Brown-to-green transition plans for energy assets may not be realistic, warned the head of infrastructure for the Investment Management Corporation of Ontario, Matthew Mendes.
Mendes is seeing a proliferation of GPs proposing strategies to acquire and decarbonise high-emitting and hydrocarbon-based assets, often by pivoting oil pipelines to natural gas or hydrogen and implementing energy efficiency measures. “I’m more sceptical of those… I’m more nervous,” Mendes said at PEI Group’s Infrastructure Investor Network America Forum yesterday. “There are some over-optimistic views of how much [cleaner energy and technologies] can use this infrastructure.”
IMCO, a $73.3 billion Canadian pension fund, is an LP in Brookfield’s $15 billion Global Transition Fund – one of the most prominent vehicles executing a brown-to-green strategy. BGTF I has been leading a high-profile take-private bid this year for Australia’s Origin Energy; its acquisition proposal has been driven by plans to pivot the business away from fossil fuels.
Mendes listed the following potential obstacles to transitioning energy assets, using the hypothetical example of an oil pipeline transitioning to gas or hydrogen:
- We cannot predict how the market will evolve. Demand for hydrogen might not emerge in the future.
- Different energy types come from different places. Most oil pipelines will not be on the routes that natural gas or hydrogen will need to be transported along.
- Pipelines will need mechanical modifications to support new energy types. This can be technologically challenging, costly and involve higher emissions to implement for assets in situ.
Instead, Mendes is more interested in scaling cleaner energy and infrastructure markets “from the ground up”.