CASE-05 · Energy & major investments
Approving a €900 million plant, designed to last 25 years
70
Energy
Energy
In ten years it risks becoming a stranded asset.
In one line Reduced the risk of a stranded asset on €900M, turning a bet into an option.
The Chief Investment Officer of an integrated energy operator, with a board asking for concrete progress on the pipeline and a guaranteed purchase contract up for renewal within six months.
A national energy operator with a consolidated fossil generation base and regulated supply obligations. The proposed plant replaces capacity being decommissioned and is framed as necessary for the country's near-term energy security. Existing guaranteed purchase contracts cover the first ten years of operation.
The cost curve for renewable energy has followed a near-exponential trajectory over the past decade: the levelised cost of solar PV and onshore wind fell 89% and 70% respectively between 2010 and 2023. Credible energy-transition scenarios place the competitive parity point between renewables-plus-storage and natural gas between 2030 and 2035 in most European markets. On the regulatory side, the current CO₂ price in the European ETS is already on a trajectory to double by 2030 per consensus estimates. A plant engineered to the economics of today and expected to run for 25 years assumes none of these trends accelerates — an increasingly fragile assumption.
The internal analysis shows an eight-year payback, a comfortable margin relative to the asset's useful life. But that calculation distributes cash flows evenly over 25 years: the reality is that the first ten years, covered by the guaranteed purchase contract, finance almost the entire return. The last ten years — when electrification, rising CO₂ costs and renewables-plus-batteries will make themselves felt most — contribute a share of return that may never materialise. Approving now means betting that a fossil plant stays competitive in a market undergoing structural change. The risk is not in year one: it is in year fifteen, arriving too late to correct.
Expected cumulative return of the plant year by year — about 65% of the return is concentrated in the first ten years; the remaining fifteen are exposed to the energy transition (illustrative data).
Net present value of the investment in the base case (full utilisation) and in the accelerated-transition scenario with declining usage from year ten (illustrative data).
The risk isn't the early years, it's the last ones. It pays back in 8 years, but it must live 25. Electrification, CO₂ levies and the collapse in the cost of renewables and batteries can drive usage down after year ten. A calculation that assumes the plant always at full capacity for 25 years is fragile: you risk a stranded asset, still to be paid for but that no one uses anymore.
Provenance: energy transition scenarios · technology cost curves · guaranteed purchase contracts · red-team base.
Composite cases, in the method of the Harvard Business Review: reconstructions based on real, recurring situations in each sector, merged and anonymized to protect confidentiality. The decision dynamics are authentic; names, figures and details are altered and not traceable to any single client or case. The «provenance» notes describe the type of evidence the engine cites with traceability in production. The Δ-CSI values illustrate the intensity of the pressure the contradiction put on the assumptions.