The Energy Trilemma

• Published date: 08 March 2022
• Subject Matter: Environment, Energy and Natural Resources, Energy Law, Environmental Law, Oil, Gas & Electricity, Renewables, Climate Change
• Law Firm: Herbert Smith Freehills
• Author: Mr Gavin Williams and Silke Goldberg

Q What do you see as the role of infrastructure when it comes to achieving net zero?

Silke Goldberg: Infrastructure is the anchor that will help deliver net-zero policy ambitions. Decarbonisation and the reduction of greenhouse gas emissions are the right things to do, of course. But to achieve those goals you need physical implementation and that means infrastructure. And you don't only need the infrastructure required to create green energy in the first place, you also need to upgrade the grid, for example, to cope with higher renewables penetration and the associated intermittency. The grid needs to be digitised for the same reason.

Infrastructure is critical for the decarbonisation of transport and of industry, as well. In short, no infrastructure, no decarbonisation.

Gavin Williams: I agree. The infrastructure industry has a vast role to play in reaching net zero, first in terms of helping shape policy, then in engineering new sources of energy and transporting that energy to where it is needed. That means building new infrastructure. It also means adapting existing infrastructure.

Finally, the industry has to develop a way of financing it all that balances risk and reward, while not imposing unsustainable costs onto the system, thereby making economies uncompetitive or the cost of living intolerable.

It is a huge responsibility but also a great opportunity for the asset class.

Q What are those opportunities - or responsibilities - when it comes to the power sector, first of all?

SG: There is a wide expanse of investment opportunity associated with greening the power sector, ranging from upgrading grids to laying the cables connecting off shore wind farms to onshore customers but crucially also in the generation sector.

Given the commitments made by countries at COP26 in relation to net zero and decarbonisation, we expect to see investment in large scale renewable energy projects rise. Whilst government policy will be crucial in setting the right policy signals for such investments to happen, the private sector has a huge role to play.

For regulatory reasons, investors in the EU often need to make a strategic choice as to whether they want to invest in generation or in the grid, but there is still everything to play for when it comes to generation, as well.

Most European countries are committed to adding a lot more green electrons to the net, which ultimately means more investment in onshore and off shore wind and solar, where subsidies are tapering...