Transition Finance
Executive Summary
Scotland has a strategic goal of transitioning from oil and gas to lower carbon forms of heat and energy to achieve our climate change targets. This paper sets out why it’s important to support the current energy supply chain through transition finance, to help existing companies grow, develop and play their part in delivering Scotland’s transition to a renewable, low carbon energy system.
We’ve identified five themes:
Potential growth for Scottish businesses serving an expanding renewables sector
Through the ScotWind licencing round, and by using our skills and experience in fixed-bottom offshore wind and oil and gas production in the North Sea, Scotland could be the first country to move at scale in floating offshore wind. It’s estimated there is a potential £28.3 billion in supply chain spending commitment up to 2030, with up to £4.1 billion in value to be realised in floating wind.
Today’s businesses, people and skills are critical for the transition
Delivering the energy transition requires considerable investment into the energy supply chain in Scotland. A just transition will take employees, companies and communities with us. In other words, the organisations serving today’s energy system (historically dependant on oil and gas) need support and investment to serve the energy system of tomorrow.
Decreasing oil and gas production means revenue decline for the supply chain
UK oil and gas production is estimated to decline by 40%, from 460 million barrels today to 260 million barrels by 2030. This means contracts will be both harder to come by and smaller, so the market will become more competitive. Profits may be reduced, which in turn will impact supply chain companies' ability to reinvest in the future.
Investors are pulling back from oil and gas; finance is harder to find
Supply chain companies currently serving the oil and gas sector are finding it difficult to raise finance as investors shy away from climate-related balance sheet risk. This is driven by policy, regulatory and industry initiatives but has in consequence contributed to investors pulling back capital from the current energy supply chain, making it hard for transition-critical companies to source the investment they need to transition.
Transition finance is vital to bridge the gap and transition successfully
Targeted finance is necessary to support the existing energy supply chain in Scotland to grow and service a vastly increasing renewable energy market, whilst avoiding greenwashing. We have a clear role to play here and have set out some guiding investment principles to ensure that our approach as an investor supports a just transition.
