Part of the conversations around climate risk for fossil fuel companies is that when the transition economy really gets rolling, those companies will be left with major stranded assets – plants, property, mineral rights and equipment that won’t generate revenue as originally anticipated when the investments were made. That maybe true to some extent, but it doesn’t acknowledge innovation. I’m a believer that when clear signals exist that fossil fuel assets are in trouble, unanticipated developments will prevent assets from being totally worthless.
Here is a great example from Bloomberg:
“[Portuguese power producer] EDP SA may use the land of its coal plants in Spain that will be decommissioned for data centers as artificial intelligence drives demand for new computing capacity.
The Portuguese utility previously had plans to build hydrogen and battery projects at some of the locations. But with the rise in AI, the firm is now considering to house data centers as the grid connection is so valuable, Chief Financial Officer Rui Teixeira said in an interview at the World Economic Forum in Davos… Iberian power usage from data centers are poised to surge more than eightfold in a decade, Aurora Energy Research Ltd. said in a report in November.”
This may not work for subsurface/subsea mineral assets and perhaps this isn’t on par with coal revenues, but I expect finance people will figure out a way to cut the Gordian knot and maximize value. Fossil fuel companies may not need to fear a transition quite as much. At the same time, without that pressure one could argue there is less urgency in reducing fossil fuel production and use.
Members can learn more about climate risks here and our checklist on Identifying & Updating Climate Risks and Uncertainties.
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