Since the war in Ukraine, there has been a lot of focus on a specific part of the energy transition: the heat transition. “The energy crisis caused by the war has made every household in Europe realise the true price of our dependency on fossil fuels. However painful, the high prices are a unique opportunity to move away from gas and other fossil sources for our heat supply as quickly as possible.”
Triodos Bank and Triodos IM have a well-established commitment to the energy transition, with dedicated sustainable funds focused on financing renewable energy. Kay van der Kooi has been involved in this energy transition for 10 years. The investment manager of Triodos Energy Transition Europe Fund has seen an increase in the commitment of businesses and individuals to make necessary sustainability efforts in recent years.
Triodos has pioneered investments in wind and solar energy, stimulating technological innovations. Nowadays, renewable alternatives to fossil fuels are common and proven energy sources.
Van der Kooi believes Triodos IM's funds can play a similar role in the enormous challenge of achieving a successful heat transition. “Talking about the energy transition involves complex issues which remained very abstract for many people for a long time. It was all about solar or wind farms, the power grid and closing coal plants. A bit far from our minds. As the European Union teeters on the brink of an energy crisis, it has become painfully clear how dependent we are on electricity, gas and oil in our daily lives. Across Europe, we see this reflected in high energy bills, both for households and businesses. It suddenly becomes very tangible.”
The climate crisis and the war in Ukraine, with the subsequent boycott of fossil fuels from Russia, has led to skyrocketing energy costs in most European countries. As a result, hardly anyone doubts the benefits and necessity, as well as the urgency, of the energy transition anymore. Putting that insight into practice requires specific knowledge about the energy issues and where investments have the most impact, Van der Kooi argues. “As investors, we can make a big difference.”
Scaling up and saving costs
The energy transition concerns three main issues: electricity, heat and mobility. Generating renewable electricity is no longer an issue; the challenge now is the speed at which we can increase production. A key next step is to develop a flexible and reliable network, and that is where mega batteries play an important role. An urgent next step in the energy transition is the heat transition. Van der Kooi: “The heat transition plays a key role in the success of the energy transition.”
High heating costs and expensive electricity mean a drain on everyone's wallet “This risks creating a new social inequality between people who can afford to make their homes and cars more sustainable, and others who are struggling to pay their energy bills. “Simply replacing gas with electricity is not the answer, the investment manager explains. For the 1,200 cubic metres of gas an average household consumes annually, you would need roughly 12,000 kilowatt hours of electricity if you wanted to replace it with electric boilers or heating. “Energy bills will then increase fivefold.” Heat pumps are an ideal solution because they are much more efficient than electric boilers. “A completely different picture will then emerge,” says Van der Kooi.
Sustainable heat solutions
Triodos Groenfonds and Triodos Energy Transition Europe Fund have long played a significant role in financing projects in the built environment, the former mainly in the Netherlands, the latter in Europe. Here, the emphasis is on companies offering heat demand solutions through heat pumps and their use. Sometimes these are collective projects, and often individual ones. The challenges are significant because the housing stock has different construction and insulation values and consists of a mix of social housing, private ownership and private sector rentals. Van der Kooi stresses that there is still no incentive for private property owners to implement energy efficiency measures for their tenants; another area where Triodos IM sees a role for itself to promote innovations.
Legal and technical know-how along with a good overview of the heat pump market and companies offering solutions are part of the puzzle, according to Van der Kooi. “We have gained a lot of expertise over the past decade through our involvement, not only in the Netherlands but also elsewhere in Europe.”
Since 2019, new buildings in the Netherlands can no longer be connected to mains gas. Stricter regulations are in the pipeline in Germany, and gas is also falling out of favour in the United Kingdom. “We see huge opportunities to energetically pursue the heat transition, not only in the Netherlands, but in other parts of Europe too. But the progress being made and the potential for investment varies greatly from country to country.”
The sober numbers show what a huge task we have ahead. The Netherlands alone has 7.5 million homes. “There’s a lot of work to do to get them all off gas. However, while the challenges are immense, the market in the Netherlands is very large.” As a result of their longstanding involvement, the funds have a good insight into companies that can play a significant role in a European transition and meet the conditions set by Triodos. “We are well connected to innovative companies with a sustainable and social business model.”
A small sample of the extensive portfolio: new construction project Fort Isabella in the south of the Netherlands and the Traais Energie Collectief, which installed a local heat network. This latest initiative involves financing by Triodos Bank. Fund investments also include companies such as Inergie, Wellsius and Klimaatgarant, which are developing a variety of much-needed heat solutions. This portfolio is expected to expand to other European countries this year.
Fort Isabella is a project to transform listed army barracks into a place that combines living, working, education and recreation. Van der Kooi: “This shows that we can really make a difference in the existing built environment when it comes to the heat transition. We have a big positive impact and there are very good returns to be had.”