Case study: Stranded asset analysis & managed decline — a city or utility pilot and the results so far

When the city of Rotterdam announced in 2023 that it would systematically assess every fossil-fuel-linked infrastructure asset on its municipal balance sheet, the estimated exposure was EUR 2.1 billion across district heating networks, port terminal concessions, and gas distribution infrastructure. By early 2026, that analysis has produced EUR 340 million in accelerated write-downs, a restructured concession framework for the Europoort petrochemical corridor, and a managed decline timeline for three municipal gas-fired combined heat and power (CHP) plants. The Rotterdam pilot is now one of the most cited examples in Europe of a city proactively managing stranded asset risk rather than waiting for regulatory or market forces to impose losses.

Why It Matters

Stranded assets: fossil fuel reserves, power generation capacity, industrial infrastructure, and supporting transport and distribution networks that lose economic value well before the end of their expected useful life due to the energy transition: represent one of the largest unpriced risks on public and private balance sheets globally. Carbon Tracker Initiative estimated in 2024 that $4.6 trillion in fossil fuel assets worldwide face stranding risk by 2035 under a 1.5 degree Celsius pathway (Carbon Tracker, 2024). For cities and utilities, the exposure is concentrated in long-lived infrastructure: gas distribution networks with 40 to 60 year design lives, coal and gas power plants with 25 to 40 year amortization schedules, and port and industrial facilities tied to fossil fuel throughput.

European cities face particularly acute pressure. The EU Fit for 55 package, the European Green Deal's implementing legislation, mandates a 55% reduction in greenhouse gas emissions by 2030 relative to 1990 levels. The revised Energy Performance of Buildings Directive (EPBD) requires all new buildings to be zero-emission by 2030 and existing buildings to reach at least energy performance class E by 2033. These regulatory trajectories create foreseeable demand destruction for natural gas infrastructure that cities own or regulate.

The financial consequences of inaction are severe. A 2025 analysis by the Network for Greening the Financial System (NGFS) found that disorderly transition scenarios, where stranded asset losses materialize suddenly rather than being managed over time, increase municipal borrowing costs by 40 to 80 basis points as credit rating agencies adjust for unrecognized impairment (NGFS, 2025). For a city like Rotterdam, with EUR 8 billion in outstanding municipal bonds, that spread increase represents EUR 32 million to EUR 64 million in additional annual debt service.

Key Concepts

Stranded asset analysis involves identifying infrastructure whose remaining economic life exceeds the policy or market timeline for the energy transition, quantifying the impairment gap, and designing financial strategies to manage the loss. The core challenge is timing: writing assets down too early destroys shareholder or taxpayer value unnecessarily, while writing them down too late creates cliff-edge losses when market or regulatory triggers force abrupt revaluation.

Managed decline is the operational counterpart: a planned, phased reduction in the utilization and maintenance of stranding-risk assets, designed to extract maximum remaining value while avoiding new capital expenditure that would deepen the eventual loss. Managed decline differs from decommissioning in that assets continue to operate, often at reduced capacity, during a transition period.

Transition risk modeling underpins both activities. Models incorporate regulatory scenarios (carbon pricing trajectories, phase-out mandates, efficiency standards), technology curves (heat pump adoption rates, renewable energy cost declines, hydrogen readiness), and demand projections (population-weighted heating degree day forecasts, industrial decarbonization pathways) to estimate when specific assets will become economically unviable.

What Rotterdam Did

Phase 1: Asset Inventory and Exposure Mapping (Q1-Q3 2023)

Rotterdam commissioned the consultancy Guidehouse and academic partners at Erasmus University to conduct a comprehensive inventory of all municipal and quasi-municipal assets with fossil fuel exposure. The scope covered:

• Three municipal CHP plants (combined capacity 340 MW thermal, 180 MW electric) supplying the city's district heating network
• 1,200 kilometers of natural gas distribution pipeline serving 290,000 residential and commercial connections
• Port terminal concessions generating EUR 180 million in annual revenue, of which EUR 95 million was directly linked to fossil fuel cargo handling (crude oil, LNG, coal, petroleum products)
• Municipal building stock: 430 public buildings with gas-fired heating systems

Each asset was classified by remaining book value, remaining useful life under current accounting treatment, and estimated transition timeline under three scenarios: orderly transition (aligned with EU Fit for 55), accelerated transition (aligned with IEA Net Zero by 2050), and disorderly transition (delayed action followed by abrupt policy intervention).

Phase 2: Impairment Analysis (Q4 2023-Q2 2024)

The impairment analysis compared each asset's book value to its estimated recoverable amount under each scenario. The recoverable amount was calculated as the higher of fair value less costs of disposal and value in use (discounted future cash flows from continued operation).

Key findings included:

Asset Category	Book Value (EUR M)	Recoverable (Orderly)	Recoverable (Accelerated)	Impairment Gap (Orderly)
CHP Plants	420	280	145	140
Gas Distribution	890	710	380	180
Port Concessions	650	590	420	60
Public Buildings (heating)	140	100	55	40
Total	2,100	1,680	1,000	420

Under the orderly transition scenario, the total impairment gap was EUR 420 million. Under the accelerated scenario, it reached EUR 1.1 billion. The analysis revealed that the gas distribution network, often assumed to be transition-resilient due to potential hydrogen repurposing, carried the largest absolute impairment risk because only 15 to 20% of Rotterdam's existing gas pipelines meet the material and pressure specifications required for hydrogen transport (Rotterdam Climate Office, 2024).

Phase 3: Financial Strategy and Implementation (Q3 2024-Present)

Rotterdam adopted a phased write-down approach aligned with the orderly transition scenario, with annual reassessment triggers that could accelerate the timeline. The strategy included:

Accelerated depreciation: The three CHP plants were shifted from 25-year to 12-year remaining useful life schedules, increasing annual depreciation charges by EUR 28 million. This front-loads the financial impact but avoids a cliff-edge write-down when the plants reach end of economic life.

Concession restructuring: Port terminal concessions expiring between 2028 and 2035 were renegotiated with transition clauses requiring operators to diversify away from fossil fuel cargo. Concessionaires that achieve a 30% or greater reduction in fossil fuel throughput by 2030 receive 5-year extensions; those that do not face escalating concession fees of 3 to 8% above baseline. This mechanism transfers a portion of the stranding risk to the private concessionaire while maintaining revenue during the transition period.

Gas network segmentation: The gas distribution network was divided into three tiers. Tier 1 (hydrogen-compatible, 180 km) will be retained and upgraded for potential hydrogen distribution. Tier 2 (repairable for hydrogen, 420 km) is maintained at current service levels but receives no capital upgrades beyond safety-critical repairs. Tier 3 (replacement required, 600 km) enters managed decline with a decommissioning schedule tied to neighborhood-level heat pump and district heating deployment.

Green bond issuance: Rotterdam issued EUR 500 million in green bonds in Q1 2025 to finance replacement infrastructure (heat pump subsidies, district heating expansion, port electrification), with the prospectus explicitly disclosing the stranded asset analysis and managed decline timeline. The bonds priced at 12 basis points below comparable conventional municipal issuances, suggesting that investors rewarded the transparency (City of Rotterdam, 2025).

What's Working

The financial transparency has produced measurable benefits. Moody's revised Rotterdam's credit outlook from stable to positive in Q4 2024, citing the city's "proactive management of transition risk" as a differentiating factor relative to peer European cities (Moody's, 2024). The green bond pricing advantage alone has saved an estimated EUR 6 million in debt service costs over the initial 10-year term.

The concession restructuring mechanism is driving private-sector behavioral change. Vopak, the largest tank terminal operator in the Port of Rotterdam, announced in 2025 that it would convert 30% of its Rotterdam storage capacity from fossil fuel products to ammonia and biofuels by 2028, directly referencing the concession transition clauses as a key decision driver (Vopak, 2025). Shell's Pernis refinery, the largest in Europe, has accelerated its biofuels integration program in response to the escalating concession fee structure.

The gas network segmentation approach has generated operational savings. By redirecting capital expenditure away from Tier 3 networks (approximately EUR 35 million per year in deferred pipeline replacement and upgrades), Rotterdam has freed funding for electrification investments that accelerate the transition. Preliminary data shows that neighborhoods with completed Tier 3 gas disconnections and heat pump installations have achieved 60 to 75% reductions in heating-related emissions.

What's Not Working

The managed decline of CHP plants has created workforce tensions. The three plants employ approximately 380 workers, and the accelerated depreciation timeline signals closure within 8 to 10 years rather than the previously assumed 15 to 20 years. Union negotiations over retraining and redeployment packages have delayed the formal adoption of the Phase 3 managed decline plan for the CHP assets by approximately nine months. Rotterdam allocated EUR 25 million for workforce transition support, but unions contend that the true cost of retraining, early retirement, and relocation support exceeds EUR 50 million (FNV, 2025).

Revenue replacement from port concessions remains uncertain. While Vopak and Shell have announced conversion plans, smaller concessionaires handling coal and petroleum coke have indicated they may exit rather than diversify, potentially leaving EUR 15 to EUR 25 million in annual concession revenue unreplaced during the transition period. Rotterdam's financial model assumed 85% revenue continuity through diversification, but actual retention may fall to 70 to 75%.

The hydrogen repurposing assumption for Tier 1 gas pipelines depends on decisions outside Rotterdam's control. The Dutch national hydrogen backbone (HyWay 27) remains in the planning stage, and the European Hydrogen Bank's first auction in 2024 allocated only EUR 720 million across the entire EU, far below the EUR 3 billion that industry groups estimate is needed to stimulate demand sufficient to justify municipal distribution infrastructure (European Commission, 2024). If hydrogen demand fails to materialize, the Tier 1 network classification may prove optimistic.

Key Players

Established Organizations

• Carbon Tracker Initiative: pioneered stranded asset analysis methodology applied globally to fossil fuel companies and increasingly to public infrastructure
• Guidehouse: consulting firm that conducted Rotterdam's asset inventory and impairment modeling, with similar engagements in Amsterdam, Hamburg, and Copenhagen
• Moody's Investors Service: credit rating agency whose transition risk assessments directly influence municipal borrowing costs and create incentives for proactive stranded asset management

Startups and Innovators

• Risilience: UK-based climate risk analytics platform providing scenario modeling tools used by cities and utilities for transition planning
• OS-Climate: open-source climate data and analytics platform supported by the Linux Foundation, developing standardized stranded asset assessment tools for public-sector entities
• Cervest: earth science AI company offering asset-level physical and transition risk scoring

Investors and Funders

• European Investment Bank (EIB): provided EUR 200 million in concessional financing for Rotterdam's replacement infrastructure through its Climate Awareness Bond program
• Network for Greening the Financial System (NGFS): central bank consortium whose scenario frameworks provide the analytical foundation for municipal stranded asset assessments
• Climate Policy Initiative: tracks public and private climate finance flows and provides technical assistance to cities conducting transition risk analysis

Action Checklist

• Conduct a comprehensive inventory of all municipal and quasi-municipal assets with direct or indirect fossil fuel exposure, including distribution networks, generation assets, concessions, and building systems
• Commission independent impairment analysis under at least two transition scenarios (orderly and disorderly) using established frameworks such as NGFS scenarios or IEA pathways
• Classify assets by transition resilience: retain and upgrade, maintain without new capital, or enter managed decline with decommissioning timeline
• Restructure long-term concessions and contracts to include transition clauses that create financial incentives for diversification and transfer stranding risk to private operators
• Adopt accelerated depreciation schedules for assets identified as stranding-risk to avoid cliff-edge write-downs and smooth the financial impact over time
• Disclose stranded asset analysis in municipal financial reporting and bond prospectuses to capture transparency premiums in capital markets
• Allocate dedicated funding for workforce transition including retraining, redeployment, and early retirement support, with workforce representatives involved in timeline planning
• Establish annual reassessment triggers that accelerate managed decline timelines if regulatory or market conditions move faster than the orderly transition baseline

FAQ

Q: How does stranded asset analysis differ for cities versus private companies? A: Cities face unique challenges because they cannot simply divest from stranding-risk assets the way an investor can sell shares. Municipal infrastructure serves essential public functions (heating, gas supply, port access) that must be maintained until replacement services are available. This means stranded asset analysis for cities must integrate infrastructure transition planning with financial impairment assessment. Cities also face political constraints: elected officials must balance transition urgency against near-term rate impacts on residents and businesses.

Q: What discount rate should municipalities use for transition risk modeling? A: Most European cities conducting stranded asset analysis use their weighted average cost of capital (typically 2.5 to 4.5% for investment-grade municipalities) as the base discount rate, with scenario-specific adjustments. The NGFS recommends adding a 50 to 150 basis point transition risk premium for assets with direct fossil fuel exposure. Rotterdam used a 3.8% base rate with a 100 basis point premium for CHP and gas distribution assets, resulting in a 4.8% effective discount rate that significantly reduces the recoverable amount relative to conventional accounting assumptions.

Q: Can gas distribution networks realistically be repurposed for hydrogen? A: Technical feasibility depends on pipe material, joint type, and operating pressure. Steel pipes with welded joints operating below 16 bar can typically accommodate up to 20% hydrogen blending without modification. Pure hydrogen transport requires polyethylene pipes or specially coated steel, and most existing networks contain a mix of materials including cast iron and older PVC that are incompatible with hydrogen service. Rotterdam's finding that only 15 to 20% of its network is hydrogen-ready is consistent with assessments in other European cities. The UK's Iron Mains Replacement Programme, which has replaced 55% of the UK's cast iron gas mains with polyethylene since 2002, is the most advanced national effort to create a hydrogen-ready distribution network, but even with that program, only 40% of UK networks are classified as hydrogen-compatible (Health and Safety Executive, 2025).

Q: What financial reporting standards apply to stranded asset disclosures? A: International Public Sector Accounting Standards (IPSAS) 21 and 26 govern impairment of non-cash-generating and cash-generating assets, respectively, for public entities. The ISSB's IFRS S2 climate-related disclosure standard, effective from January 2025, requires entities to disclose transition risks that could reasonably be expected to affect asset values, including stranding risk. The EU's CSRD and European Sustainability Reporting Standards (ESRS) E1 require disclosure of transition plans and their financial implications. Rotterdam's disclosure approach, integrating stranded asset impairment analysis directly into its annual financial statements and bond prospectuses, goes beyond current minimum requirements but is likely to become standard practice as audit firms develop guidance on applying these standards to municipal infrastructure.

Sources

• Carbon Tracker Initiative. (2024). Unburnable Carbon 2024: Wasted Capital and Stranded Assets. London: Carbon Tracker.
• Network for Greening the Financial System. (2025). Climate Scenarios for Central Banks and Supervisors: Phase IV Update. Paris: NGFS Secretariat.
• City of Rotterdam. (2025). Rotterdam Climate Transition: Stranded Asset Analysis and Managed Decline Framework. Rotterdam: Municipality of Rotterdam.
• Rotterdam Climate Office. (2024). Municipal Infrastructure Transition Risk Assessment: Gas Distribution Network Analysis. Rotterdam: City of Rotterdam.
• European Commission. (2024). European Hydrogen Bank: First Auction Results and Lessons Learned. Brussels: EC Directorate-General for Energy.
• Moody's Investors Service. (2024). City of Rotterdam Credit Opinion Update. New York: Moody's.
• Vopak. (2025). Accelerating the Energy Transition: Rotterdam Terminal Conversion Programme. Rotterdam: Royal Vopak N.V.
• FNV. (2025). Just Transition in Municipal Energy Infrastructure: Workforce Impact Assessment. Utrecht: Federatie Nederlandse Vakbeweging.
• Health and Safety Executive. (2025). Iron Mains Replacement Programme: Progress Report and Hydrogen Readiness Assessment. London: HSE.