// . //  Takes On //  Balancing Climate Technology And Finance Strategy


Climate innovations are not a one-size-fits-all, imminent solution for utilities. As a utility, we need to think about making smaller incremental technology investments starting today, keeping our balance sheet in mind. This strategy will allow us to optimize our energy transition over several decades
Mei Shibata, Partner

Optimizing the energy transition requires climate technology to be implemented in shorter increments and with budgets in mind. Explore the possible outcomes.


Oliver Wyman Takes On Series

In this video series, energy and natural resources experts share their take on how businesses can harness risk, turn climate intent into action, and lead in the age of acceleration. 

In the original clean tech boom between 2006 and 2011, over $25 billion was invested in early-stage clean tech companies. Unfortunately, investors lost more than half of their money. Today, times have changed.

Today's resurgence in clean tech investments look a lot more purposeful and targeted. Over $10 billion a year has been invested for the past few years in different types of clean technologies that together promise to capture carbon, generate energy cleanly and renewably, store it, and allow for systems to be managed more holistically using analytics and AI.

My name is Mei Shibata. I'm a partner in the Energy and Natural Resources practice at Oliver Wyman, based in the Boston office. Before joining Oliver Wyman, I was a clean tech entrepreneur. I started, grew, and sold two companies over a 15-year period. So for all of the work that I do, I definitely bring a business-owner mindset to the table. That means thinking about ROI and the implementability of ideas.

At Oliver Wyman, I focus on the energy transition from a business model and technology innovation perspective, and I bring customer experience, marketing, and commercialization expertise to all of my projects.

Climate innovations are not a one-size-fits-all soon-to-come panacea for utilities. Instead, as a utility, we need to think about making smaller increments of technology investments starting today and with our balance sheet in mind so that over a several decades we can optimize our energy transition.

Let's play this out.

First, we need to think about what type of technology investment we want to make in the next few years.

First option could be a scaled utility play in a proven technology area like solar.

Option number two is to make a bigger bet, a bigger technology bet that won't yield results in five years, but you're five years ahead in your development.

Option three is that you make a token play in a clean tech area to learn from, but for the most part, you're taking a ‘wait and see’ attitude.

Now, each of these scenarios has different regulatory and customer implications.

Under the first scenario, regulators are likely going to be okay to rate base your project as a one-off initiative, and regulators are happy because you've made progress along the clean energy transition and customers are so-so happy.

Under the second scenario, you're gonna probably have to go back to the regulatory commission over and over again because it's a long-term investment. So unfortunately, in the short run, both regulators and customers are not too happy. That said, if the big bet does pay off, then you may have access to affordable, reliable, clean, and resilient energy for decades to come with very little rate basing from there on.

Under option three, the regulators may not be too happy by the fact that you haven't made much progress along your clean energy transition, but customers are likely to be happiest in this scenario because they haven't seen a rate hike either.

Now, turning to the company, each of these scenarios also has a big implication on your balance sheet.

Under the first two scenarios, you're lower in cash because you've embarked upon a project, but you may also benefit from significantly lower cost of capital because there now is a big clean energy asset on your balance sheet.

Option number one lets you capitalize on that sooner because it's a proven technology, but the benefits are greater and more sustaining if the bet in option two pays off.

Under option three, you may have cash in the bank, but you may still be penalized in the capital markets because you have not made a clean energy play, and that pinch may feel stronger and stronger as the years go by and sustainability standards become more stringent. And that is an important point because in other words, it doesn't necessarily pay, nor does it cost you any less to wait for clean technologies to mature.

Given that the energy transition is a decades-long marathon and not a sprint, it's important for you as a utility to think about all of your stakeholders, your financial health, and all of the natural resources you have in your marketplace to make the right decision for you, which scenario to pursue.

So in summary, the important thing is to think about your climate technology strategy in conjunction with your balance sheet strategy and do so in short-term increments to maximize both the regulated and deregulated impact of any of the options that you pursue for that period of time, which is what sets you up for success in the subsequent five-year increments.

I’m Mei Shibata, and this is my take on clean technology and the energy transition.

This transcript has been edited for clarity