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Aviation

“Clean” BC Pension Fund Buys Dirty Gas Stranded Asset In UK for US$11.6B

Hydrogen and fossil fuels dwarf renewables in BC’s pension fund. Its claim to be “The Investment Manager of Choice for British Columbia’s Public Sector” doesn’t hold up to scrutiny.

Over on LinkedIn, Michael Liebreich among others was scratching his head about the recent purchase of 60% of the UK National Grid’s Gas Transmission & Metering service (NGG) by Macquarie Asset Management and British Columbia Investment Management Corporation (BCI) for £9.6 billion, about US$11.6 billion.

It’s the second half of that that caught my eye, living as I do in British Columbia, which touts itself as being clean and green, and lives up to that ideal much of the time. There are two halves to this story, one being purely the value of the asset and the second being what the heck BCI is doing buying into fossil fuel infrastructure that’s clearly going to be a stranded asset.

BCI touts itself as “The Investment Manager of Choice for British Columbia’s Public Sector,” claiming $211.1 billion of managed assets, and pointing out that makes it one of the biggest funds in Canada. I’m thinking that BC’s roughly 540,000 public sector employees aren’t consulted often about what the fund invests in, based on what’s in it.

So lets poke at the value of the asset they just bought. What does NGG do? Well, the first half is the high-pressure natural gas transmission network in Britain. It has about 7,660 kilometers of high-pressure pipe and 23 compressor stations. That’s not distribution to buildings, that’s moving high volumes of natural gas, aka high-global warming potential methane and a few percent of differently nasty stuff, between places where it’s extracted and places with high demand for it. It’s like electrical transmission lines, but with archaic and damaging molecules instead of electrons.

The other part of the business is an independent metering business with 8.4 million domestic and commercial gas and electric meters as of March 2021. There are about 19.3 million households in the UK, so suffice it to say that this is the 800 lb gorilla in the country as far as monitoring consumption of threats to the climate entering buildings, at least ones that aren’t Conservative politicians or members of the UK centered, denialism spewing Global Warming Policy Foundation that ex-Australian PM Tony Abbot just became a Board member of.

The Macquarie/BCI consortium has an option to buy the last 40% of NGG too, and I’m assuming sunk cost fallacy will lead to them pulling the fiscal trigger attached to the economic gun pointing at their feet.

So let’s think about this. This is delivering massive amounts of greenhouse gases around the UK and metering it going into buildings. Is this a growth market? No, quite the opposite. The UK is doing what every other country in the world is doing, which is installing heat pumps for building heating — and increasingly cooling. It’s lagging behind, with only 280,000 in the country, about 63 per 100,000 people, unlike, for example, Estonia which is already at 1,583, but the UK being behind the rest of the world doesn’t mean it’s going to double down on gas in the age of climate crisis. That would be as bone-headed as leaving the EU. Oh, wait.

The UK is a hotbed of idiotic attempts by firms like Cadent and SGN  to blend hydrogen in natural gas distribution lines and to make it a home heating gas. That’s despite the really obvious problems that it is four times riskier than natural gas due to loving to leak, igniting over a vastly wider range of mixtures and having a much lower ignition temperature, and at the very minimum six times as expensive for each unit of heat delivered through heat pumps, and more like ten times as expensive. There are now 33 different studies that point out that hydrogen is a terrible building heating gas, so it’s not like experiments are required or reality won’t set in at some point. I mean, pumping hydrogen into buildings for heating would be as foresighted as leaving the EU. Oh, wait.

So the gas metering business is going to be shrinking fast, while the electric metering business is just sitting there. What about the pipelines? Well, what the heck are they delivering the natural gas for? Generating electricity, industrial heat, and home heating.

The first one isn’t a growth market in the UK either. They are building a third HVDC interconnect to the UK to share renewable electricity, and they are greenlighting pumped hydro facilities in Scotland and massive offshore wind farms in the North Sea. Heck, they might even get Hinkley up and connected to the grid, and while the electricity will be very expensive at about $150 per MWh wholesale guaranteed for 35 years with inflation matching price increases, it will be low carbon and displace natural gas. Electrical generation is going to be reducing consumption of natural gas, especially after the energy crisis diverted Europe radically away from the stuff and accelerated decarbonization.

We’ve covered home heating, so what about industrial heat? Sure, that’s going to take longer, but it isn’t like there aren’t solutions there that are being worked on hard. There are only a small number of places in industrial heating that can’t electrify, such as ceramics and cement, but even there plasma electric heating systems create very similar conditions and are likely fit for purpose, per global industrial heating expert Dilip Chandrasekaran, SVP of Kanthal, who I had the pleasure of spending 90 minutes with the other day. (Watch this space, as it was for the CleanTech Talks podcast.) Yes, industrial heat faces a bunch of interesting headwinds that are challenging. But clearly growing the penetration of natural gas in industrial heating, or even more foolishly using vastly more expensive hydrogen or synthetic fuels rather than simply electrifying is not going to be the majority option. Yes, this is another negative growth market.

Maybe it’s because the UK economy and population are growing incredibly rapidly? I mean, it’s not like the government left the labor and trade free market with over 700 million people and 27 advanced economies recently, lost a lot of its work force as a result, and its small businesses can’t afford to deal with the sensible EU border controls. Oh, wait.

To be clear, the UK will be manufacturing and distributing some hydrogen, but almost entirely as an industrial feedstock, mostly for fertilizer. That’s not going to fill 7,660 kilometers of pipelines. Given how hard hydrogen is to distribute, most demand will be met by elecrolyzers at the sites, so there isn’t going to be much pumping of the stuff. Liebreich’s comment was “there should be some residual role for the high pressure gas backbone, ferrying biogas and hydrogen between industrial hubs,” and the key word is residual.

Of course, the British in British Columbia doesn’t mean much anymore, so why is the BC pension fund thinking that buying what will clearly be a rapidly diminishing pair of assets that are climate change problems on the other side of the Atlantic is a remotely good idea?

Well, it’s got game. I dug into their 2021 investment inventory report to look at their portfolio. It’s remarkable that I haven’t seen anything in the local press about this, but then, I don’t read the local press. Perhaps some of the local press read me, and this will get some coverage, but it’s unlikely. Why? Well, I’m not a fan of hydrogen for energy. Quite the opposite. I’ve done the chemistry, physics, and economics on the subject around multiple areas including energy storage, African green hydrogen for Europe, shipping hydrogen, piping hydrogen, powering trains with hydrogen, powering planes with hydrogen, and powering ships with hydrogen. None of them are remotely reasonable options in the future.

Hydrogen demand projection through 2100

Hydrogen demand projection through 2100, chart by author

Why is this a problem locally here in BC? Well, it’s the home of Ballard, the fuel cell company that was the darling of the Hydrogen Economy blip around 2000 where it peaked at $189 per share compared to its current value of $8.13. An entire somewhat dead economy of hydrogen for energy hope has built up in the province around that fading flagship. And the province is still building an LNG shipment plant whose two cities worth of electricity demand will be powered by, surprise surprise, burning natural gas to make electricity. Yeah, and we also welcomed Carbon Engineering with open arms and much fanfare, and I shredded them as well. I’m not exactly aligned with a big chunk of BC’s ‘green’ tech community.

Is BCI a great outlier in BC in terms of thinking that hydrogen for energy has a future? Is its portfolio light on hydrogen by any chance? Nope. They are over $8 million into Ballard. $3.5 million into Plug Power. $23 million into Air Products. $3m into Adani Green Energy. $2.5m into Air Liquide. $72m into Linde. $21m into Shell. $94m into Reliance.

$247 million in total in big hydrogen play firms, although of course Shell is obviously not just H2. Oh, and Adani Green Energy is looking more like pond scum green than not with the recent reports on its corporate stock shell games.

And of course a bunch of the usual suspects like BHP ($39m), Cenovus ($7m) and Suncor ($233m) are there. Of course they have $25 million in Fortis BC, the local perpetual greenwashing natural gas generator and distributor. There are eight oil and gas firms in their portfolio that aren’t even bothering to greenwash with name changes as Oxy and BP did, but still have ‘petroleum’ in their corporate branding. Heck, they even have a couple of million in companies that still have coal in the name. Perhaps it’s unfair, but in 2021 they had $20 million in Gazprom, the Russian natural gas problem child. One assumes they’ve divested that.

With coal having peaked in 2013, most major analysts projecting peak oil demand arriving later this decade, the reality that Alberta’s crude will be first off the market, and the likelihood the peak natural gas will be coming by 2035 at latest, this is a remarkable portfolio of fossil fuels.

All of that is, of course, dwarfed by the billions in the UK acquisition, although the split between MacQuarie and BCI isn’t public. That’s a complete head-scratcher, for the reasons I outlined.

But hey, perhaps it’s heavily invested in renewables? Um, no. I didn’t do a comprehensive check, but I did look for some of the biggies globally and in Canada, and didn’t find much. $1m in Orsted. $1.3m in Vestas. $2.5m in Transalta. $4m in Boralex.

So hydrogen and fossil fuels dwarf renewables in BC’s pension fund. Its claim to be “The Investment Manager of Choice for British Columbia’s Public Sector” doesn’t hold up to scrutiny. More like “The Investment Manager of Choice for Fossil Fuels and Stranded Assets.” I’d recommend that they get some independent strategic guidance. I’m local and that’s a big part of what I do, so BCI? Call me.

 
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Written By

is a member of the Advisory Boards of electric aviation startup FLIMAX, Chief Strategist at TFIE Strategy and co-founder of distnc technologies. He spends his time projecting scenarios for decarbonization 40-80 years into the future, and assisting executives, Boards and investors to pick wisely today. Whether it's refueling aviation, grid storage, vehicle-to-grid, or hydrogen demand, his work is based on fundamentals of physics, economics and human nature, and informed by the decarbonization requirements and innovations of multiple domains. His leadership positions in North America, Asia and Latin America enhanced his global point of view. He publishes regularly in multiple outlets on innovation, business, technology and policy. He is available for Board, strategy advisor and speaking engagements.

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