Blog post

“You used to be cool”

Energy Blog, 29 September 2023

On 22 September 2023 the Baltic Power offshore windfarm successfully reached Financial Close, thereby unlocking the staggering amount of EUR 3.6 bn term loan and EUR 0.8 bn of ancillary facilities for one of the largest offshore windfarms yet to be constructed and the first of many to follow in Poland. As we have reported elsewhere, this is a big deal. Baltic Power will deliver renewable energy to the equivalent of 1.5 million Polish households, in one of the most carbon intensive energy systems in Europe. A great leap forward in the fight against climate change, one would say.

However, within a week, the UK government approved the development of the Rosebank oil and gas field. The announcement was followed closely thereafter by the final investment decisions (FID) of the developer of Rosebank, earmarking a similar EUR 3.6 bn amount in USD equivalent to fund the progress of Phase 1 of their project. An estimated 300 million barrels of oil can be extracted from Phase 1. Assuming EPA’s conversion methodology, this implies a CO2 equivalent of 129 million metric tons. To put this in perspective that is about equal to the combined annual CO2 emissions of the 28 lowest-income countries in the world according to opponents of the project.

The message struck a personal nerve with me, having been directly (and intensively) involved in the Baltic Power project the past 2 years, and having worked at Green Giraffe Advisory on raising financing for green energy transactions for 12 years now (coincidentally my work anniversary was on exactly the same date Baltic Power reached financial close – what are the odds!). The UK has traditionally been a climate leader and global offshore wind pioneer, though following the recent decision of the Sunak administration to tone down its climate ambitions, the Rosebank announcement was not the first decision coming from 10 Downing Street to buck this trend. Suffice to say that my reaction was (in more diplomatic terms) not too dissimilar to Bart’s in The Simpsons episode where Lisa makes it to the Oval Office: “you’ve changed, man. You used to be cool.”

The Rosebank decision is highly contentious. We will let others more versed in the domestic politics of the UK comment on the exact political meaning of Sunak’s move. I will say though that, as the FID on the project points out, the wider underlying reality is – while investment in clean energy has skyrocketed, overtaken investments in fossil fuels even according to the International Energy Agency (IEA) – equally significant amounts are still being poured in the O&G sector to date. The IEA reports 2022 investments in clean energy to have exceeded USD 1.6 trillion, with renewable power providing the grunt of the effort (USD 659 bn) and the remainder going to energy efficiency projects, grids, EVs, battery storage, nuclear and low-emission fuels and carbon capture technologies. At the same time, over USD 1.0 trillion was splurged on fossil fuels that same calendar year.

Government clearly plays a big role in this as direct or indirect enabler of energy investments.  Given the strong political component, we would argue the debate around how we spend our money is to be intensified. In The Netherlands there was a recent flurry of interest in the topic following the presentation of the Government’s annual budget on 19 September. It became apparent from calculations from the Dutch audit office that direct and indirect subsidies to stimulate the use of fossil fuels amount to a staggering EUR 39.7-EUR 46.4 bn, per annum – an estimate that has been revised upwards 3 times already, landing on a final number close to a tenfold of the Government’s initial estimate of EUR 4.5 bn (woops, or maybe actually “d’oh!”, to stay close to The Simpsons idiom). This final tally is also more than what was reported in another recent independent study issued by several climate NGOs, which landed on EUR 37.5 bn. Minister of Climate and Energy Rob Jetten of the relatively pro-green Democratic Party pledged to take measures to reduce these amounts as soon as possible but also indicated it would not be realistic to assume the flows of funds could be diverted overnight, especially because part of the benefits are enshrined in international treaties and EU guidelines.

The above illustrates the difficulties encountered in practice in our collective attempt to wean ourselves off fossil fuels. So let us take the coincidental concurrent closing of both the Baltic Power and Rosebank projects as a moment to reflect on this process, and how we want to shape our priorities and energy policies in the immediate future. The political debate around this topic, on both national and supranational levels, becomes ever more acute. And in that context, exemplary leadership from developed nations such as the UK and The Netherlands as well as other countries that have disproportionately contributed to the climate crisis is needed.