BNP AM

The sustainable investor for a changing world

Decommissioning stranded energy assets

As the global economy moves to more sustainable sources of energy, companies must successfully decommission their obsolete operating assets such as:

  • Mining sites
  • Coal and nuclear power plants
  • Oil & gas facilities

The challenge

The decommissioning of these obsolete assets must be done in a way that addresses environmental considerations and adheres to ever-tightening regulation. It also comes at a significant cost to the energy company. The United Nations Industrial Development Organisation estimates that there are more than 29,000 power plants and 35,000 coal mines worldwide.1 Decommissioning a single asset can cost more than $1 billion.2 In the nuclear and mining sectors, needs such as continuing physical maintenance dramatically increase the final decommissioning cost, as well as the decommissioning period.

Pre-funding: a novel solution to decommissioning

At BNP Paribas Asset Management, we believe companies should seek to pre-fund the decommissioning of mining, coal, nuclear and oil & gas assets, known as decommissioning liabilities. By matching future decommissioning liabilities and avoiding potential cash-flow drawdowns, such a strategy can offer a number of advantages, including:

  • Decommissioning payments are no longer directly linked to volatile commodity or energy prices
  • Potential cost overruns can be mitigated by investment returns
  • Balance sheet, cost-of-capital and credit rating pressures caused by decommissioning liabilities are eased
  • Pre-funding provides more exit options when assets need to be sold, and can be crucial if assets face early decommissioning as a result of political decisions or accidents

The team

Our decommissioning solutions draw on our global expertise and that of the wider BNP Paribas Group. Our Multi-Asset and Quantitative Solutions (MAQS) team are responsible for portfolio modelling and management. They leverage the best ideas from our public market investment teams, BNP Paribas Group’s origination channels to source compelling opportunities across private debt and real assets markets, and BNP Paribas Security Services’ custodial, loan administration and loan servicing capabilities.


    References

    1 BNPP AM UK Review of 4 power sectors, 2019

    2 European Commission, 2019

    Disclaimer

    Any views expressed here are those of the author as of the date of publication, based on available information, and subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This material does not constitute investment advice.

    The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

    Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

    Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.