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Financing Future Cities: Urban energy
29 Plays3 years ago
Cities make up approximately 78% of global energy demand, and they contribute 70% of global emissions. Cities are also at risk from the effects of rising global temperatures, which are caused by these emissions. Greg Clark talks with Nikki Grady-Smith, Senior Vice President at BP, and HSBC’s Group Head of Climate Transition, Seb Henbest, about how cities can decarbonize at scale. In order to achieve carbon emission reduction targets, cities will have to become mass adopters of renewable energy. What will this look like and how will we finance it?
Financing Future Cities is a podcast series produced by HSBC and hosted by Greg Clark. It sets out to examine the complex and evolving role of urban hubs through the lens of banking and finance. To find out more about how HSBC are supporting customers transition to net-zero, click here.
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Transcript
Introduction to HSBC Global Viewpoint
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This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
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Thank you for listening.
What is "Financing Future Cities"?
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This is Financing Future Cities, a podcast series created by HSBC to examine the complex and evolving role of urban hubs through the lens of banking and finance.
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With more than half the world's population living in cities, and this number only expected to grow,
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Urban hubs are increasingly the global drivers of prosperity, serving as models for sustainability and incubators of innovation.
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Join us now as we look to the future of sustainable urbanization and learn about the power and potential of future cities.
Guest Introduction: Nikki Grady-Smith and Seb Henbest
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Hello and welcome to today's episode where we're going to explore urban energy.
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Thanks for tuning in.
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My name is Greg Clark, Group Advisor for Future Cities and New Industries at HSBC.
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And today I'll be talking to Nikki Grady-Smith, Senior Vice President at BP, alongside HSBC's Group Head of Climate Transition, Seb Henbest.
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To briefly introduce our guest speakers, let me tell you, Nikki's the Senior Vice President of City and Corporate Integrated Solutions at BP.
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a team focusing on originating and developing integrated solutions with cities and corporates to make a material impact on global emissions for their customers and for our planet.
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Seb Henbest has recently joined HSBC as Group Head of Climate Transition, having spent 14 years at Bloomberg NEF, most recently as the Chief Economist and Lead Author of the New Energy Outlook.
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At HSBC, Seb is responsible for engaging our clients in their transition to low carbon and to help ensure that the bank meets its financed emissions targets and is truly a leader on climate.
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Thank you both very much for joining us today.
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It's great to have you here.
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Thanks, Greg.
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Really appreciate the invitation and look forward to chatting.
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Thanks, Greg.
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Let's get started with a few stats.
The Role of Cities in Energy Demand and Emissions
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Cities concentrate 78% of global energy demand, and they contribute 70% of global emissions.
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And crucially, cities are also at risk from the effects of the rising global temperatures which are caused by these emissions.
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Fossil fuels still account for 84% of the world's total energy.
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So, how can cities decarbonize at scale?
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By the end of 2020, more than 800 cities had committed to net zero emissions by 2030, an 800% increase since 2019, and 10,500 cities across the world have adopted CO2 emission reduction targets.
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In order to achieve these goals, cities must become less dependent on fossil fuels and instead become mass adopters of new renewable energy.
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Nikki, can I come to you first?
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Where are we globally on the new means to power cities as you see it?
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Thanks, Greg.
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I think there's some fantastic statistics there.
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So cities are where demand for clean energy is concentrated and this can offer the best opportunity for reducing emissions.
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The transport networks, airports and industrial zones are really close to cities and that's where there's significant demand for energy.
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And that's also where alternative sources can make a big impact on those emissions.
Innovative Energy Solutions for Urban Areas
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But what's going to occur is a requirement for more forms of energy, and this brings with it complexity.
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So we need to look at long-term financial commitments, regulatory and technical uncertainty in making things harder.
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And integration of existing and emerging infrastructure is going to be really critical.
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So we have to take a whole system approach.
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And aggregating that demand of all of those different parties will enable us to provide cost competitive investments into low carbon energy at scale.
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Fortunately, at BP, we're testing this model with a couple of cities, Valencia being one of them, and we're converting our existing refinery to
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to what we call an integrated energy hub, which basically means providing a number of different energy solutions that will hopefully help fossil fuel reliant industries like the ceramics industry in Valencia switch to low carbon fuels.
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In addition to that, we're working with the government of Valencia on proposals to decarbonize their community, their transportation, and that's public and private transportation for mobility,
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the ports and the airports in the region.
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Absolutely fascinating, Nicky.
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And I heard what you said, total systems approaches, integrated energy needs and creating these integrated energy hubs.
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And you talked about ceramics, industrials, transport, the built environment and everything else.
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Now, there's a strong debate out there that electrification is a key part of all of this.
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Is electrification itself the answer as you see it, or does it need to be combined with other alternative sources of energy?
The Importance of Electrification and Diverse Energy Sources
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So I think electrification is one of the answers, but it isn't the answer for everything.
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So within a city, there's lots of different emissions drivers, and they will require different mixes of energy.
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And in addition to that, they're going to evolve over time.
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So aviation, shipping, heavy transport will all need different sources of energy.
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And for very heat intensive processes like the manufacturing of steel or cement, we need to look at alternatives like hydrogen.
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Having said that, large scale renewables like offshore wind can power an electrolyser that could produce hydrogen to supply into those industrial processes, whilst also powering electric vehicle charging.
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So this combination is going to be really important of looking at different energy solutions.
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So large-scale energy users like vehicle fleets, airports, or manufacturing plants won't be able to switch overnight.
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They're going to need this range of options over time.
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And that's going to be important as some renewables options have a natural variability that
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And we're going to need to make sure we cater to that variability and those different needs as we move forward.
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Thank you very much, Nikki.
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So this natural variability is a very interesting point.
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And of course, you've emphasised the fact that many of the heavier energy users may prefer something like a hydrogen, possibly generated from renewable offshore energy.
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So it's a fascinating mix, if you like, of different kinds of energy menus that has to be put together.
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So, Nikki, there's a lot of conversation about the transition to net zero mobility within cities, electric buses, electric cars, scooters, active transport and everything else.
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But what about the emissions that are generated from transport between cities?
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How are you dealing with that?
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Greg, thank you for raising that.
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I think it's a really important topic that we consider
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transport outside of cities as well.
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So if you take freight transport, for example, in 2019, heavy goods vehicles accounted for 16% of the UK's total domestic emissions.
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And looking at that freight transport, it's important that we create clean logistics corridors on major freight routes, which can connect cities, ports and other transshipment locations.
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And electrification will be part of the solution for this, but it's not going to be the only solution.
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We need to consider things such as biomethane and hydrogen, which we've mentioned before, sustainable aviation fuel for aviation.
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And even today, we have solutions such as renewable diesel,
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not the final answer, but part of the answer for the transition.
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And integrating all of those energy vectors together through hubs will enable us to meet those evolving needs of fleet operators as they move forward.
Technological Advancements in Decarbonisation
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Seb, if I can come to you and ask you to pick up on a sort of broader point here, how important are technology switches going to be
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to drive this decarbonisation process.
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Thanks, Greg.
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Technology is so central to this whole challenge.
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And I like to say that the road to net zero is paved in technology change.
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And as Nikki's rightly said, this technology change isn't just about electricity and electrification.
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It's also about
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green fuels, but across the energy economy, which of course gets into every nook and cranny of the real economy, we're going to have to have some technology shifts.
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And that means that the challenge, of course, is very broad and in some instances is very complicated.
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For me, I think about it sector by sector.
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And I think about what needs to happen in terms of technology change for how we power and heat buildings.
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what change we need for how we move goods and people around, what change we need for the manufacturing of critical materials such as steel and cement and chemicals, for example, how we produce food.
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And if we look at each one of those transitions, we start to unpack the technology landscape that's available to us where certain technologies might fit best.
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And ultimately, through the lens of cities, we have to start solving all of these problems.
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So cities are a really interesting lens to look at the problem of decarbonisation and getting to net zero, because we can't solve them through one of these sectors or through one technology in isolation.
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But we talked a little bit just a moment ago about electrification.
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And while I agree that electrification isn't the only part of the solution, it really is a key vector of decarbonisation for cities.
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And there is a key set of technology changes that are critical for cities to decarbonise.
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And the reason why electrification is so important is primarily because of cost.
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If you look at the dollar per megawatt hour cost of new build renewables, we look at across the world, we can see that wind and PV is now competitive with coal plants and gas plants, not just on a new build basis,
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but also in a growing number of countries, new build renewables versus existing amortised coal or gas plants.
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In other words, the annualised capex of the new stuff is cheaper than running the old stuff.
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And these economics mean that if you need to decarbonise and decarbonise quickly and do it in an economically effective way, then electrification is key.
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If we think again in cities, what does electrification mean?
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Think about cities in terms of, say,
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citizens and residential buildings, then we're talking about a shift to electric vehicles and electric infrastructure in transportation.
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We're also talking about a shift to electric heating systems.
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If we think about what we can do this decade to get on track, then there are two technology choices.
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that we can deploy today and scale up and do at scale and make a big impact.
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But one of the things in industry that most people don't talk about much is low temperature heat.
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And low temperature heat from an energy perspective is most of the energy that's used in industry is at a sector very varied where we can use electricity to provide that heat.
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Electricity offers a key set of technology changes to get cities on track for net zero.
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But of course, it's not the only part of the full climate solution.
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So thank you very much indeed.
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You've said two or three big things there.
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Firstly, the decarbonisation process involves places as well as sectors and places may be a good place to pilot certain whole system approaches as described by Nikki.
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Secondly, some big technology switches.
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You described it technology switches in terms of logistics, mobility, construction and the built environment, housing, food and many others.
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And then thirdly, you said that the economics of all of this is changing, making some things more viable than they previously were and other things, of course, more costly.
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Nikki, any comment on what Seb said there?
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Only to say that I think we're both aligned that it's going to take a multiple amount of technologies and solutions.
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Electrification is certainly critical moving forward.
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And we need to think about electrification for all aspects and all industry sectors.
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Steel's a classic example.
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The majority of what they use today is essentially the gas, coal, a little bit of diesel, and there's a small amount of electrification.
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In the future, they'll require bio-electrification solutions, hydrogen solutions.
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So their mix goes from being dominated by one form of energy to
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to requiring a multitude of different types of energy for different reasons.
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Thank you very much, Nikki.
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Very clear.
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So, Seb, I want to come to another end of this.
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We've looked at the technology end and we did talk about the energy end, but what about the citizen end of this?
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How do we get people who live in cities to want the changes that the planet really needs?
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Can this be in any sense consumer-led?
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Is that a possibility?
The Consumer's Role in Driving Change
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Yeah, it's a really interesting question.
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Often consumers are described in terms of all the things that we're now not allowed to do if we're going to meet climate objectives.
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And I think that's the wrong lens.
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I think citizens and consumers are a very powerful vector of change.
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And perhaps cities and the citizens within those cities might be a secret weapon to help us get on track and ultimately achieve these net zero ambitions by mid-century.
00:15:04
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If we bundle together
00:15:06
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all the technology change that we might need across the sectors I mentioned before, and we add that up and we look at the total amount of emission reductions that we need across the whole economy, then depending how you do that math,
00:15:22
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I've seen numbers that say around sort of 18, 20% of that abatement needs to be delivered by a shift in consumer-facing technology.
00:15:31
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So electric vehicles are an obvious one.
00:15:33
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Rooftop PB systems and home battery systems, not big all over the world.
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The importance of consumer uptake is that network consumers can drive non-linear change.
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And if we try to move very quickly on climate,
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non-linear change is our friend and we should think about how best that can be delivered.
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And the reason why we can get non-linear change is because people copy each other.
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And it's as simple as that.
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The imitation effect of technology uptake means that once a certain critical number of people
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have chosen to buy a technology or switch to a technology, then everyone around them starts copying.
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And you can see it really clearly in lots of different data sets.
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And that imitation effect, once the price is right on a technology, and the price can be made right by government intervention, and government play a really important part here, the imitation effect can create non-linear change.
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And we see this in the uptake curves for absolutely everything that's technology-based.
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from radios to microwaves to mobile phones to personal computers.
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There are early adopters through to mass market and saturation.
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And if we can ride that wave to mass market, then you can see a lot of uptake very quickly and a big impact.
00:16:46
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And to give you an example is Australia, where I'm from, I think today about one in four households across the entire country has a PV system on their roof.
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Add that up to total electricity generation, that's meeting a bit under a third of electricity demand.
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And that is a very, very significant move towards renewables, which is quite unique for Australia.
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It's quite unique in the world, this situation in Australia.
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In fact, the small-scale consumer-facing PV is much bigger than the utility-scale market there.
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But I think cities are critical here because whether you're talking about electric vehicles or rooftop PV or any other energy consumption by households in particular, you have the opportunity to drive renewables.
00:17:27
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a non-linear change and non-linear change is going to be really important in getting on track this decade and getting to our climate targets by mid-century.
00:17:37
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Seb, thank you very much.
00:17:39
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So the network effects and the imitation effects are often said to be strongest in cities because of proximity and the way that people copy each other.
00:17:49
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And it seems like we might be able to use people power then in a certain way
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to make decarbonization somehow popular and, as you say, to accelerate the trend of change.
00:18:01
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Nikki, in your work at BP, do you look at consumer behavior in this way and begin to think about how you can nudge or shift or accelerate switches of the kind that Seb's talked about?
00:18:15
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Yes, I think it's really important that we listen to consumers and citizens and society in general.
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And what a lot of people don't realize is actually how many customer touch points we have as BP.
00:18:27
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You know, we have at last count, I believe it's over 17,000 retail stations across the world where we interact with millions and millions of customers a day.
00:18:38
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And Seb, I agree with you that the role of consumers is really important.
00:18:43
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not just for companies like BP, but we can see it occurring in other sectors where consumer demand and customer demand is having an impact on that industry sector and encouraging them to change what they're doing.
00:18:59
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But what's important is that we also, as part of the system of change, provide solutions for customers that are affordable, reliable, and clean.
00:19:11
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So we also have a responsibility to make it easier for consumers to make the transition as they move forward as well.
00:19:19
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So I agree those early adopters, that imitation, you've seen it in lots of consumer sectors before, is really important and it starts to drive that change to get that mass change as well.
00:19:31
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Everybody has a role to play in the changes that are required.
00:19:35
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Nicky, this is very helpful because it's allowing us to focus on both ends of this.
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Seb's made the point and you've agreed that early adopters, trendsetters, people who can buck the otherwise kind of linear change model are very important.
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But you're also saying that you've got to create a system where access, affordability and everything else is possible so that you can get mass change at the same time.
00:20:01
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Nicky, staying with you, one final question I have for you and really going back to the bigger picture.
How Cities Can Accelerate Decarbonisation
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You've been working with many cities around the world now.
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Speaker
What do you think will help cities to adopt a kind of decarbonized energy strategy at scale to achieve those net zero targets that they've all set?
00:20:24
Speaker
Is there some kind of magic formula for helping them to accelerate all of this?
00:20:29
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I wish there was a magic formula, Greg.
00:20:32
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I think we'd all wish we could wave a wand and sort out some of this complexity.
00:20:38
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Having said that, we all know cities have got a crucial role to play and cities and governments can play both a role as an enabler.
00:20:45
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So they can put in place policies and subsidies which encourage production of low carbon energy solutions.
00:20:54
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And they can also be a driving force for demand, you know, so they can
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put in place policies which require customers to use low-carbon products, for example.
00:21:06
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They can look at investments in technologies that would benefit citizens, giving them a little push to make them more widely available to a wider range of customers or citizens in the marketplace.
00:21:21
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But I do come back to this point around collaborations and partnerships are going to be really important to progress at the pace and the scale that's required for the energy transition change.
00:21:35
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And we've seen some of that change already.
00:21:37
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We've been fortunate enough to form a joint venture with Aberdeen City Council, which is to develop Scotland's first green hydrogen hub.
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And this is an example of a public-private partnership that can drive transformation.
00:21:56
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And we're able to combine Aberdeen City Council's local knowledge with our industry expertise to find real tangible solutions to some of those energy challenges that Aberdeen faces, working together to
00:22:12
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we can look at rewiring Aberdeen's energy system.
00:22:18
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We're not stopping there.
00:22:19
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There's an opportunity for further collaboration as we look at developments in offshore wind, as we work with the Aberdeen City Harbour to decarbonise the port operations.
00:22:33
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I think we're on a journey.
00:22:34
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It's an overused phrase, but by working together, identifying synergies, uncovering insights and looking at innovation, I really think we can go faster.
00:22:46
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Nicky, thank you.
00:22:47
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You've made the point that cities can play a role on the production side.
00:22:52
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They can play a role on the demand side.
00:22:55
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they can play a key role on the technology side.
00:22:58
Speaker
And then you've also said that partnerships and collaborations, as it were, ecosystem building,
00:23:04
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is very important.
00:23:05
Speaker
And then there's this very exciting example of what you're doing in Aberdeen.
00:23:08
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And we'd love to know more about that.
00:23:10
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So I hope people will be able to find out.
00:23:13
Speaker
Of course, one of the challenges in all of this is the financing challenge.
00:23:18
Speaker
And Seb, the last question for you is really about this.
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We talk a lot about the emergence of green finance.
Household Contributions to Energy Transition
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What are the new sources of finance that you see at the HSBC end of this?
00:23:30
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And how do they work?
00:23:32
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Let me offer a couple of examples.
00:23:34
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Let me start with what I have been talking about most, which is the household level.
00:23:40
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And I think one of the key new sources of finance for this transition is going to be households themselves.
00:23:48
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I think we think of energy and energy infrastructure,
00:23:52
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Historically, it's been large-scale electricity or refining, large banks, working with large utilities and oil and gas companies and government, and the energy just sort of arrives.
00:24:08
Speaker
And everyone's been very happy with that for a long time.
00:24:11
Speaker
I think now we're at a point where a lot of the solutions, because they're technology, led a much smaller scale, means households play a role, whether that's
00:24:20
Speaker
You know, the decision to put a PV system on a roof or invest in a home battery or retrofit a heat pump or buy an EV.
00:24:27
Speaker
So these household decisions are often supported by household level lending, particularly the mortgage market.
00:24:33
Speaker
And that example of Australia I used earlier, one of the reasons...
00:24:37
Speaker
the small scale PV market has been so big in Australia and so successful is because there's a very large fraction of Australians that own their own home, very high fraction of home ownership, which means that there is sources of finance available to make those investments in PV infrastructure and battery infrastructure
00:24:54
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government has also been key.
00:24:56
Speaker
And I think this is one of the points that seems to be made is a lot of the solutions that we describe, whether we're talking about green steel and the use of hydrogen steelmaking or recycled steel using electricity, whether we're talking about heat pumps, electric vehicles, in a lot of these cases,
00:25:15
Speaker
These technologies are not yet cost competitive with what people are already using.
00:25:19
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And as a result, government policies needed to help accelerate that transition.
00:25:23
Speaker
It might happen anyway, that technology change might happen, but it certainly won't happen fast enough for climate.
00:25:28
Speaker
So government remains pretty key to help align the incentives.
00:25:32
Speaker
But ultimately, the source of finance through households is an important one that I don't think is talked about quite enough.
00:25:39
Speaker
Another more general case here is, I guess, infrastructure.
00:25:42
Speaker
I mean, we've talked a little bit about sort of a large city infrastructure.
00:25:46
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And I think that there is a real need for finance in infrastructure.
00:25:52
Speaker
I think the numbers are a little bit eye-watering.
00:25:54
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I think there was an OECD estimate of about $6.9 trillion per year up to 2030 of new infrastructure investment needed to meet global development needs.
00:26:02
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A lot of that, of course, is happening in developing countries.
00:26:04
Speaker
When we
Private Investment and Infrastructure Development
00:26:05
Speaker
think about cities, we tend to
00:26:07
Speaker
immediately sitting here in London, think of cities like London.
00:26:09
Speaker
And of course, the world is full of cities that are not like London, that need much more primary infrastructure and the need to be able to support the build out of that infrastructure so that we don't lock in carbon emissions or carbon intensity.
00:26:23
Speaker
And I do know colleagues at HSBC have been quite busy on this, trying to crowd in private investment to complement public money for infrastructure investment, particularly in emerging markets.
00:26:35
Speaker
And there's a program called Fast Infra, which is designed specifically to do that, to label things as sustainable that can reliably be thought of as sustainable, get the institutional investors to put money into long-term assets,
00:26:50
Speaker
that can deliver sort of stable long term returns.
00:26:53
Speaker
And I think that's going to go a long way towards the next round of sustainable infrastructure investment that will support cities, not just in emerging markets, but also in developed countries as well.
00:27:05
Speaker
Great, Seb, thank you very much indeed.
00:27:06
Speaker
And a message to our listeners, there will be a whole podcast about the Fast Infra initiative for those of you whose appetites have now been whetted by what Seb said.
00:27:17
Speaker
So we've covered the general role of cities in climate change.
00:27:21
Speaker
We've talked about infrastructure, the key sectors involved.
00:27:24
Speaker
We've talked about the difference between light and heavy.
00:27:28
Speaker
We've talked about industry level versus households and the key role of households.
00:27:32
Speaker
We've also talked about technology, active citizens, finance, and also the role of government.
00:27:39
Speaker
So Nikki and Seb, is there anything left to say?
00:27:42
Speaker
about decarbonising cities before we close off.
00:27:45
Speaker
Nikki, a final remark from you?
00:27:47
Speaker
I think I've come back to this is a system change and we all have to work together in ways that we've never previously had to do that before.
00:27:57
Speaker
So bringing together government, bringing together financial institutions, different industry sectors with city municipalities from around the world is really what's going to make the change going forward.
00:28:10
Speaker
Thank you very much, Nicky.
00:28:11
Speaker
Seb, a final comment from you.
00:28:13
Speaker
To complement what I've said before, I'd say the supply side matters as much as the demand side.
00:28:19
Speaker
And we focus a lot on the supply side in this business where we're thinking about what are the technologies that we need to deploy to make this transition, unless you've got the demand and the supply side.
00:28:31
Speaker
moving forward at an appropriate rate, then your supply chains start to matter.
00:28:36
Speaker
And moving fast is all good.
00:28:38
Speaker
And we think we can harness the power of consumer choices and technology adoption to do that in cities.
00:28:44
Speaker
But the supply of the technologies, the electric vehicles, the heat pumps,
00:28:48
Speaker
the technicians and the skilled labour force to be able to deliver those technologies to people's households is going to be critical as well.
00:28:56
Speaker
So as Nikki says, it's a system problem and lots of challenges along the way.
00:29:00
Speaker
But I think if we object it all forward and start to imagine the city of the future, it's a much more sustainable and much lower carbon place in the cities of the present.
00:29:11
Speaker
Great.
00:29:11
Speaker
Well, thank you both very much indeed for joining me today.
00:29:14
Speaker
I'm afraid this is all that we've got time for.
00:29:17
Speaker
And there have been so many great insights by what you've both said.
00:29:21
Speaker
Hopefully also, of course, some good takeaways for our listeners.
00:29:25
Speaker
And this, of course, will be a topic for many years to come.
00:29:29
Speaker
So thank you both very much indeed for joining us on the Financing Future Cities podcast.
00:29:35
Speaker
And to our listeners, thank you for tuning into this episode of Financing Future Cities.
00:29:42
Speaker
If you enjoyed this discussion, then listen to the full series as we take a deep dive into key topics on the urban decarbonisation journey of cities and their ecosystems.
00:29:54
Speaker
If you're interested in learning more about how HSBC can support you in your transition to net zero, visit the link in the episode description.
00:30:03
Speaker
Thank you for listening today.
00:30:05
Speaker
This has been HSBC Global Viewpoint Banking and Markets.
00:30:09
Speaker
For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.