speaker-1: Nexus Published by GHD foresight Asset closure has traditionally been viewed as the final chapter in an infrastructure asset's life. A regulatory requirement, a cost to manage, a problem to solve once operations like mine sites come to an end. But what if we've been looking at it the wrong way? Welcome to the Nexus Podcast. I'm Ben Hall, Global Thought Leadership Manager at GHD. My guest today is Andrew Alexander. Principal for Infrastructure Investment and Capital Projects for the Americas at GHD. He has more than 20 years experience advising organizations across energy, resources, manufacturing, and data centers. He believes the end of an asset's life can become the beginning of something much bigger. Andrew, welcome to Nexus.
speaker-0: Thank you very much. Pleasure to be here.
speaker-1: Let's just start with the basics first. when we talk about asset closure and transition, what does that actually mean? And then secondly, why is it becoming such an important issue for organizations that own major infrastructure and industrial assets?
speaker-0: Yeah, it's a good question. And I think the kind of the first idea that comes to our head when we talk about asset closure is is one of kind of ceasing operations, decommissioning, demolition, perhaps even sort of remediating assets. And I think you what we wanna make clear in a lot of the material that we're we're producing and and what we're learning from our clients is that Asset closure really has to start sort of way before that decision to close an asset ha has been made. And recognizing that asset owners deliver all of their products and services to their customers through their infrastructure assets, like all of us, those businesses experience constant change and they they need to be well positioned to respond to that. So closure planning doesn't have to mean closure itself. It means being better informed to make sound decisions throughout the asset's life. And and not being overly constrained and sort of exposed to increased costs when that time does come right at the end of the asset life cycle. so to a perfectly acceptable, you know, conclusion from from planning for asset closure could be to defer closure, but knowing to do so could could well be the optimum solution and and taking that with a sort of higher degree of confidence.
speaker-1: And by by way of example or a case study, I know G H D's been involved in the Tent Mountain Renewable Energy Complex in Alberta and Canada. And that was that's a classic case of of repurposing a it was a former coal mine site, wasn't it?
speaker-0: That's right. Yeah. So I mean and and in this case, you know, did this as a legacy site that's been yeah, operations ceased a long time ago and and the owner was really sat with, you know, a large liability and trying to find value from that asset in any way they could and and converting that liability into some sort of useful future revenue stream. So in that case it wasn't so much that looking at sort of workforce transition or those sort of elements, so much as how could the attributes of that site be leveraged in order to convert that that site for a beneficial, you know. future use. And so in this case it was really taking advantage of of the former mining operations that had led to some really unique characteristics that allowed the site to be transformed into a pumped hydro solution that allowed essentially a large battery, right? Which could serve I think around sort of four hundred thousand homes for around a fifteen hour cycle from from a site that was obviously a completely different use throughout its operational life.
speaker-1: Now you've argued that asset closure is no longer just an environmental or compliance issue. What's changed to make it a genuine boardroom conversation?
speaker-0: Yeah, well I think I mean if we look particularly, you know, in in the US, we have a significant aging infrastructure challenge. look at sort of the industrial manufacturing base of the US and the age of those assets, a lot of those are sort of reaching, you know, end of life. And that's sort of driving a scale challenge and and also then the the consequence that that is increasing. So that kind of materiality and the overall consequence of managing the liabilities for assets end of life is becoming now to the point which it's noticeable. It's not just sort of take an approach or of minimum cost to comply. It's a significant cost item for businesses to, you know, run and obviously not just look to minimize that cost, but to actually sort of challenge it with a bit more of a proactive approach. So I think that's encouraging investors to look at this with significantly more scrutiny. It's obviously starting to affect future cash flows and terminal value. But on the other side, that's also creating opportunity with, you know, developers, for example, really struggling now to find greenfield sites that sort of meet their needs, certainly in areas that aren't met with community objection and hence that sort of convergence of developers looking to kind of repurpose those sites with now a kind of noticeable challenge for asset owners to kind of look at things from a fresh perspective.
speaker-1: And you've authored two articles on Nexus on this topic. And one of the biggest ideas in your articles is the shift from seeing closure, as you just mentioned, as a liability to seeing it as an opportunity, a financial one for businesses. So what does that mindset look like in practice?
speaker-0: Yeah, I mean I think it's sort of the the more future looking lens. you know, the traditional mindset was very much about how how to maintain compliance at a minimum cost. And perhaps even more so it could could be viewed as narrow minded by taking a kind of asset by asset view as opposed to sort of looking at opportunities across a a complete portfolio of assets. I think a a newer mindset is really to look at closure as not just sort of how do we shift liability off our books, but how do we design the next life of that asset? How do we create value from that? So That can involve understanding the attributes that could be leveraged, so the market, that how that's evolving, new technology that's emerging, site characteristics or infrastructure, what infrastructure can be shared with with neighbours. And also recognizing that all of that shifted considerably from when these assets were previously conceived. You know, some of these we're talking sort of 50, 60 year old industrial assets. we live in a very different world now. So starting to take a view of really, you know, unpacking all of those to see. what what can be repurposed as opposed to looking in isolation as to what's the liability in order to kind of maintain our asset retirement obligation and looking at it from a financial perspective. That wider aperture I think really allows us to find value in a very much changed world to that that was sort of originally part of the business case when that sort of capital investment was was first kind of put into motion.
speaker-1: I think you mentioned there that each site and each pot former site has different potential as well. So I suppose the key thing is to identify with the former asset what can be repurposed and what can't be, and then deciding from there whether it's viable or not.
speaker-0: Absolutely. And I think that starts yeah really kind of raises a really, really key point, which is that often our closure provision is something it's a line item that we included in our business case originally. And you know, there's a sort of tongue in cheek statement that might say that if we included the real number, then we'd never close a business case. So we often find ourselves under provision. But your point's really, really you know, a good one in that got to start with a a really solid baseline of what what do we actually have here? What what does it cost us to kind of bring this back to its original state? And then understanding, you know, parcels of the land or site which are sort of more prohibitive to to restore for a future use over others. And how do we compartmentalize that into parts of the structure, for example, that could be leveraged into something else and hence don't need to be decommissioned at all? So as you say, it's a real opportunity to start baselining those those closure costs and characterising what can and can't be be used and and where there are limitations and constraints.
speaker-1: And you've said just earlier that organisations should start planning for closure when an asset is first being designed. I mean, it feels counterintuitive, doesn't it? But but why has planning for the end become such an important part of planning for the future?
speaker-0: Yeah, absolutely. And and I think kind of fundamentally when it's left to the end of life, you you find yourself in a very constrained position where often we have environmental contamination, the sites often changed and have been added to, it's had extensions or operational changes throughout its life. And all of the options that you're sort of presented with when leaving that to the end are very much more narrowed and the costs as you know, as a consequence have escalated. And again, if we sort of have under provisioned, then we find ourselves sort of having to bridge the gap between what we've provisioned and what it will actually now take, sort of as we tackle this at the ninety ninth hour. So switching out on its head and looking for earlier integration, it I think a key part is identifying optionality. What can we consider as we go through not only the design of the asset but its operational life? to ensure that we're making good decisions as we OPEX to maintain facilities throughout life. And what can we be doing sort of as we go out and look at permitting considerations that again don't constrain us for future reuse as we go forwards and sort of look to come to develop some form of alternative use. So I think fundamentally that's enabling better capital deployment decisions to be made with more confidence, right? So ultimately, you know, whether we're investing in new assets or looking at the closure of assets, there's a large capital deployment that has to be made. And I think for investors to provide the you know liquidity for those things to happen, we need to ensure that they've got the transparency of of what that will actually take and de risking future uses of of assets actually allows investors to kind of move forward with more confidence in those initial sort of project opportunities.
speaker-1: You also described three major forces reshaping closure today decarbonisation, investor expectations, and community trust. How are those forces changing the decisions that organizations are making?
speaker-0: Well, I think they all reinforce each other. I mean perhaps to some extent the investor kind of expectations and the investor community stand out because as I mentioned, you know, previously, they link kind of closure and transformation to accessing the capital and ultimately the you know asset valuations that support not only those initial investments but the capital necessary to transform it to its its future use. I think increasingly that community is demanding transparency on the liabilities, like I said. You know, it's often a kind of guesstimated line item in a in a business case from day one, but actually providing a de risk solution that allows investors to deploy large sums of capital knowing that there's optionality to kind of shift as market forces change throughout the life of these assets. Again, that could be an operation for thirty, forty, fifty years, that that increases investor confidence. And and and fundamentally, unless the solutions are bankable, nothing's gonna happen. But I think, you know, some of that's could be argued as being, you know, aspects of the kind of practical execution of some of these projects. And I think ultimately of the kind of th three forces that we're talking around here, ultimately it really is kind of has to be tied back to the people aspects, right? The communities in which these assets sit and gaining social license is ultimately going to be the the kind of driving factor for what's feasible for some of these sites.
speaker-1: Well let's look ahead ten years. What do you think the best organizations will be doing differently? and does this now need to elevate to board level? And how will they think about asset closure and transition? How do they need to do that compared with today?
speaker-0: It's a question and I think I mean start by by stating the obvious, right? That the world is constantly changing. So in ten years we're gonna be tackling a different kind of set of asset types that are serving different functions at different phases of the asset life cycle. And you know, I think we've seen that certainly if you look at sort of the influence of the data center market, that really fast pace is actually quite achievable. And I think sort of those traditional time frames are now sort of being turned on their head, you know markets reacting to huge demand in data center capacity. So that kind of changes the perspective of the art of the possible. So I think the common denominator in all of this really comes back to the successful organizations are going to be the ones that really manage to integrate stakeholders most effectively. And that kind of cuts across two lenses, one of which will be within their own organizations and really integrating closure planning. into their operations that understand the future needs of their business, their strategic objectives or any ESG mandates they're trying to achieve, the customers that they're serving, the markets that they're sort of functioning within. The more that they can integrate that into understanding what they have and on what they need to provision for, I think will will will be a huge differentiator. And then on the other side of the coin will be the relationships outside of the organization. So the communities, the the technology partners and the regulatory environment and managing that as a an ecosystem of stakeholders, I think, effectively will be a big kind of defining feature of organizations that can really you know manage their asset base, extract value from those assets sort of, you know, throughout life and as they move into the next phase of their lives.
speaker-1: That's a great place to finish. Andrew Alexander, thank you very much for your insights there. I really appreciate it.
speaker-0: You're welcome. Thanks for having me.
speaker-1: Asset closure is no longer simply about winding operations down. As Andrew has just explained, it's becoming an opportunity to create new value, strengthen communities, and support the transition to a better future. If you've enjoyed today's conversation, you can also read Andrew's two-part Nexus series, From Burden to Blueprint and Closing Time, where he explores these ideas in greater depth. Thanks for listening, and we'll see you next time on Nexus. Brought to you by Nexus, published by GHD. Foresight.
speaker-0: Thank you very much. Pleasure to be here.
speaker-1: Let's just start with the basics first. when we talk about asset closure and transition, what does that actually mean? And then secondly, why is it becoming such an important issue for organizations that own major infrastructure and industrial assets?
speaker-0: Yeah, it's a good question. And I think the kind of the first idea that comes to our head when we talk about asset closure is is one of kind of ceasing operations, decommissioning, demolition, perhaps even sort of remediating assets. And I think you what we wanna make clear in a lot of the material that we're we're producing and and what we're learning from our clients is that Asset closure really has to start sort of way before that decision to close an asset ha has been made. And recognizing that asset owners deliver all of their products and services to their customers through their infrastructure assets, like all of us, those businesses experience constant change and they they need to be well positioned to respond to that. So closure planning doesn't have to mean closure itself. It means being better informed to make sound decisions throughout the asset's life. And and not being overly constrained and sort of exposed to increased costs when that time does come right at the end of the asset life cycle. so to a perfectly acceptable, you know, conclusion from from planning for asset closure could be to defer closure, but knowing to do so could could well be the optimum solution and and taking that with a sort of higher degree of confidence.
speaker-1: And by by way of example or a case study, I know G H D's been involved in the Tent Mountain Renewable Energy Complex in Alberta and Canada. And that was that's a classic case of of repurposing a it was a former coal mine site, wasn't it?
speaker-0: That's right. Yeah. So I mean and and in this case, you know, did this as a legacy site that's been yeah, operations ceased a long time ago and and the owner was really sat with, you know, a large liability and trying to find value from that asset in any way they could and and converting that liability into some sort of useful future revenue stream. So in that case it wasn't so much that looking at sort of workforce transition or those sort of elements, so much as how could the attributes of that site be leveraged in order to convert that that site for a beneficial, you know. future use. And so in this case it was really taking advantage of of the former mining operations that had led to some really unique characteristics that allowed the site to be transformed into a pumped hydro solution that allowed essentially a large battery, right? Which could serve I think around sort of four hundred thousand homes for around a fifteen hour cycle from from a site that was obviously a completely different use throughout its operational life.
speaker-1: Now you've argued that asset closure is no longer just an environmental or compliance issue. What's changed to make it a genuine boardroom conversation?
speaker-0: Yeah, well I think I mean if we look particularly, you know, in in the US, we have a significant aging infrastructure challenge. look at sort of the industrial manufacturing base of the US and the age of those assets, a lot of those are sort of reaching, you know, end of life. And that's sort of driving a scale challenge and and also then the the consequence that that is increasing. So that kind of materiality and the overall consequence of managing the liabilities for assets end of life is becoming now to the point which it's noticeable. It's not just sort of take an approach or of minimum cost to comply. It's a significant cost item for businesses to, you know, run and obviously not just look to minimize that cost, but to actually sort of challenge it with a bit more of a proactive approach. So I think that's encouraging investors to look at this with significantly more scrutiny. It's obviously starting to affect future cash flows and terminal value. But on the other side, that's also creating opportunity with, you know, developers, for example, really struggling now to find greenfield sites that sort of meet their needs, certainly in areas that aren't met with community objection and hence that sort of convergence of developers looking to kind of repurpose those sites with now a kind of noticeable challenge for asset owners to kind of look at things from a fresh perspective.
speaker-1: And you've authored two articles on Nexus on this topic. And one of the biggest ideas in your articles is the shift from seeing closure, as you just mentioned, as a liability to seeing it as an opportunity, a financial one for businesses. So what does that mindset look like in practice?
speaker-0: Yeah, I mean I think it's sort of the the more future looking lens. you know, the traditional mindset was very much about how how to maintain compliance at a minimum cost. And perhaps even more so it could could be viewed as narrow minded by taking a kind of asset by asset view as opposed to sort of looking at opportunities across a a complete portfolio of assets. I think a a newer mindset is really to look at closure as not just sort of how do we shift liability off our books, but how do we design the next life of that asset? How do we create value from that? So That can involve understanding the attributes that could be leveraged, so the market, that how that's evolving, new technology that's emerging, site characteristics or infrastructure, what infrastructure can be shared with with neighbours. And also recognizing that all of that shifted considerably from when these assets were previously conceived. You know, some of these we're talking sort of 50, 60 year old industrial assets. we live in a very different world now. So starting to take a view of really, you know, unpacking all of those to see. what what can be repurposed as opposed to looking in isolation as to what's the liability in order to kind of maintain our asset retirement obligation and looking at it from a financial perspective. That wider aperture I think really allows us to find value in a very much changed world to that that was sort of originally part of the business case when that sort of capital investment was was first kind of put into motion.
speaker-1: I think you mentioned there that each site and each pot former site has different potential as well. So I suppose the key thing is to identify with the former asset what can be repurposed and what can't be, and then deciding from there whether it's viable or not.
speaker-0: Absolutely. And I think that starts yeah really kind of raises a really, really key point, which is that often our closure provision is something it's a line item that we included in our business case originally. And you know, there's a sort of tongue in cheek statement that might say that if we included the real number, then we'd never close a business case. So we often find ourselves under provision. But your point's really, really you know, a good one in that got to start with a a really solid baseline of what what do we actually have here? What what does it cost us to kind of bring this back to its original state? And then understanding, you know, parcels of the land or site which are sort of more prohibitive to to restore for a future use over others. And how do we compartmentalize that into parts of the structure, for example, that could be leveraged into something else and hence don't need to be decommissioned at all? So as you say, it's a real opportunity to start baselining those those closure costs and characterising what can and can't be be used and and where there are limitations and constraints.
speaker-1: And you've said just earlier that organisations should start planning for closure when an asset is first being designed. I mean, it feels counterintuitive, doesn't it? But but why has planning for the end become such an important part of planning for the future?
speaker-0: Yeah, absolutely. And and I think kind of fundamentally when it's left to the end of life, you you find yourself in a very constrained position where often we have environmental contamination, the sites often changed and have been added to, it's had extensions or operational changes throughout its life. And all of the options that you're sort of presented with when leaving that to the end are very much more narrowed and the costs as you know, as a consequence have escalated. And again, if we sort of have under provisioned, then we find ourselves sort of having to bridge the gap between what we've provisioned and what it will actually now take, sort of as we tackle this at the ninety ninth hour. So switching out on its head and looking for earlier integration, it I think a key part is identifying optionality. What can we consider as we go through not only the design of the asset but its operational life? to ensure that we're making good decisions as we OPEX to maintain facilities throughout life. And what can we be doing sort of as we go out and look at permitting considerations that again don't constrain us for future reuse as we go forwards and sort of look to come to develop some form of alternative use. So I think fundamentally that's enabling better capital deployment decisions to be made with more confidence, right? So ultimately, you know, whether we're investing in new assets or looking at the closure of assets, there's a large capital deployment that has to be made. And I think for investors to provide the you know liquidity for those things to happen, we need to ensure that they've got the transparency of of what that will actually take and de risking future uses of of assets actually allows investors to kind of move forward with more confidence in those initial sort of project opportunities.
speaker-1: You also described three major forces reshaping closure today decarbonisation, investor expectations, and community trust. How are those forces changing the decisions that organizations are making?
speaker-0: Well, I think they all reinforce each other. I mean perhaps to some extent the investor kind of expectations and the investor community stand out because as I mentioned, you know, previously, they link kind of closure and transformation to accessing the capital and ultimately the you know asset valuations that support not only those initial investments but the capital necessary to transform it to its its future use. I think increasingly that community is demanding transparency on the liabilities, like I said. You know, it's often a kind of guesstimated line item in a in a business case from day one, but actually providing a de risk solution that allows investors to deploy large sums of capital knowing that there's optionality to kind of shift as market forces change throughout the life of these assets. Again, that could be an operation for thirty, forty, fifty years, that that increases investor confidence. And and and fundamentally, unless the solutions are bankable, nothing's gonna happen. But I think, you know, some of that's could be argued as being, you know, aspects of the kind of practical execution of some of these projects. And I think ultimately of the kind of th three forces that we're talking around here, ultimately it really is kind of has to be tied back to the people aspects, right? The communities in which these assets sit and gaining social license is ultimately going to be the the kind of driving factor for what's feasible for some of these sites.
speaker-1: Well let's look ahead ten years. What do you think the best organizations will be doing differently? and does this now need to elevate to board level? And how will they think about asset closure and transition? How do they need to do that compared with today?
speaker-0: It's a question and I think I mean start by by stating the obvious, right? That the world is constantly changing. So in ten years we're gonna be tackling a different kind of set of asset types that are serving different functions at different phases of the asset life cycle. And you know, I think we've seen that certainly if you look at sort of the influence of the data center market, that really fast pace is actually quite achievable. And I think sort of those traditional time frames are now sort of being turned on their head, you know markets reacting to huge demand in data center capacity. So that kind of changes the perspective of the art of the possible. So I think the common denominator in all of this really comes back to the successful organizations are going to be the ones that really manage to integrate stakeholders most effectively. And that kind of cuts across two lenses, one of which will be within their own organizations and really integrating closure planning. into their operations that understand the future needs of their business, their strategic objectives or any ESG mandates they're trying to achieve, the customers that they're serving, the markets that they're sort of functioning within. The more that they can integrate that into understanding what they have and on what they need to provision for, I think will will will be a huge differentiator. And then on the other side of the coin will be the relationships outside of the organization. So the communities, the the technology partners and the regulatory environment and managing that as a an ecosystem of stakeholders, I think, effectively will be a big kind of defining feature of organizations that can really you know manage their asset base, extract value from those assets sort of, you know, throughout life and as they move into the next phase of their lives.
speaker-1: That's a great place to finish. Andrew Alexander, thank you very much for your insights there. I really appreciate it.
speaker-0: You're welcome. Thanks for having me.
speaker-1: Asset closure is no longer simply about winding operations down. As Andrew has just explained, it's becoming an opportunity to create new value, strengthen communities, and support the transition to a better future. If you've enjoyed today's conversation, you can also read Andrew's two-part Nexus series, From Burden to Blueprint and Closing Time, where he explores these ideas in greater depth. Thanks for listening, and we'll see you next time on Nexus. Brought to you by Nexus, published by GHD. Foresight.
