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Decarbonization and stranded assets

There is no value in denial. The decarbonization taking place across all industries will result in massive asset write-offs and downgrading - on both macro and micro levels. As a new study has pointed out, all conventional coal, gas, nuclear, and hydro power plants will need to reconsider their asset valuation.

The RethinkX report "Rethinking enery" points out that the vast majority of  conventional facilities will see their assets stranding as they become financially unviable over the next decade.  (see https://www.rethinkx.com/energy-lcoe)

Only few pertinent corporate players seem ready to disclose the financial risk implied, e.g. Total S.A. reporting 8.1bn USD assumed risk of stranded assets in 2020  (https://www.total.com/media/news/short-term-price-revision-and-climate-ambition-total-announces-exceptional-8-b-asset). 

There is a palpable risk of stranded assets being overrated by the capital markets. Once this is recognized then some form of regulation will duly follow. Transparency beyond disclosure, solid valuation of stranded assets and those that can be repurposed is indispensable to weather the disruptions ahead.

Fitch Ratings-London/Hong Kong-15 February 2021: Fossil exporters face a loss of GDP, government revenue and export receipts from the transition to a lower-carbon economy over the coming decades. For the most-exposed sovereigns and those that do not adequately prepare for it, climate change stranded-asset risk is likely to lead to rating downgrades as the effects become clearer, closer and more material, Fitch Ratings says in a new report.

Tags

private equity, regulation, tmt, auto, decarbonisation, energy

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