Andrew Leedham: Hello everyone and welcome to today's Virtual Discussion Panel hosted by Inspiratia focussing on the impact of COVID-19 on sustainability. I am Andrew Leedham, Associate Director at Inspiratia in Washington DC. This is the third discussion panel hosted by Inspiratia in an ongoing series focussing on the evolving conditions in global renewable energy and infrastructure markets in the time of COVID‑19. Today's event will focus specifically on what it means to look for a sustainable future in a post‑pandemic world. These are unprecedented times that call for a unique and novel analysis to better understand where the most dramatic impacts will be felt and to that end we are delighted that Dan Wells, Partner at Foresight Group and Ben Stansfield, Partner at Gowling WLG are here with us today to provide their expertise and insights in a panel-style discussion moderated by Jon McNair, Inspiratia's Head of Content. We are looking forward to what will no doubt be a fascinating conversation with them. Next slide please.
Before we get started with our panel discussion today I wanted to take this opportunity to announce the release of Inspiratia's latest report – Infrastructure in Renewable Energy in a post-COVID-19 World which will be available from today via our website as well as by direct enquiry with our Research Team at Inspiratia. The new report incorporates many of the themes and insights that we have discussed in this webinar series and Inspiratia's continuing daily news coverage of the crisis, and offers further analysis built around macro-level trend and potential uncertainties as markets seek to adapt in the coming months and years. With that in mind we think it useful to set the stage for today's discussion and contextualise the release of the new report with a very brief overview of where we see infrastructure and renewable energy markets right now and to provide some sense of the macro-economic setting in which we find ourselves today. Next slide please.
As you can see on this first slide the global economy has, not surprisingly, taken a bit of a beating in the first quarter of 2020 with advanced economies as classified by the IMF seeing the sharpest decline so far. The most recent data from the IMF show that global GDP is on pace to contract by more than 3% in 2020, with advanced economies suffering the most severe declines and shrinking by 6.1% as a group. In the United States where Q1 GDP contracted by 4.8%, the Congressional Budget Office's most recent analysis as well as the numbers from the Department of Commerce released yesterday, suggest that the US economy will shrink by an annualised rate of more than 30% in Q2. Total new unemployment filings across the country for just the month of April have reached 30 million as of this morning and OECD data for early April offers similarly troubling employment numbers in several European countries. The current figures suggest that GDP for the Euro area will decline by nearly 7.5% through 2020. Economic power houses in Asia appear likely to weather the pandemic better than their counterparts in Europe and North America but the numbers are still sobering. Japan's GDP is currently projected to shrink by 5.2% and the Chinese Government estimates the Q1 GDP was down 9.8% compared with the previous quarter and 6.8% when compared to Q1 2019. Inet models are relatively bullish for China in that they show that the Chinese economy will end 2020 having grown by 1.2% but that is less heartening when compared to the country's 6.1% expansion in 2019. Emerging economies across the globe fair comparatively well against advanced economies in 2020 as their aggregate real GDP may shrink by only 1% but many countries in sub-Saharan Africa and the MENA Region could see negative growth more than five times that number. Next slide please.
Turning specifically to infrastructure markets, we have already seen some interesting activity when we look at listed infrastructure stock prices. While the sector is undoubtedly feeling the strain of the global economic contraction with some funds seeing declines of nearly 30% in March, listed funds at the very least have already shown some of the much touted resilience ascribed to infrastructure assets and investments. In the UK, for example, listed infrastructure funds have recovered significantly after suffering huge share price declines towards the end of March. This pattern is largely in line with the broader equity market behaviour over the same time period, such as we have seen in the S&P 500. While the listed fund indicators seem to confirm the broader view that infrastructure assets are significantly less susceptible to macro-economic trends such as GDP contractions and inflationary pressures, that notion is founded on the principle that most infrastructure assets are considered essential and are at least somewhat insulated from demand reductions and traditional economic downturns. COVID-19 however, is not your run of the mill economic downturn. Next slide please.
As we know, the COVID-19 pandemic has resulted in a number of never-before-seen economic conditions and geo-political trends. Foremost amongst these are the drastic restrictions on commercial activity, business operations and travel of any kind. According to the New York Times around 93% of the world's population currently lives inside national boarders that are wholly or partially locked down to international travel and are under some form of domestic travel restrictions as well. Indeed, as we can see on this slide, certain infrastructure segments are uniquely exposed to the stringent restrictions that lockdowns entail. And toll roads are not alone in this. Transport infrastructure assets in general, including airports and passenger rail, are undergoing similarly dramatic usage and revenue shocks that we expect toll roads in particular to bounce-back more rapidly as restrictions are slowly lifted and businesses begin to reopen over the coming months. Next slide please.
Turning now to the renewable energy side of the equation, we see a very similar share price profile for listed renewable energy funds to those we saw earlier with the listed infrastructure funds. After drastic falls in mid to late March, share prices for listed renewable energy funds have largely rebounded. This too is in line with broader equity market behaviour over the same time period and is indicative of what we see as investor confidence that renewable energy projects, such as solar and wind, offer a certain amount of safe-haven. Governments seeking to ensure that essential services remain reliable and effective know that in most cases keeping the lights on is at the top of the list for essential needs, meaning that continued investment in power generation is a key component of the return to normalcy. Add to this the fact that we have also seen significant popular support for increased focus on incentivising renewable energy investment and development in government stimulus packages, particularly in Europe, then the prospects for a more rapid recovery in the renewable energy sector are encouraging. This is not to say that renewable energy providers and investors are not subject to major challenges. Next slide please.
As the renewable energy sector has trended away from feed-in tariffs towards a subsidy-free market pricing model, the sector is increasingly exposed to the fluctuations of wholesale electricity prices. Decrease demand during the pandemic has driven down wholesale prices across most markets and regions, whilst significant supply chain disruptions most notably from producers and manufacturers in China, have led to severe revenue strains and project delays in many markets. With that said, the global demand for fossil fuels and oil in particular has dropped precipitously as the world has locked down and manufacturing and vehicle emissions have declined accordingly. There is reason to believe that this brief glimpse of a less polluted world will galvanise the already growing call for investment in renewable technologies. We also think that this is a potentially unique moment in the push for a de‑carbonised world that will include not only increasingly clean power generation but also an opportunity for transport electrification and automation, industrial process and gas create de-carbonisation and renewed focus on reducing air travel emissions amongst others, to claim the spotlight in a post-pandemic world, looking toward a sustainable future. And with that, I will turn it over to Jon McNair, Inspiratia's Head of Content to start today's discussion on the impact of COVID-19 on sustainability. Over to you Jon.
Jon McNair: Well thanks very much Andrew and as Andrew just said I am Jon McNair, Inspiratia's Head of Content and I am very happy to be back once again moderating the discussion for another of our live virtual events investigating the impacts COVID-19 is having on the areas we, as a business, cover in our day-to-day work. Today, to delve deeper in that front into all things sustainability, I am very pleased to be joined by Dan Wells, who is a Partner at Foresight Group, and Ben Stansfield, who is a Partner at law firm Gowling WLG, and a very warm welcome to both of you. Before we get going though I just wanted to remind our all attendees today to send in your questions using the Q&A section on the Webex platform and we will be posing them to our panellists a little bit later. But first let's open up the discussion with some reflection on the environmental part of sustainability, particularly as it is called for us the renewable side of things and how that is fairing at the moment in the face of this crisis. Perhaps, starting with you first Dan, Andrew in his intro mentioned the much touted resilience of the sector. I mean what kind of resilience or attractiveness do you still feel renewables is showing as an asset class in light of the pandemic?
Dan Wells: Yes. Thanks Jon. Hello to everyone. Well I think first of all as a kind of broad comment, this has been touched upon, the link between sustainability and sustainable investing and COVID at a high level I think is quite clear, and what I mean by that is when we talk about investing for a sustainable society, whilst obviously that means sustainable from an environmental perspective, it also needs to be a resilient society to clearly and health quality and health kind of security is clearly kind of part of that and I think a sort of underlying theme about everything we will be discussing today when we think about the impact of the pandemic on sustainability, is the fundamental link between environmental issues, health and on a kind of wider global basis, development and moving people out of poverty. Obviously this is more of a consideration for emerging markets. I think those points are so fundamentally linked it really, it is a great time to think about you know what our objectives are in sustainable investing and also try and kind of look at and think about that the world is going to look like as we come out of the lockdown and what kind of infrastructure we need going forward. That was a sort of broad comment. More specifically to answer your question, so we have already talked a little bit about the basic resilience of renewables as an asset class right now. Clearly what is happening is that we are having a very bright light being shone on different types of infrastructure and how they fare in circumstances like this and some aspects which were seen as being extremely low risk actually had these king of hidden risks and obviously air transport is the kind of most obvious in that respect. And that is really something that no-one saw coming. We are very, as investors in this space we are in we are very fortunate to be investing in renewables. We have, so whilst wholesale prices have been volatile, and on the whole been obviously reduced a fair amount as the crisis kind of started, renewables themselves are well placed. They are critical infrastructure, we need to keep the lights on. They tend to keep working, they need minimal human intervention to keep them going. They have no real supply chains once they are built and operational. They often have priority dispatch onto the grid, so they are the first assets to be pushing energy onto the grid and they have a low, or pretty much zero, marginal cost in the case of wind and solar – which means they can ride out these periods of low wholesale power pricing. And I think what we have really seen in the last few weeks is it is probably coal that has been really suffering. Obviously this is, so pushing coal off the grid is an acceleration of a trend that has been underway for some time, but it is coal, in particular in places like the US, that is kind of taking the brunt of the reduced demand, and then gas and even more-so renewables continuing to generate. So I think all of this kind of demonstrates a resilience of renewables right now as an asset class albeit in circumstances that none of us could have predicted.
Jon: And just staying with you Dan for a second, I mean as an addendum to what you just said – obviously you know lots of investors, most investors really in renewables, have some kind of element of you know a lot of contracted revenues to kind of protect themselves in these kind of scenarios but, that said, you feel increased merchant risk that has been happening over the last few years is now a kind of bigger issue due to what has been happening over the last few weeks?
Dan: So, I think it continues people and, in particular, institutional investors, to focus on the ups and downs of merchant power, but I don't think that is really new. I think that has been a focus, as you allude to, for a number of years. I think putting in place structures that give investors long-term certainty is going to be crucial. Now that we are in this area essentially of unsubsidised renewables standing up on their own two feet and being viable, and moving away from long-term government subsidies, it is probably the biggest question and the biggest challenge that we face as a kind of sector is how do we continue to get long-term contractual certainty. And what is interesting is that the private sector investors will pay for that. So I guess what the private sector is saying to governments is that we don't need subsidies any more, we just need your help in having some level of a fixing of pricing and we have seen within the pricing of the CFDs in the UK for off-shore wind, for example, where essentially the investment community is locking into pricing that is below the stock price, so effectively paying government for that certainty. And that is a little bit like investors accepting negative yields on high quality government bonds. So I think that is an important piece of the jigsaw. Obviously an increase in the number of corporates over the last year or two that have been signing PPAs is useful, but that is still not a deep enough market to pick up the whole slack yet. And I think that discussion about how governments might support the continued acceleration of renewables deployment. Well this obviously is bringing things to a head, the COVID situation and the kind of sinegas [unclear 00:16:29] packages and I'm sure that is something we will touch on in a minute, but this is a good time to be having those kind of conversations.
Jon: Yes. Okay. Ben to bring you in and just on a broad note at first, I mean how do you feel the current situation is potentially making a greater case for investment in things like zero carbon generation or other kind of sustainable agendas?
Ben Stansfield: Yes, well I guess that my first comment is that renewable energy is already mainstream. I mean the stats this morning, wind was providing 23.4% of our electricity. That was ahead of gas at 12.6%, solar at 10.2% and biomass at 10.2% as well. That is not fringe stuff, so the case for investment in zero carbon, decarbonised energy was always there. And if the question is flipped around it is dead easy to answer. Has the crisis made the case for investment in zero carbon generation worse? Clearly not. So it can only be sort of more strongly put. Now I guess zero carbon generation it hasn't really got the same baggage as thermal and fossil fuel generation does. It is generally very popular, I mean yes on-shore wind has got potential visual impacts and solar there is the question as to land use, but overall people are pretty comfortable with it. So I suppose I would say look, change was coming before, universities were divesting fossil-based investments, the Royal Shakespeare Company for example parted ways with BP after eight years just because it just felt like the right thing to do and we have extinction rebellion process, all this kind of stuff. And I suppose in the last six to seven weeks we have all become perhaps a bit more alive to our environment. We are living cleaner, healthier, more balanced lifes, travelling less, working from home, we are exercising more so we are perhaps connecting with what it means to be sustainable and what a sustainable world could be like. So yes, I think the case probably is stronger now than it was previously because the public are probably one or two steps further down the line towards sustainability than we thought they might be at the beginning of the year.
Jon: Yes, and just on energy and why the infrastructure industry and its ESG credentials, how Ben do you feel they compare to perhaps other industries that you cover?
Ben: Well I'm not just playing to the audience here but I do think infrastructure investors [unclear 19:18] for example have been talking about ESG for quite some time now, probably earlier than most other industries so, that is a big tick. Obviously within energy and infrastructure you've got some assets that tick all of the ESG boxes. For example, solar and wind and other assets have more of a story attached to them whether it is nuclear gas or biomass or something like that and then you know which are a real challenge. So, as Dan was saying earlier, coal has taken a real hit but obviously projects around the world have got different impacts, you've got your long and thin pipelines and rail which they impact a number of communities, and lots of landowners compared to single-site projects, so there is a whole host of ESG issues for the sector to get its head around and probably more obvious to point out than let's say retail or manufacturing, or real estate investors. But some of those sectors, retail manufacturing, they do get it and there are some absolute shining stars out there who have been blazing a trail for a number of years. But I think overall they are newer to the story, they tend to be led more by customers, the consumers, rather than in supply or visionary on [unclear 20:33]. I really think infrastructure in energy, I think the sector has got a really important broader role to play, spreading the word, telling other sectors about experiences, sharing the knowledge and promoting it as a really useful tool because there are some [unclear 20:53] who are playing catch up.
Jon: Okay. And just the last little small point on that Ben, I mean any sectors that can perhaps provide some lessons for infrastructure even though, as we've heard, there is an A+ score anyway up to now?
Ben: To be honest I don't think there are sectors which are ahead of the game, I think there are always going to be one or two individual businesses or funds, sorry, you know who really get it so for example in the retail space the outdoor clothing company Patagonia has been [unclear 21:35] for a number of years and I think everyone can learn from spending time on their website and understanding how they approach it but on a broad sector basis I think [digi cut – 21:53].
Jon: And Dan I think Ben kind of eluded to it just now but so sustainability considerations you know present themselves in different ways to different investors and some of them would maybe shy away from biomass so how do you see that kind of situation amongst yourselves and your peers.
Dan: I think that the kind of heart of this question is that when you are in the realm of sustainability and EST you are in a world where people are making kind of value judgements and you are staying well this is important to me or this is important to me and obviously people have very different understandings and meanings for the terms that we use and they have different objectives so most BBBs are environmental objective and mostly it's about climate and decarbonisation but it may be so you mention biomass for example but I guess the biomass point is all related to the climate and also the wider eco system what kind of fuel and [unclear 23:06] are you using, you can get quite technical points around that, you can get quite technical points around that, you could use another good example where you may have investors who just say no I am not doing nuclear there and that is not so much a climate point it might be more of a health and safety point or even a kind of cultural point, in Germany and now in Japan nuclear has just got such a bad name and reputation just going back to obviously going back to Chernobyl and Fukushima but it is almost like a cultural no we just won't be doing this. Another hot potato is to what extent can you use small scale kind of flexible gas investments as a way of enabling more renewable energy so it's a gas in some markets, we need gas, we need gas as a peaking fuel at some point hopefully that role can be provided by batteries but it might be that, certainly in the UK if you look at most projections we will need some level of flexible gas in the mix there so some investors will say yes we will invest in the more kind of broad ranging set of assets because that facilitates the carbonisation other investigators will just say no we don't do fossil fuels kind of end of story. So I think it's a really good question and I guess you know from what we do is we try and help our underlying institutional investors kind or walk though that process so what are your objectives and then helping to kind of fit their investment program around that.
Jon: OK and so to tie this all in with coronavirus again I mean there is obviously lots of competing needs and the genders right now but you know the whole energy transition doesn't go away I mean how strong a driver is the need to replace fossil fuel generation is it before renewable is even regardless or any kind of current crisis or future crises that may occur Dan.
Dan: So I think the kind of a case for decarbonisation of the power system with obvious and manifest even before COVID and I think one thing that was apparent to us is that even over the last 12 months the kind of institutional world for the pension fund insurance fund had almost got kind of exponentially more focused on this and more being driven by impact and sustainability agenda. It is clear when we look at things like Paris agreement targets that we are, we are well behind the curve. However on a much more positive note first of all there isn't this trade-off between economic development and agreeing within decarbonisation of the power system because as Ben said renewables are mainstream now and they are mainstream because they are the cheapest form of energy of energy generations we don't have that trade off in the same kind of way which makes the kind of equation a bit easier to get our heads around and now what we are seeing the quite unprecedented mobilisation of public sector finance over the next few months we are going to be seeing this debate of how decarbonisation kind of fits in to the agenda. The noises we are hearing already and the kind of messaging from the EU and what is going on around the EU green deal, the EU green deal came into place just before all this kind of kicked off and that is about mobilising a [unclear 26:57] between now [unclear 26:58] decarbonisation. Ultimately renewables are not any cheaper they are quicker to build, they have lower localised pollutants, they are much easier to get through planning. So if you want to resuscitate the economy quickly there is a clear role of renewables to play in that respect.
Jon: OK and just to pause for a moment and look at your both of your clients so and what they are saying to you Dan obviously in your case LPs but maybe start with Ben first what are clients kind of asking or talking to you about at the moment and how has that kind of changed over recent weeks.
Ben: Yes so I guess maybe, maybe it should have started six to eight months ago time to [unclear 27:56] time what's your approach to sustainability got environment policies they want to understand the Gowling journey, what are our environmental drivers, they want us to walk the same walk as them and that is great we can do that we have got a first class environmental manager whose job is to speak to clients and tell them what we are doing. In terms of their own sustainability there are a lot of clients we have noticed and this is more out of the infrastructure and energy sector property, we are seeing our big clients every week someone is appointed head of sustainability, head of the SG, head of the environment and they are reporting we are really seeing a focus in the organisation and they are not just [unclear 28:43] but instead of going to build your clients the really savvy ones are thinking we want to do whatever we have got to do to make sure we are still trading in 15, 20, 30 years' time. They recognise the public mood, they can see the direction of hereditary travel and we might talk a bit later about hereditary vacuum but as Dan points out even if we are not sure what the UK is going to do you look at the EU green deal and there is a pretty good [unclear 29:12] out there how we are going to get there so they can see the direction of the regulation that they want to be part of it and they either wholly get it and they want to be part of the debate or else they can hear the music and they need to learn the dance because that is just what their customers are saying, that is what their employees are saying, we want to work for businesses doing the right thing so you know short term I think our clients recognise there is going to be a cost to increase or improving their sustainability but it is unavoidable if they want to be trading in the medium term and then just finally on deals, the clients want data they want to understand the risk and while that has always been the case the question is always different now, we are getting clients giving us 20 questions on their standard ESG questionnaire or the ESG but they want us as lawyers doing the due diligence on a project to be completed and sending it separately to the ESG team for their analysis they want to know what qualities look like, how the business is shaping up and where the impacts are so they are asking much more specific details, much more focused questions and ultimately it's not just [unclear 30:30] so yes.
Jon: You mentioned in your [unclear 30:37] businesses are looking to go down this path as a means of long term survival and the demand is there from customers and employees but in the very short term with the current situation any kind of threat of slackening off a little bit on some of the sustainability targets just to get through the near term period.
Ben: Yes I think inevitably one or two will, I don't think many will slacken off considerably and an ESG is a really broad umbrella covering a lot of terms not just the environment and actually we are seeing a number of examples of great ESG in terms of how businesses are treating their colleagues and how they are trying to do the right thing by them and so forth but on the sustainability side yes we have had people like the Environment Agency have issued a number of regulatory position statements, softening rules but that is not a polluted charter, that is not giving businesses and certainly none of our clients have said great lets make hay while the sun shines while the regulator can't come to site lets [unclear 31:57] responsible businesses are just not behaving like that so I think there may be some organisations are saying look we would like to have got [unclear 32:09] by 2023 let's push that back to 2025 to just make sure we can achieve it and we are not killing our business by trying to meet these targets we set before COVID and at the cost of ill trading but I don't think it's the broad aim of many businesses.
Jon: OK I want to move on in a moment you know to talk about the current situation and the environmental positives I guess we have seen in this country and also people are seeing around the world but before I do I would like to remind everyone to keep sending your questions in on the Q&A function, we will propose it to our panel in a few moments but you know back to my questions perhaps Ben you can give us your view on this, at least on an anecdotal basis but I think it is fairly inarguable we have all kind of seen fewer cars on the roads and cities have cleaner air and in what ways will that affect a kind of grass roots support for sustainable and environmental issues.
Ben: Yes so I think it will do is the short answer and I am going to slightly cheekily answer your last question at the same time which is how with all the [unclear 33:52] are underlying and I think what's really interesting at the minute and really quite rewarding is to see a bit of a journey that investors are going through so an initial level of work we want to be thinking about ESG and in particular kind of environmental issues but it tends to be in a kind of do no harm way to start with so let's have an ESG kind of management framework structure in place where that which is great where that can be a little frustrating is where it is kind of applied in the sense of you have an investment program and then you just plant an ESG policy on top of it almost like a constraint around it. What we are seeking is that investors are making the jump to the next level which is not just about doing no harm it's how do I make a positive sustainability impact so investing in renewables is clearly a great way of doing that and you are able to say well okay we are going to focus on some big topics here the decarbonisation and so then looking beyond that then some investors will now kind of be saying well it's not just the renewals that are needed to decarbonise its batteries and it's an upgrade of the whole grid system and then starting to get onto other kinds of sustainability topics like how to we feed nine billion people without trashing the planet and I think what is great is that we are now having these conversations with major owners of capital who will make huge differences in this respect who want to direct their investment programs to anchor them in kind of specific objectives and it might also be promoting good health and often when we are talking to pension funds it might be associated with a corporate and if that corporate is an underlying health firm for example then it might be that we kind of work with them to help to set their investment program around having kind of health objectives or if it's a data business then how data kind of pay a role in what is happening. I think what is happening right now in terms of this kind of literal and tangible window into a kind of world that is left encumbered by human activity in terms of air transport or whatever it might be, I think there is something in that, I think certainly in the UK the fact that we have our daily exercise our one daily exercise means more of us are getting out, there is something there in terms of a connection between us and nature just locally, there has been clear and well publicised reductions in local pollutants wherever there has been a lockdown now none of that will make a dent really in climate change because it is a very short term thing but at the same time we are all still happily using pesticides and herbicides in our agricultural world so it's not like we are giving nature a complete break as it were but for sure ultimately decisions government decisions, corporate investments decisions, institutional investor decisions they are made by people and these things will make a difference and I think probably the biggest impact will be around just slightly reframing objectives, we are all spending more time with our family which has pros and cons associated to it I think [unclear 37:07] but I think an appreciation of what is important in life and what that might mean but it might mean less unnecessary travel both business and kind of just random mini break travel so that is where I suppose there will be a direct consequence in terms of the way we go about life and the environmental consequences of that and secondly informing kind of people thinking about how we make decisions further investing coming out of it.
Jon: Well that was something we wanted to indeed pick up with you, how will that change in public support for various issues but also I guess more personally your own LPs will that kind of open up new areas for foresight and also you know different behaviours, less travel maybe people you know take up different pursuits will that create business cases then that he can branch out into.
Ben: Yes absolutely so the way we think about investing is that we make long term investments and we can't be good at our job unless we think about life over decades and these kind of themes that are changing and shaping society so an example of that is that whilst for the last ten years we have been investing around the theme of decarbonisation of the power system. That is only one part of decarbonisation on a kind of wider basis and for the last probably two years now we have been actively evaluating opportunities around what we call the sustainable land and food or SLF kind of sector which is everything from forestry to regenerative agriculture to controlled environment food production so glass houses or more high tech vertical farms and yes peoples changing lifestyles have a very big role to play in this respect and in that space in that kind of SLF space food production, the key kind of tension is on the one hand rising incomes and consumption in Asia, in Africa and increasing meat consumption kind of offset against starting to see reductions in meat consumption and increased popularity of plant based products in western economies and so yes we are literally right now kind of shaping investment programs around most kind of things as well.
Jon: OK so what kind of parallels are you finding just to stay on that issue for now and particularly you know sustainable food, what kind of parallels are you finding between that and energy?
Dan: So there are really clear parallels and there are a few of them. First of all there is a fundamental link between the two because the price of energy is and will in the future be more so an extremely important component of the economics of food production particularly as we move to controlled environment food production so what I mean is for example producing food in vertical farms supplied by renewable energy. The economic viability of those depends upon having cheap energy from renewable power so there is a clear link between the two sectors. There is also a link between what people want so people want a consistent supply of food and power where they have strong sustainability credentials and the new kind of food production techniques in theory have great sustainability kind of credentials and they want resilient supplies and again renewables and controlled environmental food productions you have a control over the supply in the outfit and you are not reliant on long and kind of spread out supply chains. I think a final parallel between the two is that they are quite similar as investment in terms of the kind of shape and the nature of them. If we taking vertical farms for example they will increasingly become economically viable as the cost of kit continues to come down in particular the cost of the LEDs that produce the light as well as the power. Once they are built, in theory, they look at bit like a renewable energy asset in that they have a steady output and a fairly low operating cost base but that is exactly like a renewable energy asset so the point is that we are starting to see the emergence of kind of infrastructure like opportunities in these new sectors albeit I think it's fair to say that right now these are still somewhat emerging these areas and they probably, the majority of investments we see at the minute we would classify more as kind of private equity so somewhat higher risk return where there is where you need to take a really close look at the kind of business proposition and they are not infrastructure yet but they are becoming more like that.
Jon: OK thanks Dan we'll go the audience Q&A in a moment but before we do I just wanted to pick up a couple of points with you Ben, we have mentioned a few times already things like the European green deal and I am keen to talk to [unclear 42:49] International Corporation obviously this has been a global pandemic and how do you feel some of the impacts on International Corporation will maybe feed through to sustainability as we go on and perhaps I will give you an example from I think today or yesterday where you know the Greens in Europe as saying that we should latch on environmental targets to the airline industry is just one example but I do see more of that kind of thing going on.
Ben: Yes Air France and KLM wanting to get nine billion euros and some pretty senior state aid in the community they work that is going to start coming with green screens so I think that is actually encouraging. I mean Brexit split the UK in half didn't it but I don't think COVID and sustainability divide people quite so much but yes there are, we see protests about lockdowns in the US and we see a local group who we don't give support [unclear 44:00] climate change or sustainability but I think overall that is a 50/50 split I think for the vast majority of people are pulling together and working together and I think if we can harness that togetherness, the caring the empathy that the support and really importantly the taking of a personal step, not just for your own benefit but for your neighbour and for the person down the road, we are locked down because of the current crisis, help everyone and I think that's the same as sustainability if we can get it in our heads that yes it's a little bit more inconvenient to take the bus or to walk or to use a greener product, might be a little bit more expensive. It doesn't just benefit us if a million people do it it has a huge collective impact so you know without wishing to get all environmentalist and tree hugger I think that's the lesson I hope we take from this that we need to take steps that benefit everyone and work together on it and yes as you say politicians are taking that on too, Dominic Raab said earlier this week every responsible government and let's hope he includes the UK in that, but every responsible government ought to sort out their economy with climate change as priority. There are reasons to be cheerful that sustainability will be front contender and people on all sides of the political debate and in all countries saying very similar things.
Jon: Dan just very quickly who is going to lead the agenda then. Will it be government and then an extension into internal bodies or, or actually would they not be able to keep up with companies and consumers.
Dan: Yes I think mind you government has been reactive for a number of years you know parliamentary time spent on Brexit and it is frustrating but understandable but you know if you look in 2019 we had extinction rebellion, we had a climate change declaration, we had Greta we had youth climate strike, we had universities divesting fossil. A year ago before that we had Blue Planet and that documentary just kick started us all into changing our single use plastics and you know there are a lot of things out there which are pushing consumers and consumers then push companies and lenders want to be lending to sustainable businesses with large fund investors you know subject to [unclear 46:40] rules wanting to be investing in those kind of businesses too. So I think the government just can't keep up you know Teresa May's government or legislation rather for net zero I think it was in May but we have no idea how we are going to do that whereas we looked at the EU and they have produced this road map so we can kind of have a sense of what we might have to do as a society and in a period of business that to get to net zero but the government just can't do it and like Michael Gove when he was Secretary of State and Environment, you know he would get involved you know he published rules and complications and rules on plastics and recycling and waste and so forth but that has gone quiet. You know the environment bill is currently going through Parliament and that is going to be really good in terms of rules for buyer diversity [unclear 47:28] it is going to establish [unclear 47:30] to replace the European commissions and all good stuff but it is not a response to the carbonisation and net zero so I think business isn't a regulatory vacuum we know where we have got to get to and we have got to get to net zero but 2050, we have probably if we are going to follow the European targets we have probably got to get to about 50-55% by 2030 and I think currently the UK is currently, well the EU as a whole is in the high twenties the UK might be in the early thirties but you know we have got to do the next ten years of what we did in the last thirty years since 1990. We have got a huge amount to do and we have got very little idea what rules are going to be imposed you know we know what the carrot is but we just don't know what the stick is going to look like yet so its people power.
Jon: OK and on that note we will now turn it over to questions from our attendees today and my colleague Omolola has been collecting all of the questions that are coming in and we will try and get through as many as we can so over to you Omolola propose them to our panel.
Omolola Coker: Thanks Jon, good afternoon everyone, our first question is from Magdalena Markiewicz, Chief Financial Officer of Eelpower Limited.
How do you think low oil prices will impact the roll out of renewables in the near term?
Dan: I am happy to jump in on this one, so I think on balance it will accelerate the roll out of renewables certainly in the medium term. Oil and oil is used now for very different things other than power so the oil price is not a driver of the power prices the two are fundamentally not linked, oil is used for transport, petro chemicals and a whole bunch of stuff that has been hit very badly obviously by the crisis and it's pretty clear what is happening in that respect. I think the major impact of low oil prices is that it's going to accelerate for those oil and gas majors that are genuinely thinking about the pivot it is going to accelerate things because their stranded asset calculation suddenly got a lot more intense and in it is potentially realistic to think about the fact that we may have already had peak oil demand a lot sooner than actually people thought.
Jon: So just to jump on top of that, that question then Dan I mean do you feel this is the beginning of the end for the oil and gas industry? Kicked that closer to us?
Dan: I think we are a very very long way from the end, I think there will be a role for in particular for petro chemical products for a very long time. I think there will be a role for gasoline in jet fuel for a long time, there are very hard things to decarbonise but yet I think the key thing is that oil used to be the master commodity and electricity is now the master commodity but that is the key thing that has changed and this what is happening now accelerates that.
Ben: Can I just jump in and point people to the IEA Report which came out today, the International Energy Agency published a report which talked about global energy demand being down 4% this year compared to 2019. Coal was down 8%, oil 5% but electricity was down between 15% and 25%, 15% less electricity demand in France, India, Spain and the UK but it was 25% down in Italy so yes oil is down but energy demand all over is down as well as Dan said. Oil and gas down predominately because of transport which will come back as soon as lockdown is over.
Jon: Yes OK. Let's move onto the next question Omolola.
Omolola: Sure. [Agmisca Malzuka], Senior Associate at RBI asks some governments mention they will focus on projects relating to quick come back of economy and prioritise them over the sustainability project. What is your view on spending or development in sustainability projects going forward?
Dan: I am certainly happy to open comments on that. Just to reference another report I think it was IRENA the International Renewable Energy Agency did a report in the last few days talking about the kind of payback periods of investing in Renewable Energy and eventually the kind of lifetime value of those investments and this is in the context of exactly this question so should we be prioritising sustainable investments or should it be "prioritising economic development". If you look at the numbers from IRENA it is just showing you get a massive payback from investing in renewables and why is that, because of the economic benefit it brings in terms of actually keeping power pricing affordable from expanding the power base to it, allow electrification of transport of heat in the future but also because, we touched on earlier, these are a much quicker asset to build and if we think about the other benefits that are being again being put into stark relief through COVID the areas of the world that will be more resilient and have less suffering as a result of suffering are those areas where people are healthier and we have seen and it has been brilliant to see in China some of the reductions in pollution, I am talking pre-COVID here because of the roll out of renewables it would be great to see the sort of progress in India as well but I think certainly if you look at things objectively there is no longer this question of a trade off between the two because there is just clear economic as well as border sustainability benefits of investing in these kind of technologies.
Omolola: The next question is from [James Lewi], Assistant General Manager at SMBC, so tiers of government and regulators need to step in to support the sector through this.
James Lewi: Shall I start this? So I think we were seeing, as I said in the seminar but some regulators are issuing [unclear 54:44] to soften the rules temporarily [unclear 54:48] you know, delaying reporting and so forth, we are not seeing that on [unclear 54:57] permission to land but you know in other areas we are seeing regulators taking a more [unclear 55:06] prohibition and often that is due to a [unclear 55:14] or whatever but mostly it seems to be down to a [unclear 55:18] operator's lives easier. In terms of government support, hard for me to say I guess, it is probably why I am going to [unclear 55:33] down to [unclear 56:34] see what your thoughts are?
??: Yeah so I think government support in the short term yeah, we will see some areas for sure, we've seen actually this week UK government effectively providing support to the CFD program just because that's kind of been thrown out of whack a little bit just by power pricing. So I think we'll see that, I think the point you made earlier is very important around a more pragmatic view from regulators and looking across Europe so we're seeing some kind of deadlines for by which assets need to be built to kind of receive tariffs or CFD contracts kind of pushed back so I think that's happening in Poland for example, and that's good and that's sensible because there is obviously some supply chain disruptions going on which is just delaying the construction of projects to some degree, so I think that's an area where we'll see this and obviously what we're seeing at the minute is we're seeing governments behaving in a very different way to what they've done previously and, you know, really acting quickly and it just goes to show what a genuine crisis does in terms of focusing people's minds and getting stuff done.
Omolola: Our next question is from [Pat Dowley] Director at WSP UK, in relation to sustainable food opportunities you mentioned the importance of energy. What about the sustainable supply of water? There have been recent articles about the UK facing a water shortage.
Pat Dowley: Yes critical question, I would say actually that of anywhere in the world, in the UK, we are in an area where we probably have to worry about it less than elsewhere. It is a fundamental issue and we're seeing it, and this is obviously being obscured by the COVID stuff at the minute. There's some really bad stuff happening in Africa right now in terms of, just in terms of environmental issues and ability to produce foods, real problems with locusts at the minute which is usually a sign of environmental stress. This is where then potentially some of these newer food production methodologies make a lot of sense, so growing stuff indoors potentially, using new technologies, this is not stuff that we would invest in because this is kind of getting a bit more into the world of kind of venture but using systems of essentially providing moisture to plants through kind of fog, as opposed to growing them in water. There are ways of massively reducing the amount of water usage, there's ways of extracting moisture from moisture in the air, coming off the sea, there's a lot of interesting stuff happening here but certainly globally it is and will be a real issue and obviously climate change is only going to accelerate this as we see glacial melt and you know I think areas in the world to pay particular attention to aside from the obvious, kind of Australia, Africa, also anything that's in the kind of region of the Himalayas the major rivers around that we're gonna see some issues kind of cropping up in the coming decades.
Omolola: Our next question is from [unclear 58:53] it's for Andrew. What do the panellists see for the future of air travel and airports, given the lingering effects on both business and personal travel that will remain for years after the pandemic is controlled or contained?
Ben: It's quite interesting actually, given we have this cautious feel lock out the government policy on airport capacity in the south east, saying that the policy was formulated without taking into account the Paris commitment, so the policy needs to be rewritten and obviously that has to have, that will have a big impact for Heathrow. I mean in terms of in the medium term, will travel become really expensive as we have to socially distance on [unclear 59:47] previously we can only occupy two and there'll be far fewer flights, so will travel become a real luxury, you know, rather than be, as Dan said, nipping off for long weekends in a low cost carrier, will that finer stuff just disappear? So going back to consenting airports and the expansion of Heathrow, that probably makes the need case much much harder to present because we've proven as a society that actually we can do quite a lot by [unclear 01:00.28] we don't need to get 2, 3, 400 people together at a seminar [unclear 01:00.32] to talk about these issues, we can do it pretty well over the internet and so, speaking personally, I'll still be going overseas to speak to clients, you can't beat that face to face stuff but rather than making three or four trips a year it's going to be one, so, and I think that's partly driven by cost and the need to tighten financial belts as a result of the crisis but also it's an acceptance that actually business can carry on in a reasonably, you know, business as usual way. We can be effective without travelling quite so much.
Jon: Indeed and on that note Ben I think that's about all we have time for today, but I'd like to take the opportunity to thank you and Dan for your insights this afternoon as well as to thank all of our attendees for joining us today. Please keep a look out for our takeout and recording, we will publish in the coming days, all that's now left for me to do is to hand back to Andrew who will bring the event to a close. Andrew
Andrew: Great thanks so much Jon. And that concludes today's COVID-19 virtual panel discussion, hosted by Inspiratia and a big thank you to our two panellists Dan Wells, Partner at Foresight Group and Ben Stansfield, Partner at Gowling WLG. It was a fascinating discussion and we really very much appreciate them making the time to join us here today.
Before we close the session I would like to remind everyone that Inspiratia's new report Examining the Effects of COVID-19 on the Future of Renewable Energy and Infrastructure will be released today and will be available via our website and through our research team. In addition to this COVID-19 web series Inspiratia continues to host, albeit in virtual format, our regular sector themed events, the next of which is our Energy Storage virtual event that will take place this coming Tuesday May 5th, so we hope that many of you will come join us online for that as well and thank you again to our panellists for providing their insights with us today and thanks as well to Jon McNair and Omolola Coker of Inspiratia for running today's panel. Also a huge thank you to all of our attendees, we're glad that you could join us today and we hope to see you again in the future.
Thanks so much.