Sustainability, Energy Transition, ESG

C-MACC Weekly Sustainability and Energy Transition Report

COP28: Financing Headaches Are Not Only in Developing Countries

• In our somewhat provocative “bankruptcy” webcast yesterday, we looked at the consequences of delays and rising capital costs in multiple transition sectors.
• But the problems are real: while COP28 is likely intended to be about aligning the oil and gas industry with climate ambitions, funding may steal the show.
• Despite ESG rhetoric, public markets hate transition, penalizing start-ups, and energy companies with ambitious targets. Government guarantees are needed.
• We can testify directly that venture capital is scarce for what might be very good ideas, and those that say they want to help also want a de-risked investment.
• Otherwise, we look at the lure of 45Q, how many transition challenges come down to power, and why transition is very challenging without China.

First: Survival Of The Most Cool-Headed

Yesterday, we hosted a short webcast on the risk of bankruptcy in the clean energy space. While this was partly driven by the Plug Power “going concern” statement last Friday, troubling trends have been developing in the sector for a while. Over 65% of the energy transition/renewable stocks we track in our indices have lost more than 50% of their value since 1Q 2021. Many have lost more than 80% of their value, and the collapse reflects how much harder it has become to do energy transition and sustainability than it is to talk about it. Cooley returned from the Ammonia Energy Association conference in Atlanta last night, a very well-attended event and a group growing very quickly as ammonia becomes more interesting. In discussions this morning, he noted an air of apprehension at the conference, especially from those with independent project plans and those who are either capital-constrained or looking for “capital light” strategies. Many of the ideas are good, but the challenge is curating the right team of partners to ensure you have credibility with offtake, engineering, and construction and costs to attract the funding. It is also becoming more apparent that many “start-up” businesses either do not have the technology edge they claim or a technology edge that has enough incremental value.

Exhibit 1: Terrible performance for most of the group.

Source: Bloomberg, C-MACC Analysis, November 2023

See PDF below for all charts, tables and diagrams