants and things like that. That’s definitely a thriving market. Biofuels is a big theme as well. I think a lot of people talk about the hydrogen economy, which is developing, but is decades away. I think gradually what we’ll see is traditional engines like diesel, for example, will run on renewable diesel. So, the engine is the same you change the fuel source so we’re seeing opportunity in that space, for example, in the aviation space.

Mark Dickinson – Chief Operating Officer: You know there’s some smart people out there figuring out solutions to reduce waste, recycle that stuff, and in the end from an investment point of view you’ve got huge demand for this sort of stuff out there. You’ve got fantastic kind of people, brilliant ideas, and to get them to scale it needs money and we have that, and we’ve got experience of where to deploy it. So, you know I think it’s going to be one of the investing mega trends of the next 20 – 30 years, personally.

Frazer Blyth – Director of Investor Relations & Marketing:  Fascinating insight into energy demand, use of carbon reduction, etc. I’ve asked you about is there an opportunity to invest, you both say yes, good opportunities. Are we well positioned as Bluewater? Do we have the insights to do all this?

Mark Dickinson – Chief Operating Officer: For sure, absolutely for sure. I mean the firm’s 10 years old. You know we’ve been looking at energy for a long time.

Marcello Stroppa – Director: Our background gives us the ability to understand the various sources and where opportunity is and how that breaks down by geography and I don’t think a general investor is able to see that and access the opportunities. So, i think we are uniquely positioned.

Frazer Blyth – Director of Investor Relations & Marketing:  Super! Thank you very much for your time. Good insights there. Really appreciate your wisdom and I’ll let you get back to your day jobs now. Thanks! Cheers!