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Wholesale Banking

Power and climate change: Things you might not know

Each industry is different, but they're all dealing with climate change. What’s happening in power generation and how is ING supporting the low-carbon transition? Michiel de Haan, global head of ING’s energy sector, gives his perspective.

Global head of ING’s energy sector in front of windmills

"I’d say, not just on the power side of the energy sector, but across the board, over the last 9 to 12 months, everybody has woken up. Everybody acknowledges there is a contribution to be made to decarbonising their activities." - Michiel de Haan 

Renewable power generation has shown two decades of growth. What impact has the coronavirus had on the sector?

What we’ve seen is that some clients have been impacted in their supply chain or their project completion, but across the board clients have continued to invest. We’ve actually seen an acceleration in moneys and investment ideas and ambitions in the sector. Still, I wouldn’t say the sector hasn’t been impacted at all, there have been some glitches. But with governments looking to allocate substantial amounts of support to the economy at large, a very large part of that in almost all the developed economies is going towards building back better and building back greener, which also means renewable power generation.

What kind of opportunities are there in power generation to build back better?

There are a couple of elements. First, there’s an aging power generation fleet in developed countries, like old coal-fired plants or in some cases nuclear facilities that are getting to the end of their economic life. So as discussions happen about ensuring the reliability and stability of those countries’ power generation systems, it becomes, ok let’s take a step forward and invest in decarbonising it, let’s invest in green. The greening takes place simply because the old generation fleet needs to be replaced.

Second, demand for electricity is growing. It depends a bit from market to market, but the increase in electrification requires new sources of power generation to be added.

And a third element, which is maybe less eye-catching, is the fact that all that intermittent capacity, so capacity that you can’t rely on always being available when you need it, like renewable energy from wind or sun, often requires a rethink of the electricity infrastructure. That’s something that requires lots of investment and hence there’s opportunities for banks and investors to engage.

“We’re actually transparent about where we are today, where we need to go to and how we go about it. Nobody else is doing that.”

Is it about financing more green energy, or no longer financing polluting energy?

At ING we first and foremost have an inclusive approach. We believe in engagement and trying to facilitate change by being involved rather than saying no. The exception is coal, where we made a clear decision and in 2017 indicated to our clients who were still active in coal-fired power generation that by 2025 they need to be effectively out in full. Since then we’re working with them to reduce their coal-fired power capacity or we’re parting ways.

At the moment we’re helping clients explore and identify how they can make their activities less impactful. For our clients developing renewable power capacity, that’s obvious, right? That’s their core business. And for other clients in the energy sector we engage with them in discussions on energy efficiency, around emissions and how to reduce their carbon footprint.

Where does change have to come from – governments, consumers, banks, companies? How do you see the balance of roles in driving change?

Interesting one. In my view the key players in this whole transition are governments. They have the financial flexibility and the ability to absorb the kinds of risks that go with the energy transition. They should take the lead in setting the scene, determining the rules of engagement, and where needed, bridge the gap between what’s technically possible and what’s economically achievable. From a technology perspective, we can produce hydrogen, for example, as an alternative for fossil fuel. We know we can produce massive amounts of renewable energy by way of solar or wind. We need governments and regulators to step in, specifically in the area of emerging technologies like hydrogen, and level the playing field by introducing subsidies or regulations allowing these emerging technologies to take their place in the overall economies. Just like what happened with renewable solar and wind energy. Of course, that doesn’t mean ING and the financial sector don’t have a role to play as well.

How is ING doing in our efforts to align our portfolio with the two-degree pathway?

The true honest and short answer is we’re doing fantastic. On the power side we’re clearly ahead of the curve: the pathway to Paris 2050 ambition, which is based on the Sustainable Development Scenario of the International Energy Association.

Our goals aren’t just aligned with Paris – we’re aligned with our clients, our clients are aligned with Paris. So everybody’s moving in the same direction. From a power perspective I’d say it’s all good news. The remaining coal exposure that we have is truly tailing off. I’m confident and pleased to see the ability we’ve demonstrated to not only put out a statement that we’ll comply our business with Paris but that we’re actually on the accelerated trajectory to do so.

The power generation sector and how ING supports low-carbon transition

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What’s the sentiment among clients?

I’d say, not just on the power side of the energy sector, but across the board, over the last 9 to 12 months, everybody has woken up. Everybody acknowledges there is a contribution to be made to decarbonising their activities. From that perspective, I’d say the discussion on decarbonising your operations is as mainstream as any other discussion on business models, inherent risks and opportunities. It’s moved from a topic that you’d only selectively build on in the conversation to something that’s always on the table as one of the top three things to touch on.

What else is important for the average person to know and/or understand?

There’s a lot of discussion about net zero and how fast the world needs to get there. I think it’s important to acknowledge that we’re trying to understand what that means for us. So far we’ve used the Sustainable Development Scenario of the International Energy Association (IEA) to determine and identify our pathway to a Paris-aligned portfolio. This is a well-recognised climate scenario for the energy sector. The IEA is coming in May with a net zero 2050 scenario. As soon as that’s published, we’re going to look into it. In the meantime, we need to make sure that people understand that if we say net zero, we’re actually transparent about where we are today, where we need to go to and how we go about it. Nobody else is doing that. That’s an important distinction between the bold statements made by many and the concrete and tangible examples and ambition that we have.

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