PODCAST

Private equity and energy

KPMG hosts Twitter Spaces conversation exploring PE investment in energy

Glenn Mincey

Glenn Mincey

Global & U.S. Head of Private Equity, KPMG

+1 212-954-8255

Regina Mayor

Regina Mayor

Global Head of Energy, KPMG in the U.S.

+1 713-319-3137

Mike Hayes

Mike Hayes

Global Head of Climate Change & Decarbonization, KPMG IMPACT & Global Head of Renewables, KPMG International

+353 1-410-1656

Podcast overview

KPMG's Global Private Equity Leader Glenn Mincey leads a conversation with KPMG's Global Energy Leader Regina Mayor and KPMG Ireland's Mike Hayes on how private equity investments in the energy sector are reacting to a multitude of market disruptors.

Speaker 1:

Well, hello and welcome to our KPMG US News, Twitter space, Private Equity and Energy conversation. I'm Matt Weiss. I'm a director at KPMG where I lead our industry communications team and have a good fortune of moderating the discussion today between KPMG's Global and US Private Equity Leader, Glenn Mincey, KPMG's Global Head of Energy, Regina Mayor and Mike Hayes he's KPMG's Global Decarbonization Hub Leader and the Global Head of Renewables. It's great to be speaking with all of you today. And before we get into our discussion, I want to remind everyone, they can ask questions by tapping the microphone button, or you can direct message us at KPMG, US News, to request to speak. We're going to be stopping during the conversation to see if there are questions. And we certainly welcome participation today. This conversation is being recorded and a replay will be available. And for those listening in who are in the media, this is an on record conversation, and you can leverage any of what's discussed today for your reporting.

And stated a moment ago, we welcome and encourage any questions you might have on what's discussed today. And so having said that, a lot to cover in the private equity and energy space, and Glenn, I want to start with you before we bring in Regina and Mike for their perspectives. And Glenn, if you look back over the last decade or so, going back to about 2010, the private equity industry has invested over one point ... trillion with the T into the energy sector. And to put that dollar amount into proper context for our listeners this morning, that amount is double the combined market value of three of the world's largest enter companies, Exxon Chevron, and Royal Dutch sell. So it's pretty remarkable when you put it in that context. And Glenn, you often talk about how private equity does not invest in the moment, but rather over a longer term horizon and through cycles. And so when you look at the past decade, Glenn, and you look at that statistic, what does that speak to? What stands out most to you when you look at private equity and energy?

Glenn Mincey:

Yeah. Thanks Matt. And thanks everyone for being here with us today and truthfully Matt you're, right. That trillion dollars or so, it represents about 20% of total transactions. So PE is obviously a big influence in the energy space, but looking at recent circumstances, there's nothing like oil hitting $100 a barrel to focus the world on the transition to renewable energy and a low carbon economy. And looking at those reports and the $1.1 trillion spent over the past decade, there's no question that the overwhelming majority of those investments has been in fossil fuels. And while it's debatable, those reports also indicate that maybe about 12% of PE investment in the energy sector went into renewable power, but the trend is certainly and heavily moving in the direction of renewable power. In 2020 alone, PE raised a record $52 billion to invest in renewable energy specifically.

And the industry invested a record 24 billion into US renewable energy companies. So you can see how the trend is moving in that direction. And let's be clear fossil fuels are going to remain a vital sector in the world's economy for decades to come still. But there's a clear change in interest rising oil and gas prices will certainly help renewable energy become even more competitive with fossil fuel projects. And of course there's a growing concern that European countries can't be seen to continue reliance on Russian oil. And the overall investment opportunity is true, it's immense. I've seen some forecasters have estimated that the global undertaking of the transition to be a $100 trillion over the next 30 years. And rest assured PE will be a big player in that transition,

Speaker 1:

Glenn, sorry to cut you off. I just wanted to bring Regina into the conversation and Mike for a moment, because you hit on a lot of great points and Regina as the Global Head of Energy, you've been out in the media, a lot of course, talking about the events of recent weeks and the geopolitical turmoil that we've seen. Regina, just your thoughts on what, what Glenn just hit on. I know you've been talking about a lot of these topics for a number of years and certainly the events of recent weeks have highlighted that discussion on energy, where it's produced. Who's importing from whom. What stood out to you most recently, when you look at the state of energy?

Regina Mayor:

The things that are standing out to me are the importance of security of supply and diversification of supply. We already knew we were entering post pandemic with a pretty tight oil supply market as the consequence of decisions that were made over the last five plus years, not under investing in these long cycle energy development projects. So we are well below the five year rolling average for supply in general. We were one geopolitical challenge away from a major supply tightening. And that's what happened with Russia invading Ukraine and the prospect of a significant proportion of Russian oil and gas exports, not being able to make it into the market. And hence we've seen prices. I mean, Brent, I think topped over 130 at one point, which was near an all time high and we're likely going to be in this type of a situation because of the long cycle under investment. And because it'll just take time for other sources of supply and diversification of supply to when wind it's way into the market.

Speaker 1:

Regina, before I go to Mike, I know a lot of our listeners, I know we have some media listening in right now, also. A few weeks ago, the big conversation was, are we going to get the $7 gas in the United States certainly by the time we got to the summer months as you know, even in a quote unquote normal cycle, seemed to see the prices rise as we get closer to Memorial day weekend here, certainly in the United States, things have calmed down a little bit. Regina, I know I got gas the other day here I am in New Jersey and it was under $4. Do you expect in the short term that to continue? I know the administration here recently tapped into the strategic oil reserves. Do you feel that impact is what we're seeing right now or is that going to be sustainable? What are you looking for as we go towards the summer months when it comes to the price of gasoline here in the United States certainly.

Regina Mayor:

The indication from my senior executive client friends that represent the downstream industry, which is the part of the industry that produces gasoline, was that they were really actually encouraged and very optimistic about the SPR release. For the short term as we enter summer drivers driving season, to know that you have access to be able to bid on a million barrels per day of US crude at a discounted amount really will help short term with consumers as we enter the summer driving season. So I think for the short term it's positive, but we still have those long cycle under investments to deal with on the long term.

Speaker 1:

Yeah. Great points Regina, and Mike again, thanks for joining us this morning. It's a first for us here on KPMG Twitter spaces to have somebody international as Mike is overseas in Ireland and Mike, in your role, as I noted at the intro, you're the KPMG Global Decarbonization Hub Leader in the Global Head of Renewables. And that's such a hot topic, obviously, particularly in recent weeks with what we've seen in the situation with Russia and Ukraine as Regina and Glenn touched upon. Mike, what are you looking at these days? What stands out most to you in the conversations you're having, when it comes to renewables and the trends you're looking for?

Mike Hayes:

So I hate to say this Matt, in the context of the horror story, that's going on in Ukraine today, but the reaction to Ukraine, Regina mentioned the whole issue of security of supply. The response to that is actually a game changer in the world that I live in. And you only need to look at the European Union response where the European Union has said it is going to finish dependence on Russian gas by 2027. And the message is we have to replace it. And the short term, there will be more fossil fuel production, but in their publications over the last number of weeks, they have made it incredibly clear that they are equating security of supply with a low carbon future. And that means we are going to see whether it's from private equity or elsewhere. We're going to see unbelievable investments into wind and solar.

And you might think we've seen a lot already. We're talking about doubling, if not troubling, wind and solar over the next 10 years, but it's not just wind and solar, storage has suddenly become the hottest topic in town because with storage, you can actually somewhat erode the difficulty that renewables doesn't produce power all day long. But on top of that, some of the other technologies are going to come to the forward and the European Union document made it very clear. And around the world, we've seen this uptick, green hydrogen is very much on the agenda as well. And one other thing, I could overlay this and maybe I'm going to make a comment about what Glenn said at the outside of what private equity, the most important thing I think to understand is that we can talk about a low carbon future.

We can talk about massive increased investment in wind and solar. It is not going to be enough if we're going to truly reach the sort of so-called net zero objective by 2050, what you're going to see in the short, medium, and long term is an increased focus on innovation. It's one of the most under invested parts of the whole energy and climate agenda. And the European union has made this clear in my part of the world, but around the world, we now really need to focus on innovation in a big way. If I could then come back to the investment side of this and Glenn mentioned that 100 trillion, I've seen the same reports. It could be 50 trillion, it could be 75, it could be 100, whatever. It's a huge amount of money. Now, one observation I want to make Matt, and I've been with the renewable energy industry over the last 25 years, private equity has not been a significant investor in renewable energy.

And the reason it's very simple, the type of returns that we deliver in the renewable energy industry, because of the way we've regulated prices tends to be anywhere from 8% per annum, down as low in parts of the world to four to 5% per annum. They're not the type of returns you normally equate for private equity, but as we move into a new future for energy where merchant risk is going to be significant where new technology risk is going to be significant. I think we're going to see a lot more interesting returns. And that's why I'm already seeing this huge interest in, from the private equity community and where we're now going, because suddenly they're seeing countries around the world, particularly the European union say, this is what the future's going to be. We're going to accelerate it. And most importantly, we're going to make sure it happens. So I think this is a big, big opportunity for the private equity industry.

Speaker 1:

Oh, Mike, you raised a lot of great points there. And Glenn, just to piggyback off what Mike said as you were listening to him, is it lining up certainly in the conversations you're having with clients, you sit in a very unique position as both the US and the Global Private Equity Leader here at KPMG. So just welcome your thoughts, listening to a number of the points Mike just raised.

Glenn Mincey:

Thanks. Yeah. First let's let's address Mike's point about whether renewables can generate PE expected returns. And I agree with his points wholeheartedly, but part of the trend now is it's fueled by the absolute demand on the part of LPs that they want their capital to be deployed in renewable energy in ESG and impact investing. And so even though some of the current view may be that medium returns are lower than they're traditionally expecting. There's a clear commitment to deploy investment in that space. And on the bright side that this demand, it also drives numerous opportunities for exit. And then I did want to piggyback on Mike's point about renewables and a trend of where the money is going. So there are areas of clear need for development. Mike mentioned storage. It's the perfect example. As he said, because some of these sources of energy don't produce all day long, this industry has the particular need to find ways to store energy in order to transition to cleaner, affordable, reliable energy systems.

But PE funds are also pouring capital into really fast growing sectors, such as solar carbon capture the so-called transition companies. And Mike also mentioned that dramatic improvements in technology are going to help here. Those improvements have brought cost down to put solar powered electricity costs somewhat on par with fossil fuels and then onshore and offshore wind projects that producing cheaper electricity than they have in the past, and then never underestimate the PE industry's interest in tangential activity outside of pure energy generation, they're working on clean tech applications for energy conservation, water purification, waste management recycling, retrofitting buildings with clean energy technology. And then transport is going to be huge. It's going to be really key. One of the largest PE funds has built hundreds of miles of underground electric transmission lines that span countries in north America. So where the money's going is renewable energy is still the clear winner by volume, but there's significant growth in transport, which is growing at 10 times, the growth of renewable energy and then energy storage is about seven times the growth of renewable energy.

Speaker 1:

Regina. I want to bring you back into the conversation before we go back to Mike and continue on the topic of path to net zero. Mike. I know you've written about that. Regina, we've talked about here at KPMG, four pillars of energy need to be part of the conversation, sustainability, reliability, affordability, and availability. As you look at those four pillars, what would you say right now is top of mind when you speak with clients, would you say that the events of recent weeks have highlighted the need for reliability and affordability disproportionately? What do you think are the poor pillars of those four, as you look at the short term and longer term here in the energy sector?

Regina Mayor:

Well, I think availability has become back in the forefront. Security of supply, we took it for granted for a lot of years, that energy supplies are affordable and abundant. And we started pushing toward climate change reactions and driving toward a cleaner energy transition, perhaps a little sooner than we were necessarily ready for. And I think that's why we've seen some of the price shocks that we've seen and some of the interrupt ability that makes things more challenging for your everyday consumer gas prices, that's gasoline prices. But similarly for natural gas prices in Europe and electricity prices, we've seen huge spikes. And I think the EU is coming to a strong reckoning with the fact that on average, they get 40% of their gas supplies from Russia. But that's the average. I mean, there are some countries that are north of 70% of their gas supplies.

You never want to be solely reliant on just one source. I think I'm old enough to remember the seventies with the oil price shocks and growing up in Hawaii, waiting in the back seat of the car for hours as my parents on an Otter even day based on their license plate number had to wait in line to refill their tank of gas. So I think affordability and availability are back in the forefront. Totally agree that $100 oil is hastening the move away from hydrocarbon development, but we're going to be stuck in this messy middle for quite a while where commodity prices will continue to be quite volatile. And that could mean short term disruptions, state consumers.

Speaker 1:

Mike, you wrote back in the fall of piece about net zero it's titled, Net Zero Should Not be Expected Without the People Factor, placing people at the heart of the climb and the agenda. You raised a lot of really astute points here. And I was hoping, Mike, if you just take a moment for our listeners, two points, one is not, all of our listeners may be familiar with the term net zero. So if you wouldn't mind just explaining that for all of our listeners. And then as you think about that, Mike, and what you talked about in that piece, you talked about companies needing to have a corporate strategy, the decarbonize and address climate risk, but you also talked about the transition to a low carbon economy will likely impact portions of the workforce. And it could result in job losses. Interesting to get your perspectives about what type of skills and what type of investments need to be made so that workers don't get left behind as we transition to net zero. So if you could explain net zero and then just talk about some of those points, I think would be of great interest to our listeners.

Mike Hayes:

Yeah, I'm sure Matt. So there's a lot in there. Net zero in very simple terms means net zero carbon emissions by whoever's making the commitment, whether it's a company or a country or region, either achieved through your own actions or ultimately through offsetting. And a lot of this, we're in a world today where companies and countries are making commitments around net zero and there's a whole piece of different variations as to what precise type of net zero commitment you make. I want to use this just to lead into the main question. Already we are seeing some, noise in the market where people are saying making commitments is great, but that was last year's story. This year, we're moving on to action. And already what we're seeing is those companies who have made commitments are been asked by their stakeholders to say, what have you done since you've made the commitment?

So now we've got and particularly at cop 26 in Glasgow it was fantastic. All the different commitments that were made. I'm going to tell you Matt, in 2022 and then 2023 and beyond it's about action. And that really brings me to the crux of your question. When we talk about action you can develop a decarbonization roadmap for a corporate. You can do things like circular economy solutions, carbon offsets, you can procure renewable energy. You can electrify your business, you can do all of those things. But the point I was making in that report that we issued last year is we are talking about a fundamental reorganization and restructuring for many different businesses. And you can't just come along and implement all of these solutions without actually understanding that there's a significant human capital dimension to this. In some businesses, we're going to be asking people to do things differently, very differently to what they've done before.

And for many businesses, that's going to require a degree of retraining, up skilling, or even learning new skills, which weren't previously available. So for me to talk about the transformation and the roadmap to net zero without taking into account, first of all, the degree of people and human capital factors that need to be taken into account in any organization, is just wrong, you do need to think about these things. And then you, we spoke a bit about job losses, and this is one of the things that probably exercises my mind and Regina's and others in KPMG most of all. We have to think about just transition. We have to think about we're transitioning to a low carbon economy, but this has an impact on certain types of workers who will not be able to retrain for various reasons, also the impact that we'll have on the local communities.

And this is very much going to be part the parcel of the future of the fossil fuel industry. So we need to think about the low carbon industry, not just about acceleration towards renewables. We need to think about it in terms of the impact on people. And we need to think about how do we deal with this issue of just transition. And I want to make one other point as well, if I could Matt, surrounding all of this, and it's a point I make about educational institutions in the United States and everywhere else around the world. In our industry, because we are transforming the global economy to a low carbon one, it'll happen, I think quicker than people realize, but it's not going to happen unless the educational world steps up and plays an active part in delivering hundreds and hundreds of thousands, if not millions of new graduates with the type of skills that are required.

Skills around carbon, around, around renewable electricity, around circular economy, and around financing, all of this. There's a whole vast array of skills. It's a huge opportunity for school children and college students, but it is really critical that the educational world steps up to meet this incredible challenge.

Speaker 1:

Mike, I'm glad you asked that, I was going to follow up with that. We're coming on commencement season, certainly here in the United States, here we are in April. Most commencements from college will be taking place over the coming weeks into May. And we're certainly going to hit on that. So it's a great point. And I know we have a number of media listening in, I just want to remind those who have joined the conversation at different points that if you would like to ask a question you're encouraged to do so, you can simply tap the microphone button to request to speak, or you could direct message us at the KPMG US News handle. We're glad to address those questions. And also this is an on record conversation. So you're welcome to use any of what is said today in your reporting.

Speaker 5:

Good morning, everyone. And thank you so much for hosting and very interesting conversation as always. A question from Mike with respect to climate change and decarbonization. I mean, obviously we've seen much higher inflation in the input cost of the renewables. So if you think of the carbo, the 10, the aluminum and whatnot that comes from Eastern Europe, how is this pricing disparity in terms of assumptions from years past, and obviously the realities of the day, how does that affect assumptions in terms of people's abilities and company's abilities to obviously convert to renewable energy? Thank you.

Mike Hayes:

Yeah, it's a very, very important question. And thank you for asking it. I would say that we in the renewable energy industry have two critical concerns today. You've pointed to one and the second one is related, which is the whole supply chain constraint. Cause commodities and particularly mineral commodities have become very, very sought after asset. They're critical not just to wind and solar, but to some of the other solutions, particularly storage, that we're talking about. And we have some concerns that that in itself could become a geopolitical issue because those minerals are located in different parts of the world and access to those minerals is going to be fundamental. If I look at the solar world today and I say two things to developers, sorry, but I should say both solar and wind, I say two things to them.

The first thing I say is, this is the golden period for developers. I've never seen all of the stars align in such a way that is favorable for developers in terms of market opportunity. And in terms of investors who want to be partners of their story, that's the positive one. The slightly less positive, if not negative, one is, prices will have to increase because of the shortage of available commodity type minerals. Plus the constraints on supply chain. It is very clear to me, the cost of developing and generating renewable energy production facilities, be it wind, solar, or something else is definitely going to increase in the short term. And that's a reality and we don't actually have an easy solution to this call to recognize the reality. One of the things, and I briefly alluded to this earlier, is as you know, we've grown up on wind and solar on being fed on feed and tariffs and subsidies where the pricing has been predetermined from the outset more and more renewable developers are now prepared to take merchant risk because they need the higher merchant prices, even though it creates much greater uncertainty because of the higher input prices.

And I think what you're going to see is, unfortunately, and we're already at a period where we've got very high energy prices. I only see it going one way in the short term.

Speaker 6:

Matt, we have another question from one of our speakers. So hop.

Speaker 7:

Yeah, Mike, my question is, could we potentially be setting ourselves up for a really, really messy transition in regards to pushing aggressively in one direction without ensuring that the capabilities are there in order to what I'm referencing to there's tightness in the commodities space all throughout every single commodities is been incredibly tight. However, it's something that we've pushed and the dialogue when COVID first started is we're going to be coming out of COVID in a very different environment where alternatives are going to be holding a much higher, significant role, and we're coming out of COVID now.

And the reality was very different than where we thought it would be. And it seems that the ultimate outcome is going to be people in the third world are going to be suffering and taking the brunt of this type of narrative and this type of discussions. And they're the ones that are going to be the beneficiaries of some of the poor decisions that were made. So my question is, do you feel, or do you think the aggressive take the past couple of years could be setting us up for a messy transition the next five to six years?

Speaker 1:

That's a good question. No, that's a good question, Regina, I'll start with you on this one. Then we come back to Mike. I mean, Regina, you talk often in the media about the state of energy transition, different forms of energy. What are your thoughts as you listen to that question?

Regina Mayor:

Well, I would say we're already in a messy transition. I mean, by definition, Brent crude swinging from 130 day down to 98, just a couple weeks apart is by definition to me a messy transition. I do think this notion of leaving part of the world behind is an important one. I talk a lot about energy poverty. There's still 1.3 billion people on the planet without access to reliable and affordable electricity, which is the single biggest driver of wealth creation. I think a lot of my clients in the energy sector are keenly aware of that. So I think part of Mike's point about a just transition is not just the people that already work in the industry today and being able to re skill them for the future. But it's also social justice for those that have currently been left out of the benefits of strong energy footprints and making sure that we enable those parts of the world to continue to have access, to bring energy to their own populations.

While we're simultaneously trying to drive a focus on reducing carbon emissions. And I would say that's my last point is the narrative has to shift from one where we pick winners and losers with our tax incentive schemes and our policies and things of that nature and move toward the end focus is to reduce carbon emissions and to reduce carbon out of the atmosphere itself. And if we focus on that outcome, I think we can all work together better across multiple agendas to drive that outcome.

Speaker 1:

And great points. Mike, anything further? Ted, I know we have another individual is going to ask a question, but just want to afford you Mike, the chance to further on Regina's point before we take next question.

Mike Hayes:

Yeah, no, I agree with everything Regina said, I want to build just on two particular aspects. I mentioned earlier innovation, and what I love about innovation is that it's neutral between developed and developing countries, which is why I think it's so important. One of the areas that's getting a lot of attention is the, what we call technology based carbon removals. Things like direct air capture, highly expensive technologies today. But I am heartened a little bit about the focus, including the initiative announced by John Kerry, the first movers coalition to really drive demand for these, what are today expensive technologies, but which are going to be critical. And the private equity industry has a really big role to play in supporting those technologies. Second point and Regina touches on this and we shouldn't gloss over cause it is a major point. The fact that we have 1.1 people without access to electricity today is really tragic.

And this is not just a climate change issue. It's a health, it's a poverty, it's a food issue. And the really strange thing is that there's so much capital in the world today. And one of the things we're trying to do in KPMG is figure out how do you take all the capital that's there in the world today? How do you get some of it to invest in the really high risk projects? Because that's the problem. It's not shortage of capital. It's getting capital to actually play in the two areas of the agenda where we most desperately need it. Those developing countries that are regarded as too high risk for conventional capital. And secondly, the innovation agenda. So 'll stop there. I agree with Regina and the question it's definitely a long way of what we used to call an orderly transition. It is messy, but I think there are ways out of it as well.

Speaker 1:

Well, thanks, Mike. And I know we have a number of questions, so Matt Caruso, I'll go back to you.

Speaker 6:

Yeah. I'm going to go to talk Texas, and then I'm going to go to Tom. So that's next up on the list.

Speaker 8:

Guys. I'm still confused how oil and gas and decarbonization is such the bad guy. When in Texas there'll be four and five different energy streams in a geographic area that is a 60 mile radius, solar, wind, and oil and gas. And so it's messy when you push one energy source out when you need all of them. And so actually oil and gas invest in renewables. And so if it wasn't for the capitalization of oil and gas globally, then actually some of the renewables wouldn't have the space that they have. So it's always confusing to me how one energy source, whether it be nuclear, solar, wind suddenly becomes the bad guy. And so it's kind of confusing to me why globally, everyone gets on that agenda and hasn't seen what's happening in Texas.

Speaker 1:

Thanks for that point. Regina you're he Texas based spokesperson, certainly here, familiar with that market. And certainly last year where there was that late winter storm. If I recall around February, March and saw a number of the energy challenges in Texas at that time, what's your perspective, Regina, just obviously being somebody who lives there and is familiar with the market and thoughts on the comment.

Regina Mayor:

Well, I actually totally agree with the commenter that we should not demonize one source of energy over another. And I think we've seen what happens when we vilify one. Let's just take nuclear, which fell out a favor for about a decade. And now is back in the mix because of its low carbon footprint. But that's why my point of view is we should focus on what's the ultimate outcome, and that is removing CO2 emissions from the atmosphere to make the planet green again. And we can get there through a number of needs. We can get there through hydrocarbons being decarbonized, carbon captured and sequestration, which is something that we actually haven't talked about yet, or the use of hydrogen for heating and transport, with gray, hydrogen, to blue hydrogen, ultimately to green hydrogen, those technologies, those innovations are being driven.

And the challenge has been the narrative. We, as human beings, we like to find bad guys in every story. And so there tends to be this search for the bad guys and the bad guys in my version of the story is carbon emissions. How do we focus on that? Don't demonize one over the other. And in the end, it needs to be an all of the above strategy to achieve our climate change goals and to make energy affordable, available, reliable and sustainable.

Speaker 1:

Glenn, I know you talk about narratives. You're always talking about how private equity historically seems to have a bad reputation, your thoughts as you listen to Regina's comments.

Glenn Mincey:

Well, I recognize that private equity has a bad reputation, but yeah, I fully, fully agree with the comments made by the listener and also Regina's comments. And really it goes to exactly that the narrative. The public sentiment is that we should flip a switch and snap our fingers and immediately be in a renewable and fully sustainable energy environment. And Mike and Regina, all three of us have noted the short term reliance on oil and gas and it'll continue. And really there's a call for balance. To be clear, this transition is disruption, right? There's no doubt that disruption can take the form of rapid technological advances or geopolitical crises. And then when these changes occur, they occur very quickly and the industry reacts accordingly, but there really needs to be balance here. The transition's going to take time with all of the changes that Mike and Regina have both mentioned. And frankly, even the listener made the point, the substantial cash flow that oil and gas producers are receiving thanks to elevated commodity prices will increasingly fund alternative projects.

Speaker 1:

I know that we're coming up on about 40 minutes or so, and I know cognizant of schedules that some folks have to jump probably in a few minutes. So want to take a few more questions if we have time or certainly allow for some more points. I know, Mike, you wanted to raise a point here on top of what Glenn just said. So Mike, how about you go first and then we'll see if we have time for one or two more questions.

Mike Hayes:

Super very quick comment, and Regina's heard me say this many times we should never forget the oil and gas industry has been around for 150 years. I think this industry, most of all, is best positioned to help us with the transition. They understand how to do things in difficult countries. They understand how to operate offshore. They are prepared to innovate. The last thing I think we should be doing is demonizing oil and gas. They need to be part of this transition. We need to be inclusive towards them and actually encourage them because rather than waiting for new players and new disruptors, we have fabulous experience and the funding required to really drive the transition from this community.

Speaker 1:

Mike, thanks for that point. Mac Russo, did you say John had a question?

Speaker 6:

I want to go to Tom first and then to John, please.

Speaker 1:

Okay, great.

Speaker 9:

Well, howdy y'all, this is great space up here. I'm definitely from Houston, as you can tell. And I've got my thoughts on energy, but I know people tend to focus on the CO2 reductions. What I see in front of me though, is the energy crisis. And so I'm really focused, and I think people in Houston are really focused on just more energy period, end of story. We just more energy across the board. So what I'm kind of worried about here is people say, oh, well we need more people to work inside this energy transition space while that might be true. We also need more petroleum engineers. I think we need more geologists. We need more geophysicists. We definitely need more nuclear engineers. We haven't had enough in the past 20 years and we need more people in the government that are ready to admit about the nuclear problem we have here and the solutions that we need to bring to the forefront of this in order to have more nuclear facilities here in America, what those are going to look like.

But without those engineers in oil and gas and in nuclear, I think we're going to have problems ending the energy poverty situation, which I think we all agree here. Everybody agrees on stage here I think, and probably in this audience that we are against energy poverty, and we want to end energy poverty. So the question really is will we all support all forms of energy to end this poverty and make all forms of energy cheaper, have more energy on the market in the poverty, which is, will save lives, obviously, right? So can we really get on board with, Hey, we just need to focus on more energy period right now while we're in this crisis. And then maybe when we're out of the crisis and we have stabilized and things aren't as crazy, then we can kind of go back to our different agendas. But I think right now, I think just the more energy period would be the way to go, right?

Speaker 1:

Well, Tom, you raised a number of good points there. I want to go to Regina first, just being based locally, where you are. And then also Mike, Thomas, I listened to your comments, you hit on a lot of the points that Mike talked about, the importance of education. Folks having the right skillset. You talked about engineers, making sure folks are able to deliver in the space and the all of above strategy that certainly stood out to me. I think it speaks to what Mike hit on. Regina. What stood out to you as you listen to the comments from Houston?

Regina Mayor:

I'm in agreement that we need more energy, but I do also feel I get a bit of cognitive dissonance, right? When I go to cop forums or I go to Davos versus when I sit in Houston and I listen to the energy industry, we tend to be in Texas in an echo chamber where we will just say, we need more oil and gas. We need more oil and gas. We need more oil and gas. It needs to be all of the above. And so while we're moving toward newer technology solutions, carbon capture sequestration, offshore, wind, hydrogen, as I said, and we still need traditional sources. We need to start saying it's in all of the above. And both sides are sort of talking at purposes and I encourage my fellow Texans to change the narrative about how we are going to lead in the energy transition and who better to do it than Houston to be the last man standing relative to hydrocarbons for the future to be that counterbalance, to OPAC and other educing nations. So I agree, but I'm also trying to get us to open up the aperture and change the narrative a little bit more

Speaker 1:

Mike, anything further to add to Regina's point before we get to our last question?

Mike Hayes:

Yeah. Very quickly, we spoke about nuclear and I just want to use this as an example to show how we are really thinking about energy security. And I will admit for me, CO2 emissions is the impact of climate change, but nuclear take nuclear. Regina spoke about the 1970s and we've grown up with this idea that nuclear plants are big, huge monoliths, but actually as we move into the future, we're not talking about small scale nuclear. And already around the world we are discussing situations where industrial clusters have been set up with heavy carbon industries, which will have their own localized nuclear modules on site. And over the last couple of weeks, and this might sound really strange, the concept of floating nuclear has entered into the equation. So the answer to the question is, yes, we are working and as is everybody else on all forms of energy, nuclear is very much back on the table. Again, probably the one place I would differ from the Houston audience is the climate change thing is very real, which is why somebody like me is always going to focus on the cleaner sources of energy.

Speaker 1:

Mike, thanks for your point in, I know we still have a number of questions, so I'll just say for the questions we don't get till today, I would encourage you to direct message us at KPMG US News. We'll be glad to review your question and certainly try to address it after the program. John is on. I believe John is in finance and energy. So John, you'll be our last question for today. And thanks for listening in.

Speaker 10:

Thank you very much. I appreciate the opportunity and this is a great session. My focus is really on United States renewables and solar. And I come from a markets background, a long markets background, going back to even the Minneapolis grain exchange in 1981. I look at things really from a Cargill kind of perspective, and in the United States in power, we really don't have any forward markets. And so financing is challenging. You have banks that are really not adept at financing smaller things, and you have institutions which are opaque on their bids and their offers. And so my question would be, how do we build real markets in renewables in the United States? And that can allow broken up utilities, GENCO, T and D to it just, I think heavy markets would make financing better at every level DG on batteries, on storage, you name it. And really, how do we build markets that can work for financing needs in this market? And that would be my question.

Speaker 1:

Thanks, John. Great question, Glenn, I'll start with you then we'll go to Regina. I mean, we talked earlier in the show, Glenn, I think it was 52 billion that private equity had raised to invest in renewable energy in 2020, which was a record. Then we talked about whether those funds have generated the types of returns you associated with PE as you think about the financing equation of markets that John talked about, where do you see the PE role being in that? And then we'll go over to Regina from the energy side.

Glenn Mincey:

Yeah. It's interesting for the first time this year banks banks plan to commit more financing to to climate friendly projects than traditional oil and gas. But if you're looking at, from the, at it, from the point of, PE lending, there's much of a move to green lending in the notion that an ESG favorable company is a more stable company. So I certainly think that you'll see more investment from the PE lending side as well. And as well as lending into traditional oil and gas as well.

Speaker 1:

Regina, I'll give you the final word today before we wrap things up. Your thoughts to John's question.

Regina Mayor:

Thanks, Matt. Yeah. I mean, it's in an ideal world, we would have a better solution. I mean, power trading and the US power markets between the different ISOs and the connectedness or the lack thereof is a big challenge. And what renewables in California have done to create a duck curve. I don't think we're going to necessarily solve it by creating a national market that makes it easier to really value the power that does get brought into the market. I think it's going to end up being that the investor community that has a lot of capital that wants to deploy it against those types of projects will create the generation capability that ultimately gets distributed. But I think your question is the right one. If we could make it a more transparent liquid capital market that can be traded and valued more transparently, it would definitely make things easier, but I don't see that necessarily coming. And I don't have the answer for how to do it. That one's too high for my pay grade. But thanks for the question.

Speaker 1:

Well, again, I want to thank everybody for the great questions today. Thanks for joining KPMG, US News, Twitter spaces. Be sure to stay tuned for more great conversation.

Featured speakers

Glenn Mincey

Glenn Mincey

Global & U.S. Head of Private Equity, KPMG

Regina Mayor

Regina Mayor

Global Head of Energy, KPMG in the U.S.

Mike Hayes

Mike Hayes

Global Head of Climate Change & Decarbonization, KPMG IMPACT & Global Head of Renewables, KPMG International