Industry news
Things I noticed and thought were interesting
Week ending 5th April 2020
1, Hydrogen outlook. BNEF produced a new report on hydrogen, seeing a price as low as about 2.4 US cents per kWh by 2050 in renewables-rich countries. The cost estimates are unchanged since its last public forecast in summer 2019, even though the amount of announced electrolyser capacity may have gone up 100 fold since then. 2.4 cents/kWh is still well above the price of natural gas, of course, and BNEF says that it will require a carbon tax of around $120/tonne to make hydrogen cost competitive in all electricity generation across the world. However steel-making and cement production need a carbon price of less than $60 for hydrogen to be better than the alternatives. In the first such analysis I have seen, BNEF hypothesises that under its ‘strong’ scenario - hydrogen meeting 24% of all energy demand - renewables will need a 20 times expansion by 2050. (What We Need To Do Now suggests a similar number for the UK). The theoretical maximum, the analysts suggest is about twice this level but to my surprise they see heavy road freight switching to hydrogen in all their scenarios. The growing evidence of all but the very largest trucks moving to batteries suggests to me that this assumption may need changing.
2, Electric utility innovation. By some measures, Vermont’s Green Mountain Power is the most innovative electric utility in the world. As well as pioneering utility-owned home batteries for grid stabilisation, it is involved in a new programme that builds a marketplace for excess power from local generation. A PV-equipped home, for example, might send electricity out into the grid and businesses seeking more renewable power can directly buy it through Green Mountain Power’s blockchain system. This is an important step towards a much more decentralised model of electricity production and use that enables peer-to-peer transactions. (Thanks to Thad Curtz).
3, ESG fund outperformance. Stock market funds which select their holdings partly on the basis of good environmental and social commitments by companies have seen a much better performance over recent months than stock markets as a whole. Some of this relative outperformance will have arisen because of the particular weakness in the large oil and gas companies in the wider market. Nevertheless, Bloomberg analysis, published in mid-March, suggested that ESG weighted funds had lost 12% of their value this year compared to twice this loss in the main US stock index. This relatively buoyant achievement supports a growing hypothesis that good ESG attributes help protect a company against unexpected and adverse events.
4, Biofuels from wood. The world’s first plant for making commercial-quality biomethanol (a possible substitute for petrol) opened at a paper mill in Sweden. Papermaking produces a number of waste products, including dilute methanol. The new process purifies this liquid and, in addition, makes useful pure lignin, which is useful as a fuel or as the raw material for specialty chemicals. The objective of Andritz, the developer of the technology, is to enable a paper mill to reduce its net fossil fuel to zero or less. Many people are sceptical about using forest products to make zero-carbon fuels, claiming that this simply encourages deforestation. In this case I think the manufacture of methanol is unambiguously good for the climate.
5, Storage and shipping of hydrogen. The port of Singapore - one of the most important transhipment points in the world - said it was examining how to create the full infrastructure for hydrogen production, shipment and storage. It linked up with Japanese chemicals company Chiyoda, which has a highly plausible approach to binding hydrogen to the simple toluene molecule so that it can be shipped as a liquid at atmospheric pressure. The product carries 500 times as much energy as gaseous hydrogen per unit of volume. Removing the hydrogen is relatively easy and the resulting pure toluene can then be reused. Chiyoda says that since the toluene+hydrogen molecule has the same flammability as gasoline and therefore much of the same infrastructure can be used, this molecule is far cheaper to store than gaseous or liquid hydrogen.
6, Carbon capture and use. An online trade conference awarded its prize for the best carbon use project to Air Co, which makes a vodka from renewable energy, hydrogen and captured carbon dioxide. The conference organiser said ‘the winning product, a vodka made from CO2 and renewable energy, will not be able to save the climate. But ethanol made from CO2 and renewable energy has a significantly lower carbon, land and water footprint than ethanol made from biomass’. Air Co beat two of my favourite companies, Electrochaea (biological methanation) and Climeworks (direct air capture of carbon dioxide) to win the award.
7, Low carbon cement. Cement manufacture is responsible for about 5% of world CO2 emissions. Because most of the CO2 is produced by the chemical changes necessary to turn limestone into cement, this industry is possible the most difficult to fully decarbonise. Conventional production produces a dilute mixture of exhaust CO2 but a new process, pioneered by the Australian company Calix, generates near 100% CO2. This is far cheaper to store, or reprocess into usable hydrocarbons. Heidelberg Cement, one of the world’s largest manufacturers, announced that it would build a scaled up version of its original Calix plant after strong results from the pilot in Belgium. It also restated its commitment to 100% decarbonisation by 2050 and said it would devoting 80% of its global R+D budget to this challenge by 2030.
8, Fuel cell ships. A new tug boat that will push cargo barges upstream on the Rhone between Marseille and Lyon will use hydrogen and fuel cells for power. The hydrogen storage capacity will be enough for two weeks’ work, and the fuel tank will be removable and exchangeable with refilled hydrogen. Completion is expected in 2021.
9, Renewables share of electricity production. The figures are distorted by the current reduction in power demand but Germany’s electricity generation was more than half renewable in the first quarter of the year. High winds in February and better than usual sun in March pushed the share to 52%.
10, Ramping up renewables investment. Spanish global utility Iberdrola said it would increase its capital spending on renewables, even in the face of the economic slowdown. It is developing 9 GW of capacity, including 30 solar farms and 50 onshore wind parks. (This is equivalent to about 5% of total additions to global renewable capacity in 2019). Capital expenditure will be about €10bn in 2020, up from around €5bn in 2018. The CO2 content of its electricity production is already down to about 110 grams per kWh. ‘We will move forward with the total conviction that we will come through this situation and that this new infrastructure will be absolutely necessary’ said the chairman. He added ‘Iberdrola’s renewables investment drive will help “turbo-charge” economies as countries recover from the coronavirus pandemic’. ‘Speeding up investments, once these exceptional circumstances come to an end, is the best - I would venture to say the only - way to get through this situation of crisis and uncertainty’. Iberdrola’s actions, along with its strong financial performance, represent a good example of how capitalism can help rescue the world from the climate emergency. Anyone wanting to read a systematic prospectus on how corporations can reform themselves to become our allies on climate change should buy Rebecca Henderson’s new book (UK edition, US edition). Harvard professor Henderson writes limpidly and effectively on this most critical of issues.
I have mentioned Oxwash before in this newsletter.(Disclosure: I am a shareholder). It has the first zero-carbon commercial laundries in the world. In the last week it has switched its business to the highest quality ozone sterilisation of the protective clothing of UK health service employees and contractors. Oxwash has started crowdfunding so it can offer a zero cost service to Oxfordshire workers. Please consider donating here.
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