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Energy transition: Energy mix of The Netherlands & Goals for co2 reduction

Joris Kersten, MSc

M&A Advisory + Business Valuations

发布日期: 2020年4月28日

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Energy transition: Energy mix of The Netherlands & Goals for co2 reduction

28th April 2020, Uden/ The Netherlands

www.joriskersten.nl

In this sequence of blogs I will talk about the “energy transition” in The Netherlands to sustainable energy (and electricity).

Quite an unusual topic to write about for a “finance guy” who is flying too much. This around the globe to provide valuation training, including valuation of non sustainable “oil & gas companies” …

All this is true, but that does not mean that I do not find the topic “sustainable energy” interesting …

Believe it or not, in University I wrote my Bachelor of Science (BSc) thesis about “sustainable development within companies” back in 2006. My Master of Science (MSc) thesis was on “Private equity placements” do, a little less idealistic. ??

Another reason why I think I find the topic “sustainable energy” interesting is that I was a very enthusiastic scuba diver (certified Padi Divemaster) when I was younger (in my twenties). I think this made me aware of my environmental surroundings. So I probably need pick up this hobby after corona. ??

Due to corona now I am not travelling for work. So I have a little extra time in the evenings to read and write also about non finance topics. Last weekend I read a very interesting book about the “energy transition” in The Netherlands to a ‘fossil free’ energy future (Book: The Energie Transitie of Marco Visscher).

So I decided to share a few things that I have learned on “sustainable energy” in this sequence of blogs on “energy transitions”. The source that I have used is the book of Marco Visscher.

Happy reading, and hope you are well!

Consultant & Trainer: Joris Kersten

Joris (1980) is an independent Corporate Finance consultant and trainer with his firm “Kersten Corporate Finance” and www.joriskersten.nl with his office in Uden/ The Netherlands.

Concerning consulting, he provides advise in Mergers & Acquisitions (deal making), valuation and financial modelling for medium sized companies in The Netherlands.

And concerning training, he provides training in valuation and financial modelling at leading (“bulge bracket”) investment banks in New York, London, Hong Kong and the Middle East.

Moreover, he provides training/ lecturing in valuation at Universities, and inhouse at corporations, all over the globe (e.g. Mongolia, Surinam, Kuwait, Peru, Luxembourg, Saudi Arabia, Dubai etc.).

And in The Netherlands he teaches in Finance & Accounting as adjunct faculty at the Universities: TIAS Business School, Nyenrode University and the Maastricht School of Management.

Blogs/ articles on valuation

In addition, Joris writes blogs here on linkedin on the following topics (sequences):

1) Net Debt: Cash & debt free + Cash like & debt like items;

2) Financial modelling with "keyboard excel shortcuts";

3) Various topics: Operating lease adjustments, acquisition finance, locked box/ completion accounts closing, purchase price allocation;

4) Bonds & bond markets;

5) Funding & Valuation of startups;

6) Cost of capital: Betas, equity market risk premium, country risk, illiquidity discount, control premium, minority discount, small firm premium;

7) Football field valuation: LBOs, DCF, comps, precedent transactions, accretion/ dilution (M&A model);

8) Valuation of Banks;

9) Valuation of oil & gas companies;

10) Debt & leverage worldwide;

11) Weighted average cost of capital (WACC) – Step by step;

12) Energy transitions to renewable energy.

And new “sequences” of blog topics that I will start soon are:

13) Financial Due Diligence;

14) Derivatives;

15) Distressed M&A and distressed Valuation;

16) Debt crises;

17) How inflation works;

18) Tax and tax evasion;

19) Financial modelling in excel: step by step model building;

20) Hedge funds;

21) Central banking and the supply of money (quantitative easing);

22) Advanced Valuation;

23) Finance for non-financials.

You can find the links to already published articles (for free) at the end of this blog (>50 articles).

Open training programs

The open training programs of Joris Kersten in The Netherlands take place at the dates below.

And for registration just write an email ([email protected]) or look at www.joriskersten.nl.

1. 17, 18, 19, 20 and 22, 23 June 2020: 6 days - Business Valuation & Deal Structuring. Location: Uden/ The Netherlands;

2. 24, 25, 26, 27 and 29, 30 June 2020: 6 days - Business Valuation & Deal Structuring. Location: Uden/ The Netherlands;

3. 28, 29, 30, 31 October 2020 + 2, 3 November 2020: 6 days - Business Valuation & Deal Structuring. Location: Amsterdam Zuidas/ The Netherlands;

4. 16, 17, 18, 19 November 2020: 4 days - Financial Modelling in Excel. Location: Amsterdam Zuidas/ The Netherlands.

Energy transition: An Introduction

In this sequence of blogs I will talk about the “energy transition” in The Netherlands to “fossil free” energy.

Topics that I will discuss are:

1. What is ‘fossil free’ energy and electricity;

2. Opportunities and threats of fossil free energy and electricity;

3. Costs and benefits of a certain energy mix;

4. Challenges of transitions.

I got the idea of writing this sequence of blogs after reading the following book:

· De Energie Transitie: Naar een fossielvrije toekomst, maar hoe? (2018) Marco Visscher. NwA’dam Publishers.

I really recommend the book since it clearly explains the current, and future, mix of energy and electricity globally, and in The Netherlands.

Moreover, the reader does not need (much) foreknowledge on the energy sector to understand the key standpoints of the author. A basic foreknowledge on the energy sector is enough.

The book is written in the Dutch language.

I have used the book as a source for the blogs on this sequence. And I will use this “corona time period” to read more in the field of ‘energy’ and the ‘energy mix’. Since now I have some spare time in the evenings, and I find the topic interesting and important. ??

Introduction to blog of today

The first article in this sequence is published already. In this article I gave an introduction to “fossil fuels” and “sustainable/ renewable” energy.

In case you have not read the article yet, it can be found on the link below: Article 1: Energy transition: Introduction to Sustainable/ Renewable Energy

https://www.dhirubhai.net/pulse/energy-transition-introduction-sustainable-joris-kersten-msc-bsc-rab/

And in this article of today, I will talk about:

· The pros and cons of different energy sources;

· Goals for co2 reduction in The Netherlands for 2030 and 2050;

· Sun & wind energy;

· The current energy mix of The Netherlands;

· The difference between ‘electricity’ and ‘energy’.

Let’s start!

Pros and cons of different energy sources

Nowadays you often hear negative stories about “fossil fuels”.

You then hear people saying things like:

· Fossil fuels contribute to high co2 production;

· Fossil fuels contribute to air pollution;

· Fossil fuels are responsible for dangerous ‘mining’;

· The big oil companies misuse their power, etc. etc.

And about sustainable/ renewable energy you often hear positive stories nowadays, like it is:

· A modern source of energy;

· A clean source of energy;

· A “solution” for the “climate problem”;

· Good for the economy and will provide jobs, etc. etc.

On the other hand, complete opposite opinions are also there.

Then you hear about sustainable/ renewable energy for example:

· Sustainable energy is unpractical;

· Sustainable energy is not feasible;

· Sustainable energy pollutes the horizon (think of wind turbines);

· Sustainable energy is too expensive;

· Sustainable energy is a “left-wing” hobby, etc. etc.

And then concerning fossil fuels is said that it will be an indispensable source of energy.

So who is right ??

(Source used: Marco Visscher, 2018)

Pros and cons of different energy sources: Continued

The question “who is right” from the previous paragraph is very hard to answer.

For example, modern mining for coal has very advanced techniques with highly educated staff using complex equipment.

Compared to that, mining for resources that are used to build “wind turbines”, and “batteries” in order to store “renewable energy”, is much more dangerous. And this for the people working in that industry.

This does not mean that coal is better, for example still lots of coal is mined in a not so high tech way as mentioned above in poorer countries. So it is just an example to show that the situation is ‘nuanced’.

I will try to look at this 'nuance' in way more detail in this sequence of blogs.

(Source used: Marco Visscher, 2018)

Goals for co2 reduction

At the ‘Paris Climate Conference 2015’ negotiators agreed on limiting the average increase in temperature on earth to max 2 degrees Celsius in relation to the pre-industrial time period.

The ambition of the European Union is to reduce co2 production in 2050 with 80%, and this to co2 levels of 1990.

The Netherlands even goes further, “Cabinet Rutte III” recorded in the coalition agreement to reduce greenhouse gasses (predominantly co2) with 95% in 2050, also to co2 levels of 1990.

And in between, at 2030, The Netherlands aims for a 49% decrease already, also to levels of 1990.

For this 5 sectors are appointed in The Netherlands that all need to reduce their co2, and these sectors are:

1. Electricity;

2. Industry;

3. Mobility;

4. Agriculture and land use;

5. Building.

(Source used: Marco Visscher, 2018)

Goals for co2 reduction: Continued

When we look at the amount of co2 reduction that needs to be obtained in 2030, in comparison to 1990, this is as follows:

1. Electricity: 20.2 megaton reduction;

2. Industry: 14.3 megaton reduction;

3. Mobility: 7.3 megaton reduction;

4. Agriculture and land use: 3.5 megaton reduction;

5. Building: 3.4 megaton reduction.

This is 48.7 megaton co2 reduction in total in 2030, in relation to 1990.

And a “megaton” = 1 million ton”.

Greenpeace calculated that all 10 coal power plants active in The Netherlands in 2015 produced about 52 megaton co2.

So even when this number of Greenpeace is a little exaggerated, you can still see the tremendous amount of work that needs to be done before 2030 to achieve the reductions in the 5 sectors.

And even after 2030, the sectors need to look at further reduction to 95% in 2050, in comparison to 1990. Also that will be a second enormous task.

(Source used: Marco Visscher, 2018)

Sun & wind energy

Wind turbines and solar panels in The Netherlands now (source of 2018 used) produce 60 petajoule (PJ) of energy. Actually this is ‘electricity’, more on this distinction between energy and electricity in the next paragraph.

1 peta joule = 1000 billion kilo joule.

And this again equals: 278 million kilo watt hours. And kilo watt hours is an often used “unit measure” for energy/ electricity.

Now the 60 PJ from sun and wind energy (electricity) in 2018 needs to be 5 times higher in 2030.

So then these sources sun & wind need to produce about 300 PJ of energy.

And the production of this approximately 300 PJ is again planned as follows:

1. Parcs of wind turbines at sea: 176 PJ;

2. Inland wind turbines and solar panels: 126 PJ.

And in order to put this (about) 300 PJ in “wind & sun energy (electricity)” in 2030 in perspective:

Current ‘electricity’ use in The Netherlands (2018) is about: 430 PJ !!

So the challenge is enormous!

(Source used: Marco Visscher, 2018)

The energy mix in The Netherlands

For the current energy mix in The Netherlands (2018) we need to make a distinction between:

1. Energy (80%);

2. Electricity (20%).

Concerning sources used for energy (about 80% = energy, about 20% = electricity) in The Netherlands, this consists out of:

1. Oil & Gas: 78%;

2. Coal: 14%;

3. Biomass: 5%;

4. Wind energy and nuclear energy: About 3%;

5. Sun energy, hydro-electric, geothermal: Rounded of 0%.

Concerning sources used for electricity (about 80% = energy, about 20% = electricity) in The Netherlands, this consists out of:

1. Gas: 46%;

2. Coal: 35%;

3. Wind turbines: 7%;

4. Biomass: 6%;

5. Nuclear power: 3%;

6. Solar panels: 2%;

7. Oil: 1%.

And let’s now take a look at the distinction between “energy” and “electricity” a little more in detail.

(Source used: Marco Visscher, 2018)

Difference between “energy” and “electricity”

In the paragraph above the distinction was made between:

1. Energy;

2. Electricity.

So ‘electricity’ is a form of ‘energy’. And we get electricity from a socket, battery or power pack.

And the rest of the energy (80%) is used for for example: Heating and transportation.

So electricity counts for about 20% of the total energy use in The Netherlands.

Solar panels and wind turbines only produce electricity, so imagine that ‘hypothetically’ all electricity is produced by “wind & solar”. Then still there is a big gap for "energy demand" that can not be supplied by “wind & solar” (80%).

The expectations are do that in the future we will use more and more electricity in The Netherlands compared to other energy.

This because we stop with our gas production. So more heating needs to be done with electricity, like with for example with a “heath pump”. This also counts for cooking, so we can use electrical cooking with ‘induction’ for example.

And to use less oil, we can switch to electric driving, and re-charge the batteries on a socket.

So the “energy transition” can therefore partly be seen as a transition to electricity. This means that relatively more electricity needs to be produced (with less co2 production as well).

(Source used: Marco Visscher, 2018)

In the next blog of this sequence I will look at the pros and cons of “sun & wind” energy in more detail!

Stay tuned!

Source used

I got the idea of writing this sequence of blogs after reading the following book:

· De Energie Transitie: Naar een fossielvrije toekomst, maar hoe? (2018) Marco Visscher. NwA’dam Publishers.

I really recommend the book since it clearly explains the current, and future, mix of energy and electricity globally, and in The Netherlands.

Moreover, the reader does not need (much) foreknowledge on the energy sector to understand the key standpoints of the author. A basic foreknowledge on the energy sector is enough.

The book is written in the Dutch language.

Under here you can find the links to my previous free articles (about 50) on business valuation.

Earlier blogs on “net debt” (cash & debt free)

Article 1: Valuation: Introduction to "net debt" (cash & debt free)

https://www.dhirubhai.net/pulse/valuation-introduction-net-debt-cash-free-joris-kersten-msc-bsc-rab/

Article 2: Valuation: Net debt (cash & debt free)

https://www.dhirubhai.net/pulse/valuation-net-debt-cash-free-joris-kersten-msc-bsc-rab/

Article 3: Valuation: Adjusted net debt – Cash like items

https://www.dhirubhai.net/pulse/valuation-adjusted-net-debt-cash-like-items-kersten-msc-bsc-rab/

Article 4: Valuation: Adjusted net debt – Debt like items

https://www.dhirubhai.net/pulse/valuation-adjusted-net-debt-like-items-joris-kersten-msc-bsc-rab/

Earlier blogs on “valuation of banks”

Article 1: Valuation of Banks: Business models of Banks

https://www.dhirubhai.net/pulse/valuation-banks-business-models-joris-kersten-msc-bsc-rab/

Article 2: Bank Valuation: Financial Statements of Banks (part 1)

https://www.dhirubhai.net/pulse/bank-valuation-financial-statements-banks-part-1-joris/

Earlier blog on “Valuation of Oil & Gas Companies”

Article 1: Valuating Oil & Gas Companies: The Oil Industry

https://www.dhirubhai.net/pulse/valuating-oil-gas-companies-industry-joris-kersten-msc-bsc-rab/

Earlier blogs on “Debt & Leverage”

Article 1: Debt: Ratio “debt/ GDP” in the US, The Netherlands, Germany and Japan

https://www.dhirubhai.net/pulse/debt-ratio-gdp-us-netherlands-germany-japan-kersten-msc-bsc-rab/

Article 2: Debt: Why global debt increased over the last 100 years

https://www.dhirubhai.net/pulse/debt-why-global-increased-over-last-100-years-kersten-msc-bsc-rab/

Article 3: Debt of companies: Leverage, Private Equity, Solvency and Bankruptcy

https://www.dhirubhai.net/pulse/debt-companies-leverage-private-equity-solvency-kersten-msc-bsc-rab/

Earlier blogs on “Weighted Average Cost of Capital (WACC) – step by step”

Article 1: Capital Market History Lessons – Corporate Finance (part 1)

https://www.dhirubhai.net/pulse/capital-market-history-lessons-corporate-finance-part-joris/

Earlier blogs on Financial Modelling

Article 1: Financial Modelling in Excel: Circular references, interest calculations and iterations

https://www.dhirubhai.net/pulse/financial-modelling-excel-circular-references-kersten-msc-bsc-rab/

Article 2: Excel basics for Finance: SUM, MAX, MIN, AVERAGE, IF, cell referencing, named ranges

https://www.dhirubhai.net/pulse/excel-basics-finance-sum-max-min-average-cell-named-joris/

Article 3: Excel for Valuation: COUNTIF, VLOOKUP, INDEX and MATCH

https://www.dhirubhai.net/pulse/excel-valuation-countif-vlookup-index-match-kersten-msc-bsc-rab/

Article 4: Excel for Business Valuation: OFFSET, FORECAST and CHOOSE

https://www.dhirubhai.net/pulse/excel-business-valuation-offset-forecast-choose/

Article 5: Excel for Business Valuation: NPV, IRR, PMT and EOMONTH

https://www.dhirubhai.net/pulse/excel-business-valuation-npv-irr-pmt-eomonth-kersten-msc-bsc-rab/

Earlier blogs on “various topics”

Article 1: Financing a M&A transaction: An introduction

https://www.dhirubhai.net/pulse/financing-ma-transaction-introduction-joris-kersten-msc-bsc-rab/

Article 2: Valuation: How to adjust for “Operating Lease” (under Dutch GAAP)

https://www.dhirubhai.net/pulse/valuation-how-adjust-operating-lease-under-dutch-gaap-joris/

Article 3: M&A closing mechanisms: Locked Box & Completion Accounts

https://www.dhirubhai.net/pulse/ma-closing-mechanisms-locked-box-completion-accounts-joris/

Article 4: Scoping a financial model built primarily for business valuation:

https://www.dhirubhai.net/pulse/scoping-financial-model-built-primarily-business-joris/

Article 5: Consolidation of M&A targets and Purchase Price Allocation (PPA)

https://www.dhirubhai.net/pulse/consolidation-ma-targets-purchase-price-allocation-joris/

Earlier blogs on “bonds”

Article 1: Bonds - An introduction

https://www.dhirubhai.net/pulse/corporate-finance-bonds-introduction-joris-kersten-msc-bsc-rab/

Article 2: Bonds & Bond Markets

https://www.dhirubhai.net/pulse/bonds-bond-markets-corporate-finance-joris-kersten-msc-bsc-rab/

Article 3: Bonds, Rating Agencies and Credit Ratings

https://www.dhirubhai.net/pulse/bonds-rating-agencies-credit-ratings-joris-kersten-msc-bsc-rab/

Earlier blogs on “Valuation & funding of start-ups”

Article 1: Valuation & funding of start-ups - Funding rounds

https://www.dhirubhai.net/pulse/valuation-funding-startups-rounds-joris-kersten-msc-bsc-rab/

Article 2: Startup valuation: Pre-money and post-money valuation

https://www.dhirubhai.net/pulse/startup-valuation-pre-money-post-money-joris-kersten-msc-bsc-rab/

Article 3: Valuation methods for Startups (early stage) – Part 1

https://www.dhirubhai.net/pulse/valuation-methods-startups-early-stage-part-1-kersten-msc-bsc-rab/

Article 4: Valuation methods for Startups (early stage) – Part 2

https://www.dhirubhai.net/pulse/valuation-methods-startups-early-stage-part-2-kersten-msc-bsc-rab/

Article 5: Startups in Silicon Valley: The beginning – Part 1

https://www.dhirubhai.net/pulse/startups-silicon-valley-beginning-part-1-joris-kersten-msc-bsc-rab/

Article 6: Startup Funding & Convertible Debt (part 1)

https://www.dhirubhai.net/pulse/startup-funding-convertible-debt-part-1-joris-kersten-msc-bsc-rab/

Earlier blogs on “Business valuation to Enterprise Value”

From June until August I have written the following blogs on valuation:

1) Leveraged Buyout (LBO) Analysis:

https://www.dhirubhai.net/pulse/leveraged-buyouts-lbos-joris-kersten-msc-bsc-rab/

2) M&A Analysis – Accretion/ Dilution:

https://www.dhirubhai.net/pulse/ma-model-accretion-dilution-joris-kersten-msc-bsc-rab/

3) Discounted Cash Flow Valuation:

https://www.dhirubhai.net/pulse/discounted-cash-flow-valuation-dcf-joris-kersten-msc-bsc-rab/

4) Valuation Multiples 1 – Comparable Companies Analysis:

https://www.dhirubhai.net/pulse/valuation-multiples-1-comparable-companies-analysis-joris

5) Excel Shortcuts & Business Valuation:

https://www.dhirubhai.net/pulse/excel-shortcuts-business-valuation-joris-kersten-msc-bsc-rab

6) Valuation Multiples 2 – Precedent Transaction Analysis:

https://www.dhirubhai.net/pulse/valuation-multiples-2-precedent-transaction-kersten-msc-bsc-rab

Earlier blogs on “Energy Transition”

Article 1: Energy transition: Introduction to Sustainable/ Renewable Energy

https://www.dhirubhai.net/pulse/energy-transition-introduction-sustainable-joris-kersten-msc-bsc-rab/

Earlier blogs on Wall Street

Article 1: Wall Street – A general introduction

https://www.dhirubhai.net/pulse/wall-street-general-introduction-joris-kersten-msc-bsc-rab/

Article 2: Wall Street – The Federal Reserve banking system

https://www.dhirubhai.net/pulse/wall-street-federal-reserve-banking-system-kersten-msc-bsc-rab/

Earlier blogs on the “cost of capital”

Article 1: Valuation & Betas (CAPM)

https://www.dhirubhai.net/pulse/valuation-betas-capm-joris-kersten-msc-bsc-rab/

Article 2: Valuation & Equity Market Risk Premium (CAPM)

https://www.dhirubhai.net/pulse/valuation-equity-market-risk-premium-capm-joris-kersten-msc-bsc-rab/

Article 3: Is the Capital Asset Pricing Model dead ? (CAPM)

https://www.dhirubhai.net/pulse/capital-asset-pricing-model-dead-capm-joris-kersten-msc-bsc-rab/

Article 4: Valuation & the cost of debt (WACC)

https://www.dhirubhai.net/pulse/valuation-cost-debt-wacc-joris-kersten-msc-bsc-rab/

Article 5: Valuation & Capital Structure (WACC)

https://www.dhirubhai.net/pulse/valuation-capital-structure-wacc-joris-kersten-msc-bsc-rab/

Article 6: International WACC & Country Risk – Part 1

https://www.dhirubhai.net/pulse/valuation-international-wacc-country-risk-part-1-joris/

Article 7: International WACC – Part 2

https://www.dhirubhai.net/pulse/valuation-international-wacc-part-2-joris-kersten-msc-bsc-rab/

Article 8: Present Values, Real Options, the Dot.com Bubble

https://www.dhirubhai.net/pulse/valuation-present-values-real-options-dotcom-bubble-joris/

Article 9: Valuation: Different DCF & WACC techniques

https://www.dhirubhai.net/pulse/valuation-different-dcf-wacc-techniques-joris-kersten-msc-bsc-rab/

Article 10: Valuation of a company abroad

https://www.dhirubhai.net/pulse/valuation-company-abroad-joris-kersten-msc-bsc-rab/

Article 11: Valuation: Illiquidity discounts, control premiums and minority discounts

https://www.dhirubhai.net/pulse/valuation-illiquidity-discounts-control-premiums-joris/

Article 12: Valuation: Small firm premiums

https://www.dhirubhai.net/pulse/valuation-small-firm-premiums-joris-kersten-msc-bsc-rab/

Earlier blogs on Financial Due Diligence