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Investing in renewables in China: relatively good times

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Investing in renewables in China: relatively good times

by Joe Mitton, July 9, 2019

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With the Chinese state increasingly confident of its renewable energy technologies and manufacturing, European firms are finding conditions right to invest in the sector there. Joe Mitton looks at the conditions for investors, and why EU-Chinese energy partnerships must not be caught up in the US trade war. Energy Post’s Matthew James spoke to Sebastian Meyer, Vice President at EDF Renewables, about his experiences.

A new law for the renewable energy superpower

We previously looked at the large scale of Chinese investment in European energy sectors. But the EU has long been seeking reciprocity of conditions for Europeans investing in China. The recent launch of the EU-China Energy Cooperation Platform sent an important signal that China wants to work with Europe, and is willing to give and take, including on investment conditions. Put simply, the deal is for the EU to help China meet its energy goals, in exchange for greater access for EU firms. Several energy executives told Energy Post the platform represents a genuine, meaningful step forward by both parties.

This comes after China passed a new Foreign Investment Law, which will come into effect on 1 January 2020. The law applies to both wholly foreign-owned enterprises and Sino-foreign joint ventures, and seeks to allay concerns about unfair restrictions and forced technology transfers. It will “build a market environment of stability, transparency, predictability, and fair competition”, said the government. The law has been welcomed as a positive move for investors, through some have called for greater clarity on its detail. The CEO of Engie China, Charlotte Roule, told Energy Post she welcomed the law, though the wording was “very general” and she was looking forward to more practical details about its implementation.

China is increasingly confident in its home-grown renewable energy technology. A report for the International Renewable Energy Agency (IRENA) said China is best placed to be “the world’s renewable energy superpower”, with one-third of the world’s wind power, a quarter of its solar capacity, six of the top ten solar-panel manufacturers and four of the top ten wind-turbine makers. (Still, it is worth noting that fossil fuels also remain big in China – it is the largest consumer of coal and second only to the US in oil consumption).

Growing investment in renewables

Foreign companies are pouring more money into renewables, relative to the size of the sector. This may be especially true for European investors. While some reports suggest 80 percent of foreign investment in Chinese energy is in the fossil fuel sector, even the remaining 20 percent going to renewables is still disproportionately large, relative to the size of the renewable sector in China. According to The Economist’s special report on Chinese renewables, China sourced 12 percent of its electricity from renewables in 2018. China says it is on track to meet its target of 15 percent renewable energy by next year.

European firms continue to have some concerns about forced technology transfers. We spoke to the Vice-President of the European Chamber of Commerce in China, Charlotte Roule, about the issue (in a separate role, Ms Roule is CEO of Engie China as noted above). She pointed to the Chamber’s latest Business Confidence Survey (2019), which showed that 20 percent of respondents felt compelled to transfer technology to Chinese entities or partners in 2018, compared to 10 percent the previous year. Nevertheless, the survey shows that a majority consider Chinese companies at least as innovative, or more so, than European firms. The vast majority of European enterprises – 81 percent- surveyed saw opportunity for themselves in domestic Chinese innovation.

China Dialogue, an independent organisation monitoring environmental issues in China, charts the rise, and fall, and rise again of foreign investment in Chinese energy. It says that by 1997 there were at least 40 foreign firms active in China’s energy sectors, owning 10 percent of electricity output, mostly in coal. Companies exited the Chinese market in the early 2000s when price-setting, over-supply and unfair treatment became a problem, but China Dialogue now reports that investment is back in solar, wind, hydro and battery storage, with companies like Engie and Total establishing a presence. The think-tank warns investors that some problems remain, however, saying “the power dispatch process remains opaque, with no data being released on a plant-by-plant basis even when existing investors ask for it”.

Case Study: EDF Renewables

EDF Renewables is another EU firm active in China. Talking to Energy Post’s Matthew James at the EU-China Cooperation launch in Beijing, EDF’s Vice President of Strategy and Power Markets, Sebastian Myer, said, “the innovation that has come from China is amazing”. He spoke about a clean energy consultancy he set up in 2004: “My partners were American citizens from top universities committed to the renewables dream, who couldn’t follow that in the US. We’re here because China was open to it when the US was focussed on gas and oil”. Myer said EDF Renewables is the “only owner of large-scale wind projects that are owned 100 percent” by a foreign firm. A much more common model is a joint-venture with local Chinese partners; something the government used to insist on.

EDF’s Chinese wind and solar projects are aimed at serving corporate needs for renewables rather than serving the grid. Supplying the grid brings challenges. Myer said that instead of investing in storage, curtailment is a more common way to address over-capacity in China. “There is a shift in some provinces […] towards an economic curtailment. That is a concerning development. It’s creeping in under the auspices of market liberalisation. It is problematic vis-à-vis renewables integration and grid reform”. It is understandable for companies like EDF to point out problems in the market, but the scale of investments shows that many firms reckon it is still a market worth entering.

Febrile atmosphere for a trade war

Complicating the mostly positive picture, the current US administration has raised tensions with China over trade. Earlier this year the US introduced additional tariffs on imported solar panels, most of which come from China. It is not the first time; the Obama government also added such tariffs in 2014, and the European Commission launched anti-dumping and anti-subsidy investigations into Chinese solar-panel imports, before reaching an agreement with China in 2013. While the trade disputes do not seem to have affected investments, it is nevertheless a concern for investors seeking strong export markets and regulatory certainty. The EU will need to show diplomatic dexterity to avoid European interests in China getting caught in the American dispute.

Chinese soft power

A cause of optimism, however, is President Xi’s interest in soft power, which makes his government keen to protect its reputation as a renewable energy champion. Soft power means essentially promoting a more positive view of a country internationally as a diplomatic tool. The US Council for Foreign Relations says China may be spending US$10 billion a year on foreign aid, positive media coverage, Chinese cultural and language institutes and so forth, to improve its image. Xi has called for a stronger national effort to link China’s popularity to its meteoric rise.

China’s reputation has problems for several well-founded reasons, but on renewable energy the narrative is fast emerging that China is increasingly progressive. There is real substance to this narrative. China showed global leadership during the Paris Agreement (COP21) negotiations, helping to break the cycle of blame for CO2s between developed and developing nations. China will want to preserve this reputation and not hurt the renewables sector, both for economic and strategic diplomatic reasons. And this should give investors some cause for optimism.

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Lithuania shows way to integrated EU energy future

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Renewables without borders

Lithuania shows way to integrated EU energy future

by Eric Marx

February 5, 2019

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The iconic gandras (stork), common in Lithuania, with electricity flowing in the distance

Elektrenai (“Electricity City”), Lithuania

As Lithuania and the Baltic Nations turn away from nuclear power and towards increased solar and wind energy production, one city is shifting towards a new energy future.

Elektrenai, or Electricity City, once powered an entire nation. Its three, soaring red-and-white smokestacks were its pride and joy, and heralded in popular songs and propaganda films. The city around the power plant was built to house the workers who ensured enough oil and gas was burned to keep Lithuania’s lights on night and day.

These days, Lithuania and its neighbours have a different vision of the future: One built on clean, green renewable power.

Elektrenai’s mayor, Kestutis Vaitukaitis, has long wanted to develop the city’s lakeside area into a tourist destination. The smokestacks clearly visible from his office window – and from vehicles arriving on the state’s main two-lane highway – aren’t your typical resort view. But Vaitukaitis says the power plant’s largest and oldest smokestacks are too costly to maintain and will be torn down next year.

A shift to cheaper, greener energy sources – chiefly renewable power imported from the Nordic countries and domestic biomass – means the last two oil-fired thermal blocks will soon retire.

Likewise, the plant’s modern 450-megawatt gas turbine – installed in 2012 at a cost of €329 million – will be relegated to backup generation for grid-system operators in the Lithuanian capital of Vilnius.

Elektrenai will rely on the plant’s new biomass boiler for domestic heating, but its electricity will no longer be home-grown, something many locals struggle to accept.

The mayor admits most of Elektrenai’s 14,000 residents are against demolishing the plant. For the older generation who spent their working lives there, he attributes this to “nostalgia for the Soviet times of their youth when, with your own hands you built something.”

Younger people argue that gas is a relatively clean source of power. If the smokestacks aren’t pumping out pollution any more, they don’t see the need to tear down the city’s iconic landmark. Yet as a symbol of fossil fuel, they no longer fit with the country’s image.

Cities like Elektrenai are at a crossroads moment, argues the mayor. A future built on a diverse array of green energy flows is coming. The blueprint is now self-evident. The only question is how fast they can get there.

Fast energy flows

Lithuania is remaking itself into a corridor for power flows, stretching from Finland and Sweden to the Central European countries via Poland. The small country is at the heart of one of the best-interconnected regions in Europe, with cross-border gas pipelines and electrical transmission cables setting a model for the European Union’s goal of a barrier-free continental energy system.

Lithuania is remaking itself into a corridor for power flows, stretching from Finland and Sweden to the Central European countries via Poland

After six years’ debate, Lithuania passed in June a national energy strategy considered by analysts to be among the most progressive in Europe. The country is aiming to have 45% of its final energy consumption by 2030 come from renewables, joining several other countries — Spain, Sweden, Italy and Portugal – that are pledging to surpass the EU-wide 32% renewables target.

Significantly, the strategy excludes any mention of nuclear energy, ending a fractious debate which had split the political class ever since the closure in 2009 of its Soviet-era Ignalina nuclear plant.

Analysts say Lithuania is responding to the falling cost of wind and solar technology, as well as hefty EU investment in the region’s cross-border interconnectors. Renewables are expected to grow to 7 TWh by 2030, and to 18 TWh by 2050, with wind energy covering between 50 and 55 percent of this.

It has also been helped by a booming domestic bioenergy industry which relies on wood burning for upwards of 70% of the country’s heat production.

That Lithuania burnishes its green credentials by relying on large biomass numbers for fuel heating is not without controversy.

Wood for biomass

Environmentalists charge the government with allowing clearcutting of old growth forests which are then replanted with fast-growing plantation trees. Yet only 10% of woods sold on the market are for biomass, according to Lithuanian NGO Miskas. Rather, most of the country’s deforestation is tied to wood product manufacturing, said Marija Dabrisiute, a forest campaigner at Miskas

Going forward, wind is to be Lithuania’s main source of electricity, while any increase in renewable heat is to come from a number of new technologies, including solar heating, heat pumps, municipal waste heat and possibly surplus wind power.

The government also believes it can create a favorable climate for investment in rooftop solar, according to Martynas Nagevicius, president of the Lithuanian Renewable Energy Confederation (LREC). The goal is to incentivise half a million electricity consumers to get involved in green power generation, either feeding power back on to the grid from home photovoltaic installations through a “prosumer” scheme, or by joining energy cooperatives.

“it’s a really crazy good environment to increase variable power production like wind and solar.” Martinas Nagevicius, President, LREC

Nagevicius says this will be possible because of Lithuania’s modernising infrastructure. New cross-border transmission lines are a big part of the story, but so are investments in new transformers and district heating systems, as well as the launch of a floating liquified natural gas (LNG) terminal in the port of Klaipeda.

“We can both balance power and supply power to Norway [via Sweden], and take it back from Norway when we need it, and to Poland and back,” said Nagevicius. “That is a really crazy good environment to increase variable power production like wind and solar.”

Fast forward to 2025

Still there are several major hurdles that lie ahead.

While Lithuania and the other Baltic states are fully integrated into the Nordic power market in terms of electricity trading, their physical grids remain a part of the Russian power system. Moscow central dispatch still influences Baltic power flows.

Consequently, full integration to the European electricity grid requires the cutting of all transmission lines to Russia, Belarus and Kaliningrad, a process known as desynchronisation. Also looming ahead is the completion of an additional gas line to Poland and a substantial increase in wind generation.

Such a boost in renewables will require increased backup, either in the form of batteries or balancing services offered by gas turbines that can be turned on or off in a matter of hours. Smaller, more flexible gas engines are the future, but larger units like the one in Elektrenai can also play a role.

Modernising and expanding the Kruonis Pumped Storage Plant into a giant battery is another option, said Dominykas Tuckus, chairman of the advisory board at Lieutovos Energjija, the operator of both the Kruonis and Elektrenai Power Plants.

“Our main asset is that a big part of the system for balancing renewables has already been constructed,” added Tuckus, a reference to the Russian-built Kruonis and Elektrenai plants.

Staring the Baltic region in the face is the 2025 deadline set by the European Commission for synchronisation with the European electricity grid. The true test lies ahead, with a diminished, secondary role already set for Elektrenai.

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Article commissioned by the Robert Bosch foundation

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Africa and renewables: the international partnerships bringing 300GW potential to life

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Africa and renewables

The international partnerships bringing 300GW potential to life

by Mike Scott – 19/01/19

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Gaining access to energy is vital for Africa’s people and national economies so tapping their vast potential for renewables is the obvious solution both for them and the climate. The challenge, as ever, is funding. To solve this, African nations are striking up international partnerships in a bid to unleash the full power of their phenomenal natural assets.

Energy is crucial to lift people out of poverty. The International Energy Agency says the number of people globally without energy fell below 1bn for the first time in 2017 which is great but most of those that still lack it – some 600m – are in sub-Saharan Africa.

The continent needs $60bn-$90bn of investment a year to address its energy shortfall, according to the Economist Intelligence Unit. It also needs to wean itself off fossil fuels and install more renewable capacity (see my article from Jan 18)

Size of the challenge

According to World Bank figures, just 42% of households are electrified, with some countries having less than a tenth of homes connected. It’s even worse outside the cities – while 71% of those living in urban areas are connected only 22% of rural households are.

Even when there is power, it is often unreliable and expensive. One reason for the region’s slow progress in increasing access to electricity is the cost of building the necessary infrastructure – not just power stations but transmission networks and sometimes even roads to places that are often inaccessible.

Size of the opportunity

The African Renewable Energy Initiative, led by institutions including the African Union and the UN Environment Programme, aims to have 300GW of renewable energy capacity installed by 2030. The Initiative says that it “envisions smart, distributed energy systems that can handle a mix of renewable energy generation. This will enable Africa to leapfrog to the energy systems of the future.”

For this target to be met, deployment rates will have to increase almost seven-fold. And for that to happen, there must be effective regulation, sufficient financing and the right business models. That’s the challenge.

The continent has an opportunity to catch up with the rest of the world while avoiding the greenhouse gas emissions that accompanied development in the past.

Solutions – off-grid options make most sense

Hydropower, which represents the largest share of current installed capacity can be vulnerable to the effects of climate change, such as droughts, so it’s important to diversify.

Advances in renewables and storage technology, accompanied by dramatic cost reductions, mean that off-grid projects are more viable and effective than the cost of building out full grid infrastructure. Research group BNEF reports that a ”combination of high electricity tariffs, falling PV prices and a lack of reliability in the grid is spurring sales of on-site solar to business customers in Sub-Saharan Africa”.

On-site solar power is cheaper than the electricity tariffs paid by commercial or industrial clients in seven out of 15 markets in Sub-Saharan Africa that BNEF studied. “While the market is still small, it has great potential,” explained co-author Takehiro Kawahara, lead frontier power analyst at BNEF. “An immense energy deficit and crumbling infrastructure makes Sub-Saharan Africa fertile ground for solar. The most promising markets are Nigeria, Ghana, Kenya, Cameroon, Uganda, Senegal and Rwanda.

Getting the job done: an international affair

In many markets, it remains difficult to finance projects locally, particularly larger-scale schemes. In part, this problem is being addressed by funding from western governments as well as multi-lateral agencies and banks working in partnership with national bodies and energy companies.

Major projects contributing to realisation of 300GW potential

  • At the COP24 summit in December, the UK government announced £100m investment to support up to 40 new renewable energy projects in the region over the next 5 years. The new funding could unlock an extra £156m of private finance into renewable energy markets in Africa by 2023, the UK says.
  • The US Power Africa Initiative has committed $7bn to provide 30GW of energy capacity in the region, with 9.5GW funded so far, much of it in transmission assets.
  • The World Bank’s Multilateral Investment Guarantee Agency (MIGA) has just provided guarantees to EDF International and STOA, a French infrastructure investment vehicle that focuses primarily on Africa, to invest in the Nachtigal Hydropower Company. The International Bank for Reconstruction and Development and the International Finance Corporation also provided support.
  • The African Development Bank (AfDB) has just invested $25m in the ARCH Africa Renewable Power Fund, a $250m private equity fund for renewable energy projects across Sub-Saharan Africa, with a view to catalysing a further $60m-$75m in funding.
  • A $1bn Renewable Energy Facility for sub-Saharan Africa by the African Trade Insurance and European Investment Bank
  • BNEF reports that one of 2018’s biggest solar projects was a $2.4bn 800MW PV and solar thermal portfolio in Morocco
  • The 706MW Enel Green Power South Africa portfolio, at an estimated $1.4bn, was one of the biggest onshore wind financings, part of the country’s 40-fold increase in renewable energy investment to $4.2bn

The key to the continent realising its enormous clean energy potential is attracting private capital. And the main factor that will facilitate that is reducing risk for investors. But there are so many risks in Africa – around governance, rule of law, politics, poverty, currency fluctuations, the weakness of many economies and a lack of infrastructure – that many investors are reluctant to get involved. Transaction costs are therefore higher, and projects are consequently smaller. That’s why, according to the International Renewable Energy Agency, the average share of public investment during 2009-2016 in Africa was 56%, much higher than the global average (12-16%).

“Energy investments in Africa are constrained by limited [supply of] well-structured, bankable projects, as well as by unavailability of risk capital. Renewable technologies require additional support to be fully competitive over fossil fuel-based energy generation,” said Amadou Hott, the Bank’s Vice-President for Power, Energy, Climate Change & Green Growth, when he announced the Bank’s $25m ARCH investment.

But, he told CNBC Africa last year, “closing the gap on Africa’s energy challenges presents major opportunities for investors keen on engaging with the continent.”

Bringing projects to fruition means working with companies and banks from around the world. As long as those partnerships are as sustainable as the energy produced, the future looks pretty good.

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EU ETS permit price fuelling demand for gas

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EU ETS price contributing to gas demand

by Gaurav Sharma

January 30, 2019

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Whilst the top-level 40% 2030 emissions reduction target looks relatively safe, share from RES is definitely not. Carbon pricing, in its various forms, is working but, frankly, not in a predictable way. A closer inspection of the market-driven EU ETS permit scheme illustrates how and why gas – especially American LNG – is going strong, putting the 32% share of final energy consumption from renewables in doubt.

Whenever European energy industry dialogues touch on market volatility, much of the obsession seems to be on oil and gas prices, reduction in coal usage, security of supply and the fundamental renewable versus conventional power cost implication.

But away from consumer scrutiny, the driving mechanism in an inexorable pan European march to a low carbon future that to some extent links all of the above is equally volatile – the European Union’s carbon permit pricing scheme. The concept has been around since 2005 and is pretty simple to fathom, but its pricing and dynamics are anything but.

As part of the scheme, carbon permits or allowances are traded under the common market’s Emissions Trading System (ETS), which charges commercial carbon emitters (most notably power and manufacturing plants) for every tonne of carbon dioxide they emit above a certain limit.

Simply put, higher carbon prices make it pricier for European utilities and selected manufacturers to burn fossil fuels and provide monetary incentives to shift to lower emissions or cleaner sources of energy generation.

The allowances are distributed via a combination of free allocation and auctioning. While that’s simple enough, trading carbon is anything but as the ETS has often suffered from too many or too few permits with a lack of balance. Things started with a bang and by 2006 prices spiked above €30 per tonne, only to slump to lows of €2-3 in the wake of the global financial crisis, when fears of a surplus of permits became a reality.

Plenty of tussles in Brussels

Most EU policymakers agreed something had to be done. However, problems arose in streamlining the process to begin with and getting member nations to agree on a common framework. Meanwhile, the ETS continued to progress to its next phase (from 2013-2020) adding sectors such as aviation but not materially altering its trading structure.

Furthermore, several markets – including France and Nordic EU members – put complementary carbon taxation policy measures in place alongside the ETS, slapping levies on sectors exempt from it.

Nobody in Brussels was all that keen to drive energy intensive industries to relocate for the sake of onerous climate legislation. So the situation triggered lengthy deliberations in Brussels – not about whether to head to a low carbon future but rather about finding the most optimal way of getting there. The answer, after two years of wrangling, was first offered in November 2017 – the Market Stability Reserve (MSR) mechanism.

The MSR provides a framework to restrict a certain number of permits from market auctions effective 2019 with an aim to address oversupply scenarios. However, the timing of it all has created yet another market muddle.

Carbon pricing makes for pricier carbon

An EU spokesperson says that, courtesy of the ETS, by 2020, emissions from sectors covered by the system will be 21% lower than in 2005 and added: “The scheme and subsequent reforms have proved that putting a price on carbon and trading in it can work.”

Be that as it may, those at the receiving end might be forgiven for not sharing that enthusiasm, especially about the timing. Just as the MSR appeared over the trading horizon, in November 2018 Germany – one of the biggest markets for carbon permits – paused auctions until the first quarter of 2019 as its contract with the European Energy Exchange expired.

In its wake, anecdotal evidence suggests buying increased in early in fourth quarter of 2018 as carbon traders built long positions due to reduced supply from auctions, and higher energy prices as the European winter approached. Sources in London and Frankfurt say around 22 million permits from auctions already logged will have to be sold as German auctions resume.

And let’s not forget, MSR has already put 2019 in a serious deficit. That means prices could average at their current levels of €25 per tonne in 2019, and as high as €30 in 2020, according to projections by investment bank Berenberg.

The ongoing situational price spike, to the highest level on record since the fourth quarter of 2008, is unlikely to be a one-off and Berenberg is not the only forecaster with a bullish stance, not least owing to firm German commitments for a coal switch-off by 2038 or earlier.

“The Germans have no choice but to revert to natural gas so utilities can keep emissions costs in check. Renewables, as events this winter illustrate, won’t be the primary beneficiary” Gaurav Sharma, Energy Post

As early as 2023-24, prices as high as €40 are not inconceivable and the knock-on effect on already high German baseload power prices remains to be seen. But when wholesale energy prices rise after feeling the effects of higher carbon, utilities – not just in Germany but across Europe – will have to pass on some of the cost to consumers through higher retail energy prices and raise capital expenditure on alternative energy.

The Americans are coming, the Americans are coming

Renewable energy is supposed to be the beneficiary of higher carbon prices, but another fossil fuel is the medium-term beneficiary as Germany, Italy and Spain attempt what the UK is doing with a degree of success – swapping coal with natural gas as a low carbon bridging fuel.

And as things stand at the time of writing, the Europeans can’t get enough of it and are scrambling well beyond Russia in their quest for volumes. According to Refinitiv Eikon data (see graph), European utility companies have stepped up their efforts to procure more US natural gas as carbon prices bite.

US LNG shipments to Europe totalled 3.23 million tonnes, or 48 cargoes, from October to end-January, compared to 0.7 million tonnes, or nine cargoes, over the corresponding period a year ago, the data analysis firm says.

That makes the US currently second only to Qatar when it comes to supplying LNG to Europe, more than European imports via Russia’s Yamal LNG project. While Gazprom still exports on average 145 million tonnes of pipelined Russian gas a year to Europe, which is four times the current capacity of all onstream US LNG export terminals, the Americans are quietly cheering ETS and MSR.

That’s because the currently high Dutch benchmark gas prices in the $7-8/MMBtu range compete favourably with Asian spot prices for LNG which have dropped to the $8-9/MmBtu range. More expensive carbon pricing and the winter has driven prices higher in Europe, cutting the conventional Asian premium. In absence of the premium, it is cheaper for American exporters to ship to Europe and make money, at least this winter.

Not only that, UK’s Centrica, Spain’s Naturgy, Iberdrola and Endesa, France’s EDF and Total, and Italy’s Eni have all inked contracts with US LNG exporters with cargo deliveries speared throughout the year. Although most attribute it to “competitive LNG pricing”, high carbon costs remain a driver.

Floored by Alphandéry

Nonetheless, all US exporters do is provide a mitigation mechanism for carbon pricing exposure, while the market remains far from perfect. That has led some, including Edmond Alphandéry, former French economy minister and founder of the Euro 50 Group, to demand a continent-wide carbon price floor.

He has been scathing about the ongoing carbon price volatility, describing it as “bad for business” and has called on the European Commission to set a carbon price floor around €20. However, an EU spokesperson dismissed the idea saying it was not the commission’s job but that of the market. “We regulate the volumes in consumer interest, and not the price of emissions.”

In that respect, there should be some sympathy for the policymakers. Alphandéry’s proposed floor is a political hot potato, and not exactly low in any sense of the word. Taxing carbon emissions at EU-level would open a whole new can of worms for Brussels, which has delegated it to national governments.

What’s more, with European elections around the corner, while few would admit it, there is no appetite for providing populists with another reason to fan anti-EU sentiment. However, high prices do provide an incentive to lower emissions and Alphandéry’s stance remains a popular one among policymakers.

The Intergovernemental Panel on Climate Change (IPCC) has often called for polluters to pay more and for the proceeds so obtained to be streamed into industry innovation. France’s EDF and Germany’s E.ON have also called for a more detailed examination of carbon pricing, and have proposed visiting it at regional level, notching things up a level from the current national frameworks.

How this will play out remains unpredictable. MSR will inflict pain on utilities and manufacturers, while US LNG exporters and other natural gas providers will provide a short-term balm. As for the way forward – there’s guaranteed to be a lot of political hot air about but at least it will be carbon neutral.

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Renewable jet fuel lands at Schiphol

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Renewable jet fuel lands in Europe

by Mike Scott

January 25, 2019

Salicornia, a type of halophyte straw

If you were trying to find a link between fish farms, saltwater plants known as halophytes and mangrove forests, it’s unlikely that renewable jet fuel would be near the top of your list.

Yet these three elements are being combined in a project in Abu Dhabi to develop “a clean, alternative aviation fuel” that has been used for the first time in a commercial flight, from the emirate to Amsterdam. The biofuel made up only a tiny percentage of the flight’s fuel load but is the first step in the initiative’s ambitious aim to create a bioenergy industry that can be sited in arid coastal regions, producing both food and fuel without using land that is needed to grow crops or polluting the oceans.

The project has been developed by the Masdar Institute’s Sustainable Bioenergy Research Consortium (SBRC), a collaboration between Abu Dhabi’s Khalifa University, the emirate’s airline Etihad and its oil company ADNOC. Also on board are Boeing, French aircraft engine maker Safran, GE and German engineering group Bauer Resources.

The fuel is derived from a saltwater-tolerant species called Salicornia, whose seeds produce oil when crushed. But the first, rather unlikely, stage of the process is a fish farm, which will produce local species such as Nile perch, as well as shrimp. The fish farm is based on land rather than in the sea, with seawater pumped into pools where the fish will be farmed.

“The SEAS is a pioneering project – the world’s first desert bionetwork to produce food and fuel from seawater supplies in arid land” Dr Alejandro Ríos, SBRC

Young mangrove plants filter the run-off from the fish farm

One of the main issues for fish farms is what to do with the waste that is produced – in this project, known as the Seawater Energy and Agriculture System (SEAS), the waste from the fish farm is used as a fertiliser and irrigation for the Salicornia. The water will then flow from the halophyte ‘fields’ into mangrove wetlands, which help to clean the water, protect coastlines from storms, store carbon and provide a habitat for marine life and can be used for bioenergy.

“The SEAS is a pioneering project – the world’s first desert bionetwork to produce food and fuel from seawater supplies in arid land,” said Dr Alejandro Ríos, director of the Sustainable Bioenergy Research Consortium.

“This was the first time that ADNOC had ever refined biofuel, so it’s a significant step, even though the process is not that different from refining crude oil,” Rios added. “That is important because it means that they can use the existing infrastructure.”

Clean and better range capability than batteries

The project uses solar energy to power the pumps and the rest of the facility and there is a pleasing circularity to the scheme, which tackles multiple issues, including growing food in desert environments without depleting scarce water resources and making aviation fuel renewable.

This is an imperative because, unlike road-based transport, there is no other feasible alternative to using hydrocarbons, Rios said. “There will be short-haul flights in small planes that will be battery-powered within a few years, but for long-haul the physics just doesn’t work.”

The UAE is keen to establish a leading position among the world’s major oil producers when it comes to reducing its environmental impacts. It aims to derive 50% of its energy from clean sources by 2050, to cut the carbon footprint of power generation by 70% and increase energy efficiency by 40%.

“aviation is responsible for almost 5% of greenhouse gas emissions, and it is growing fast. By 2050, if no action is taken, aviation will have consumed a quarter of the world’s carbon budget” IPCC

Emissions reduction to 2050

At the same time, the need to decarbonise the sector is urgent, particularly in the Middle East. The Intergovernmental Panel on Climate Change says that aviation is responsible for almost 5% of greenhouse gas emissions, and it is growing fast. By 2050, if no action is taken, aviation will have consumed a quarter of the world’s carbon budget. According to Airbus, air traffic in the Middle East region is set to double within a decade. Indeed, aviation is one of the key pillars of the Emirates’ economy, with the country ranking third globally in terms of revenue ton kilometres.

The industry has long been accused of dragging its feet on tackling its environmental impacts, but in 2016, it agreed that any growth in emissions after 2020 will need to be offset through a scheme called CORSIA (Carbon Offsetting and Reduction in Aviation). IATA, the International Air Transport Association, has a target to cut net emissions by half from 2005 levels by 2050.

Zero-cost fuel from upstream fish

But progress has been painfully slow. Although there have been around 160,000 flights using biofuels, with feedstocks ranging from crop residues to algae to municipal waste, no commercial alternative to jet fuel has yet emerged, in part because of the cost.

That is where this project could have a real advantage, because much of the revenue is projected to come from the fish farm, with the aim of producing the fuel itself at zero cost.

But we’re still a long way from seeing commercial quantities of green jet fuel on the market – the pilot project sits on 2 hectares of land near Abu Dhabi’s airport, but Rios says it will need hundreds of thousands of hectares of land to produce commercial quantities of fuel. The next step will be to create a 200-hectare demonstration plant. That is going to take a couple of years at least, and a full-size plant is at least a decade away.

If it can be scaled up, though, the potential is huge – there is no shortage of land available for such projects not just in the Middle East but also Africa and India.

“It’s not about replacing existing aviation fuel, it’s about adding value to the oil and gas infrastructure and producing sustainable aviation fuel for the future,” Rios said.

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Spain shows political will to hit 2020 target and acknowledge coal miners too

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Spain shows political will to hit 2020 target and acknowledge coal miners too

by Arasan Aruliah

January 24, 2019

Spain’s largest independent supplier of electricity is committing to delivering an extra 3,000 GWh of renewables in a deal with Norwegian renewables giant Stakraft. When Prime Minister Pedro Sanchez took over last June, he promised to reverse the policies of his predecessor and commit to EU targets on renewables. Substantial social measures and a €250m fund have been agreed to try and make it a just transition. By getting everyone to the table, Spain can now embark on an ambitious plan that may just mean they hit their 2020 target after all.

FORTIA ENERGIA, the Spanish energy sourcing platform for large industrial consumers, and Statkraft, the Norwegian producer of renewable energy, have signed the first long-term power purchase agreement (PPA) for large industrial customers in Spain.

For a period of ten years Statkraft will supply 3,000 GWh of electricity to FORTIA. That’s enough to manage the power supply of large industrial companies in the steel, cement, metallurgy, chemical, paper and industrial gases sectors in the Iberian market (Andorra, Portugal and Spain). The energy will be sourced from Statkraft’s Spanish portfolio and primarily consists of new wind and solar projects already under construction.

At the end of 2018, mainland Spain had 98.65 GW of power generation capacity with demand estimated at 254,074 GWh this year. The additional 3,000 GWh brings hope that the country will now meet the EU’s 20% target for renewable energy generation by 2020. It currently stands at 17%.

It’s not just about the gigawatts, it’s about transition

FORTIA has annual sales of 11 TWh and is the largest independent supplier in the Iberian Electricity Market. Their press release says this is part of FORTIA’s strategy to provide industry with “competitive, diversified and balanced access to energy markets through new contractual models such as PPAs which are an opportunity for producers and consumers in the context of the energy transition.” They expect to announce more such PPAs “in the coming months.”

“We very much look forward to taking that next step in the energy transition together with our customers.” – Juan Temboury, Managing Director at FORTIA

Hallvard Granheim, Executive Vice President Markets & IT at Statkraft said the contract underlines “our commitment to powering major industrial companies across Europe with renewable energy.” Statkraft, owned by the Norwegian Government, is one of the largest managers of renewable assets on behalf of third parties in Europe, with a portfolio of circa 16,000 MW.

Prime Minister Sanchez has said that legislation on climate change was often unpopular with the general public. In particular, the recession of the last ten years made the energy transition a luxury that was hard to afford. But, going forward, he said it must not only happen, it must be “socially just”. Transition must not leave anyone behind, including coal miners that lose their jobs in the shift from fossil fuels.

The 2008 recession hit Spain’s renewables installations

The government now plans to invest €235bn from 2021-2030 as part of its energy and climate initiative. A new climate change law will be submitted to parliament by the end of this month. Last November they published a draft bill which included targets to cut its greenhouse gas emissions by at least 90% below 1990 levels by 2050, and to produce all of its electricity from renewable sources by the same date.

Stark contrast with the last government

This amounts to a reversal of the attitude of the administration in Madrid. Former Prime Minster Mariano Rajoy created a “sun tax” that imposed hefty taxes on small-scale renewable producers while ending payments for pumping their excess electricity back into the national grid. Sanchez scrapped it.

Rajoy’s administration also experienced clashes between the environment and energy ministries. For example, the Energy Ministry was working to prevent coal mine closures. Now, environmental and energy issues come under one single ministry, and 26 coal mines are being shut down.

Big blow to mining communities

Under an EU directive, all coal deposits that no longer make money and receive public funds were ordered to stop production by January 1 2019. Those mines that do not meet the deadline to cease production are supposed to hand the money back. It makes good economic and climate sense but comes at a high price for thousands of miners and their families.

To soften the blow to workers and the communities dependent on coal, Sanchez’s socialist government agreed to a deal with unions last October to smooth coal workers’ access to benefits such as early retirement and earmarked a €250m fund for aiding business ventures and re-purposing disused mines. The industry employed around 100,000 people in the 1950s but this has  dwindled to around 2,000 today.

The continued decline of coal is also showing up in the annual statistics. In December, grid operator Red Electrica de Espana presented provisional data for 2018, saying that nuclear remained the number one source of electric power for Spain in 2018, with a share of 21.4%. Wind was again second at 19.8%. Hydro increased the most, going from 7.4% in 2017 to 13.7% in 2018. Coal’s share reduced by 2.6% to 14.5% of the total.

Spain is now clearly pointing in the right direction, with a particularly impressive performance from hydro. Given the country has only 12 months to get from 17% renewables to 20% by 2020, the new deal between Fortia and Statkraft is a welcome step forward.

As I reported earlier this week, the economics and technology already stack up in most cases. But when the established method of power generation, in this case coal, gets displaced by renewables it is always an extremely difficult decision for responsible governments. Having the political will to manage the transition in a way that considers everyone is what’s required to keep voters onside. Spain’s new government seems to have found it.

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Saudi Arabia raises its solar and wind targets to 60GW by 2030

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Saudi Arabia raises its solar and wind targets to 60GW by 2030

by Arasan Aruliah

January 21, 2019

The Kingdom of Saudi Arabia has made even bigger promises of a renewable revolution before, but little has materialised. Well known as a world leading oil producer, exporter and consumer, it needs to stick to its commitments, and improve on them, if it is to play its part in emissions reductions.

In an interview with the UAE’s state news agency, WAM, Dr. Khalid bin Saleh Al Sultan, President of the King Abdullah Atomic and Renewable Energy City, announced that Saudi Arabia aims to produce 60 GW of renewable energy by 2030, including 40 GW from solar energy and 20 GW from wind and other sources. He explained that Saudi Arabia is working, under the framework of the KSA Vision 2030 and the National Transformation 2020 Programme, on building a sustainable renewable energy sector, along with the “Saudisation of technologies”. In order to find a balanced mix of fossil and alternative energy, achieve growth and prosperity, and reinforce energy security, they will integrate alternative energy into the national energy network.

Promises have been made before. In fact, over the past six years, the Saudis have announced a number of initiatives and investments totalling more than $350bn in renewable energy. But there’s little sign of any construction that matches those ambitions. Fatih Birol, executive director of the International Energy Agency, observes of the Saudi’s intentions, “There has been a lot of stop and go.”

“There has been a lot of stop and go” – Fatih Birol, IEA

The Saudis have certainly been sending mixed signals over its commitment to reversing climate change. In 2013, the government announced its plan to build 54 GW of renewable power and 17 GW of nuclear power by 2032 to cover 40–45% of future electricity production. It then drastically revised down these targets in 2016 to an ‘initial phase’ of only 9.5 GW by 2023. And at COP24, held in Poland back in December, it was one of four countries (the others being the United States, Russia, and Kuwait) that opposed the inclusion of the Intergovernmental Panel on Climate Change’s (IPCC) Special Report on Global Warming of 1.5°C in the negotiating text.

Saudi Arabia had also planned to phase-out of fossil fuel subsidies. However in December 2017 the government announced it would slow down this fossil fuel subsidy phase-out because it needed to lift the economy during difficult periods.

So an announcement to increase renewables generation is a welcome move in the right direction, provided the promise holds. While we wait for more evidence of it actually happening, or another policy reversal, it’s worth looking at Saudi Arabia’s emissions performance so far.

Saudi Arabia’s targets are “critically insufficient”

Climate Action Tracker (CAT) gives a good summary of the performance and projections for different regions and nations across the globe. Their most recent analysis for Saudi Arabia is dated 30th November 2018. It states: “under current policy projections, Saudi Arabia’s emissions [will] be at 1,061–1,117 MtCO2e by 2030—an almost six to seven-fold increase from 1990 levels.” It’s a performance worth their lowest rating possible, “critically insufficient: if all government targets were in this range, warming would exceed 4°C.”

To put the latest 60 GW promise in perspective, CAT comments on an even more ambitious announcement that was made in March 2018. Saudi Arabia and Japan’s SoftBank Groupsigned a memorandum of understanding to build a 200 GW solar plant, the largest single solar project in the world. If the MoU ever became policy and went live it could dramatically lower the emission outlook for the Kingdom. But CAT’s analysis says that if all 200 GW were fully installed, Saudi Arabia may rise above its “critically insufficient” rating, but only into the category “highly insufficient: if all government targets were in this range, warming would reach between 3°C and 4°C.” In other words, it’s not nearly enough.

Rising domestic consumption may yet force Saudi Arabia into renewables

All this is perhaps not a surprise, given the country is one of the world’s leading oil producers, and the national economy is highly dependent on it. Since 1970 oil exports have covered 90% of total government revenues, and contributed more than 35% of GDP.

It also has one of the world’s highest rates of per capita energy consumption, forecast to triple by 2030 when compared to 2010 levels. But domestic consumption itself is putting pressure on them to diversify away from oil and into renewables. As domestic consumption rises, not only do export revenues decline, government spending rises too because domestic oil use is heavily subsidised. Perhaps it is this that will see the Saudis keep their latest promise – and hopefully improve on it.

Falling cost of renewables means the gift of independence to poorest nations

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Falling cost of renewables is the gift of independence to poorest nations

by Mike Scott – in Abu Dhabi for Energy Post

January 18, 2019

Iceland's former President; Olafur Ragnar Grimsson

When oil became the dominant form of energy in the 20th century, it not only had a huge impact technologically – it defined the shape of geopolitics for decades as well, giving outsize power and influence to a few countries that were lucky enough to be sitting on top of oil (and later gas) reserves.

Now that influence is set to wane as the world switches from fossil fuel to renewable energy and it presents a huge opportunity, particularly for some of the world’s poorest countries.

Because every country in the world has some renewable resources, and the cost of renewable energy is falling so drastically, there will be a democratisation of the energy landscape, according to a new report from the International Renewable Energy Agency’s Global Commission on the Geopolitics of Energy Transformation.

Ólafur Ragnar Grímsson, the former president of Iceland, who chaired the commission, said that his own country is an example of how renewables can transform a country’s fortunes. “We have seen leadership in renewables come even from small and medium-sized countries. One is my own, thanks to its geothermal resources, while Denmark has become a leader in wind.”

During the 20th century, Iceland went from being one of Europe’s poorest countries, highly dependent on imported coal and oil, to a country with a high standard of living, which derives 100% of its electricity from hydro and geothermal energy, the report points out.

“The effective development of its renewables has enabled Iceland to bolster its energy security, widen its economic base, and attract new industries to the country, including aluminium smelting, data storage and greenhouse agriculture,” it adds.

The shifting sands of the energy landscape now present a real opportunity for those emerging markets that are not blessed with fossil fuel resources. “The geopolitical transformation will enable countries in parts of Asia, Africa and Latin America to reduce their energy imports,” Grimsson told Energy Post. “Countries all over the world will, for the first time, be energy independent.”

“Countries all over the world will, for the first time, be energy independent.” Ólafur Ragnar Grímsson, former president of Iceland

In Africa particularly, the opportunities are huge, said Carlos Lopes, former executive secretary of the UN Economic Commission of Africa and a native of Guinea-Bissau. The first one is for several countries that have reserves of strategic minerals that are vital for the production of renewable energy technology such as wind turbines and batteries. The Democratic Republic of Congo will play a key role.

“There are a number of minerals, such as cobalt, copper, graphite and coltan, that will be essential for renewable energy and that are highly concentrated in a few countries, a lot of which are in Africa,” Lopes said. “Those countries will be incredibly geo-strategically important in future. This is a huge opportunity for the continent.”

The other opportunity is for countries to wean themselves off reliance on the fossil fuel producers. “Every country can tap into one renewable energy or another to produce energy domestically and become more energy independent,” he added. “In Africa, almost half (48%) of the population don’t have access to electricity. Giving them that opportunity will be a major push factor for growth across the continent.”

Most countries in Sub-Saharan Africa will benefit from reducing fossil fuel imports and generating renewable energy domestically, because this will boost job creation and economic growth. “In the long-term, African countries have a unique opportunity to leapfrog the fossil fuel-centred development model despite recent discoveries of oil and gas,” the report says.

However, Lopes warns that African countries still face a number of challenges in benefiting from the rise of renewables. “What will really change the landscape will be industry, and Africans are latecomers to the clean energy sector. As a result, they face skewed intellectual property regimes and don’t have the knowledge base that others do. The globalisation of value chains has already distributed roles to different regions. There is a skills deficiency in sub-Saharan Africa, too.”

But Africa is growing fast – faster than renewable energy can keep up with, as Energy Post reported recently. It will be cheaper, initially, for Africa to use fossil fuels to drive its development, which is why their use is growing in the region at the moment.

For renewables to thrive, “Africa must create its own regional value chains to serve its growing markets. It’s not going to happen immediately, but it should be on the agenda.”

Mari Pangestu, Indonesia’s Minister for Trade

The change will cause serious problems for fossil fuel producing countries that fail to prepare for the transition, said Grimsson, with those most dependent on oil the most vulnerable. The report cites countries such as Iraq and Libya, along with Nigeria and Angola as particularly vulnerable.

Even countries that have a lot of renewable resources will not necessarily make the most of them if the political will is not there, former Indonesian trade minister Mari Pangestu told Energy Post.

While China and India have started tackling air pollution because of growing pressure from citizens, the same is not yet true in Indonesia, one of the world’s biggest coal producers, she said. But with 70% of the population set to be living in cities by 2030, that will surely change. “People won’t take living in polluted cities any more. If we don’t invest in sustainable infrastructure now, it is going to cost us in the future.”

Large mobile batteries: a new 100-day bet is on the cards

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ENERGY WATCH #2 - December 13, 2018

Large mobile batteries: a new 100-day bet is on the cards

by Frits Muller

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Copenhagen electric shuttle boat
ship-pollution

A ship close in the harbour, marine insight.com

By breaking up Tesla-style battery farms into large mobile battery units, a continuous, positive loop can be achieved. This will serve multiple markets and support the grid, paving the way for more renewable energy sources and replacement of internal combustion engines. If the logistics and fairer fuel incentives can be established, we can expect a revolution down at the docks.

***

Last year, Elon Musk made a bold proposal, betting he could deliver a 129 MWh battery to South Australia within a hundred days. As well as giving the Tesla entrepreneur a lot of publicity, it showed everyone how quickly solutions can be implemented to stabilize the grid. Australia now uses the batteries to buffer wind and solar parks and makes money from trading on the frequency and the ancillary services market. The return according to a report by Neoen, preparing for an IPO, showed a staggering 14% return in just 6 months.

Batteries-for-grid-balancing is a growing market with huge potential.

The business case will be even stronger considering battery prices are expected to be slashed in half by 2030 according to a BCG report.

More renewable energy sources (RES) are being hooked up to the grid causing the supply of electricity to be less predictable. But, because batteries have the capability to charge and discharge, they act as the guardians of the grid’s frequency, counterbalancing uncertainty in supply.

With the role of the battery established, you can start to explore innovative adaptations to the set-up. Imagine, for example, if these huge stationary battery packs, comprising enormous numbers of penlite cells, were divided into 1MWh mobile container units. These units could then be used as a replacement for diesel generators, helping festivals and building sites to get greener. They can even be used to propel inland diesel electric ships, turning them into green vessels overnight. With the energy coming from wind and solar, as these electric storage facilities enable green energy sources, the future starts to become a whole lot cleaner, a relief for citizens all over the world living around big city harbours.

Large mobile batteries could signal a significant reduction in GHG emissions

Most of the energy extracted from fossil fuel is wasted as heat. Internal combustion engines (ICEs) can reach efficiencies of 25% to 40%, but in practice it is hard to reach the higher end of the efficiency range because ICE’s are only optimal at certain speeds. An electric engine is far more efficient. Some of these engines only waste 5 to 10%, leaving at least 90% of the energy providing real work. Given the fact that modern batteries lose little energy charging and discharging, the combination of battery and electromotor is a double gain; far superior in efficiency. Furthermore, electromotors are silent and need far less maintenance compared to ICE’s.

These advantages are certainly needed to compete with cheap fossil fuels

Users of fossil fuel can easily afford to ‘throw away’ the majority of the energy content into the air, especially because marine diesel oil is not taxed following the Mannheim convention. In contrast, electricity from renewable electricity sources is taxed.

So why don’t we just do it and start to build a pool of large mobile batteries?

There are a few practical issues waiting to be solved:

  • Very large mobile batteries of 1MWH, may only contain 100 euros worth of wholesale electricity and typically weigh over 10 tons.
  • They cost hundreds of thousand euros. The good news is that batteries will become significantly cheaper. Ironically, that is also a reason to postpone investments in batteries.
  • The recycling of the materials in batteries after they have been used is another challenge. Recycling lithium-based batteries is a difficult issue that must be dealt with. By asking Finland to coordinate research into recycling batteries, the European Commission is trying to address this issue, capitalising on their experience but also helping them become leaders in battery recycling expertise.

Another issue may be solving the fairly complicated business model puzzle. The fastest way for this transition to come about is by focusing on the fact that batteries must always be busy earning their money. Highly likely, they will have to serve one market or another almost continuously in order to make up for the interest and depreciation. These things are just too expensive to sit still.

Bearing this in mind and accepting that these types of batteries will have more than one owner, the deployment of batteries needs to be highly coordinated. Incentives for owners have to be crystal clear about when to charge, when to balance the net and when to propel ships or provide peak shaving on a festival.

How can we coordinate the network?

The network needs to be designed in such a way that a number of individual mobile batteries will act as a single pool of energy storage. The logistics of how these batteries can be charged quickly enough with a capacity of 500 MW and how they’ll be transported need to be worked out.

It may not be possible to charge a ship in the open ocean, but it can certainly be done along the rivers and in harbours. The very large battery containers can be trans-shipped like cargo. Many inland ships already enjoy the comfort and silence of an electromotor in combination with a diesel generator. ‘A typical 110m vessel like the M.S. Borelli needs several MWh for a 250 km trip’, says owner and maritime entrepreneur Patrick Hut. In order to shut down his diesel generators, he would need to employ several battery containers to be trans-shipped in order to make a green round-trip.

Afbeeldingsresultaat voor the borelli ship

The Borelli, a modern diesel electric inland vessel, shipspotting.com

Entrepreneur Hut is ready to pilot the idea with a mobile battery in the very near future. A large container with battery packs will be trans-shipped as cargo, connected directly to the ships grid, replacing the diesel generator for a period of time. That’s just the start of his own journey towards emission free shipping. Let’s hope many more will follow.

Before all of this can happen the price ratio between electricity and diesel needs to change. Taxes need to be treated equally and battery prices need to come down further. But in the meantime, electric shipping needs to launch pilot schemes to kick-start the transition to new ways of using electricity for propelling vessels. It’s an attractive vision that’s for sure. City harbors stimulating electric shipping because they want (or have) to offer their people a breath of fresh air. Hybrid ships benefitting from techniques (already available!) to leave the harbour on electric storage units before firing up the long distance engines further out to sea…

What may be just mild relief to begin with can become a revolution – just like the one we witnessed in Australia. We need more people, daring to make 100-day bets.

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Better risk data is catalyst for transition

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ENERGY WATCH #3 - December 13, 2018

Better risk data is catalyst for transition

by Mike Scott

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Investors are becoming increasingly pivotal in the climate change debate as the risk data available improves in quality and quantity. That data points towards growing risks to high-carbon companies they are invested in and therefore to their returns. It provides an important counterpoint to the efforts by some of the world’s largest fossil fuel producers – the US, Russia, Saudi Arabia and Kuwait – to water down climate commitments. The reality is, these companies must either plan in the risk arising from climate policies or see the money go elsewhere.

On many issues, business bends with the political wind because it knows that opinion will swing one way or the other depending on who is in power. On climate change, though, they know it’s happening, and that action is needed. If it doesn’t happen now, it will have to happen later, and it will likely cost more and be more disruptive.

The dangers, increasingly evident in extreme events such as this summer’s global heatwave, including in the Arctic Circle, are backed up by the Intergovernmental Panel on Climate Change’s most recent report, which shows that there are huge benefits, socially and economically, from keeping average temperature rises as low as possible.

That’s why more than 400 global investors with assets under management of $32 trillion – Boston Consulting Group calculated that the global total at the end of 2017 was $79.2 trillion – have called on governments around the world to address the “ambition gap” and step up action to address climate change, in particular by phasing out thermal coal power, putting a meaningful price on carbon and phasing out fossil fuel subsidies.

Investors are starting to take their own action to minimise their risks, in part by divesting from high-carbon companies and investing in lower-carbon alternatives. New York State Comptroller Thomas P. DiNapoli, who runs the $207 billion New York State Common Retirement Fund, says: “Despite the misguided policies of the Trump Administration, global efforts to address the very real threat climate risk presents to the economy, financial markets and investment returns are ongoing. Investors who ignore the changing world do so at their own peril.”

But while the world’s largest emitters are firmly in the spotlight thanks to initiatives such as Climate Action 100+, and are starting to respond (see last week’s story about Shell’s new climate targets), investors have been warned that they may be missing risks in many ‘overlooked’ industries, which are indirectly affected by the transitional risk of climate change, but not being recognised – and that means that companies in these sectors will soon come under increasing pressure to change.

MSCI says these ‘overlooked’ carbon-dependent industries are those which have low direct carbon emissions, but high revenue dependence on companies with carbon intensive operations and/or products. These industries include oil & gas equipment and services, heavy electrical equipment e.g. steam turbine manufacturers, and auto-parts and equipment.

One of the most striking illustrations of this is the recent reversal of fortunes at GE, which has had to write off billions of dollars and has cut thousands of jobs, including that of its CEO, after its bet on fossil fuel power generation – purchasing the power assets of Alstom – went bad as demand for steam turbines plummeted. Its rival Siemens, despite facing many of the same issues, has fared much better because it recognised much earlier that there would be a switch away from fossil fuels.

Remy Briand, head of ESG at MSCI comments: “Companies in these overlooked industries could pose an equally high risk to investors as those from the more traditional high carbon industries. Climate change risk is no longer simply determined by assessing historical carbon footprints.”

However, part of the problem for companies is that the signals from investors are inconsistent, with Influencemap pointing out that the world’s largest asset management groups – with a combined $40 trillion in capital market assets – have actually increased the holdings of thermal coal reserves in their funds by more than 20% (with fund inflows accounted for) since the Paris Agreement. They include investors that have very publicly called on companies to reduce their impacts, such as Blackrock and State Street.

A lot of this is to do with the rise of passive investing, where “universal” investors buy into entire benchmarks, regardless of companies’ carbon commitments. But Influencemap found that even some funds marketed as low-carbon have significant amounts of fossil fuel assets in them.

“Both index providers such as MSCI and S&P and the asset managers that use them to market climate themed funds are likely to be more carefully scrutinized on these funds and fossil fuel reserves contained within them in light of the IPCC’s latest statements on thermal coal,” the research group says.

Michael Liebreich, founder of Bloomberg New Energy Finance, says that what’s going on in Katowice is just a sideshow. “Climate economics precede climate diplomacy, not the other way around, and the economics keep looking better and better…shareholders and lenders are becoming increasingly uncomfortable with high-carbon business models,”

The signals from investors may be unclear for the moment, but with improved data bringing greater clarity on who is investing in fossil fuels and what the risks are, energy companies will face tough questions from their shareholders about how they are tackling climate change.

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Carbon emissions ranking of top 200 airlines reveals the industry is still not heading for a safe landing

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EXPRESS #3 - December 13, 2018

Carbon emissions ranking of top 200 airlines reveals the industry is still not heading for a safe landing

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Boeing 747 taking off

The Atmosfair Airline Index compares and ranks the carbon efficiency of the 200 largest airlines of the world. 6 European airlines come in the top ten. But Atmosfair, a German NGO, gives no airline a “class A” and adds that the Paris Agreement emissions targets will not be met unless there is radical change across the industry.

The formula they use accounts for every flight, the aircraft type, engines, winglets, seating and freight capacity as well as load factors for both passengers and co-loaded freight. They say the CO₂ emissions of an airline can be calculated at an error margin of less than two percent, by using detailed sources from authorities and official statistics, specialised data service providers and computer models used by aircraft engineers.

Their aim is to make climate efficiency a factor of competition among the airlines. Car drivers have long been able to inform themselves about the CO₂ emissions of a car before purchasing it. However, air passengers are left in the dark when it comes to choosing the most climate-friendly airline.

For corporate clients, Atmosfair offers specific analyses of individual routes. It allows for climate-conscious enterprises to identify the CO₂ efficiency of different airlines on the routes that their employees fly regularly.

The Airline Index awards every airline an efficiency score between 0 and 100, differentiated by flight length (short, medium and long).

The most efficient new aircraft models, such as the Boeing 787-9 and Airbus A350-900 and A320neo, can achieve substantial carbon savings over older models, but no airlines have invested sufficiently in the new types to reach the top levels of energy efficiency, says Atmosfair.

The Top 10

TUI Airways, the British holiday airline, came top of the rankings for the second year running, reaching just under 80% of the possible optimum level of carbon emissions. TUI Fly, the company’s German counterpart, came in fourth.

[EP=Efficiency points; EK=Efficiency class; Pax=Number of passengers]

Airline carbon emissions are still on the rise

Atmosfair also found that only one in 10 airlines worldwide were succeeding in keeping their greenhouse gas emissions constant while achieving economic growth. Among these were Thai Airways, Finnair, American Airlines and All Nippon Airlines.

Carbon emissions from airlines grew by about 5% last year, while the number of kilometres flown increased by 6%, according to Atmosfair, showing that much more needs to be done to ensure aviation does not take up an unsustainable amount of the world’s remaining “carbon budget”.

Dietrich Brockhagen, executive director of Atmosfair, said: “Our results show that the efficiency improvements of the vast majority of airlines worldwide is not sufficient [to keep within the] 2C or 1.5C target [of the Paris agreement]. We need new, synthetic and CO2-neutral fuels and other more radical measures to curb CO2 emissions in the sector.”

It’s not just the fuel, it’s the design efficiency and passenger occupancy

Fuel is one problem. Design efficiency and passenger occupancy is the other, and this is something the airlines can change without waiting for someone to invent a low-carbon aircraft fuel. The report helpfully includes a graphic that tells airlines what to focus on. In their words: “In order to increase CO2 efficiency, airlines can optimize various factors. The graphic shows which factors have the greatest effect on reducing CO2 emissions changing the factor by one standard deviation.”

So progress can be made. Virgin Airlines said: “We have undertaken a massive renewal programme to replace our entire fleet over a 10 year period, switching from four-engine aircraft to much more efficient two-engine aircraft. As a result we have reduced our aircraft carbon emissions by 23.7% since 2007. Our carbon emissions will continue to reduce as we take delivery of more new aircraft over the next three years.” But, according to Atmosfair, Virgin has a long way to go. The report placed Virgin Atlantic Airways in 83rd place.

The difference between short, medium and long haul

Atmosfair includes a graphic in their report that stacks up the CO2 emissions alongside an individual’s “personal climate budget”, defined as: “the amount of CO2 that one human being can generate annually if global warming is to stay below the 2°C mark, provided the resulting world CO2 budget were equally distributed among all humans.” There are huge differences between short, medium and long haul flights.

So while you wait for the airlines industry to increase efficiency and come up with renewable aircraft fuel, you should be careful where you fly, and how often. Or spend more time with your fridge.

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Shipping’s decarbonisation forecast: cloudy, but bright spells expected for the future

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ENERGY WATCH #1 - December 7, 2018

Shipping’s decarbonisation forecast: cloudy, but bright spells expected for the future

by Matthew James

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The International Maritime Organisation has joined the race to net zero emissions. The decarbonisation of shipping, especially for long-haul marine transportation, remains one of the biggest challenges facing the energy and business community. Innovation in infrastructure, technology and new fuel solutions all need to play their part in setting the maritime transport sector on the right course.

The maritime sector was always a “green pioneer”. That was down to submarine technology. Early submarine engines were part battery powered (nuclear came much later). Even before World War 1 all the major powers had submarines. So they can claim to be the first to prioritise battery power and come to grips with the struggles of minimising weight and size. So what went wrong?

Today, shipping is one of the largest greenhouse gas (GHG) emitting sectors of the global economy, responsible for around 1 Gt of CO2eq every year. EU shipping is responsible for 1/5 of those emissions. If shipping were a country, it would be the 6th biggest GHG emitter. And there are other problems completing a pretty black environmental picture.

The umbrella NGO, Transport & Environment (T&E) has recently produced a pretty pessimistic report which gives the impression that (apart from smaller inland and coastal marine transport) shipping will keep churning out more and more CO2 long into the second half of the century. T&E’s Faig Abbasov describes shipping as the neglected child of the transport sector, alluding to the fact that until now, shipping has not been subject to the same scrutiny and intense regulatory pressure as other sectors. But significantly, the report assumes that larger vessels will struggle to go low-carbon. The ocean going tanker and cargo fleets are the worst emitters. That means design efficiencies and speed-capping must play a part in reducing emissions on big boats.

If shipping carries on ‘as is’ the International Council on Clean Transportation warns sea transport could be responsible for 17% of all CO2 emissions by 2050. The International Maritime Organisation (IMO), the UN agency responsible for regulating shipping, quotes figures that show some progress: 796 million tonnes of CO2 emissions in 2012 (an improvement on 2007). Not bad considering that shipping falls into the “difficult to decarbonise” category. But that drop was helped by a decade of stagnant growth in key economies. IMO regulations mean the shipping industry has to adopt alternative fuel sources to achieve more and faster progress.

[Graph taken from DNV GL Energy Transition Outlook 2018: Maritime Forecast to 2050]

IMO strategy

In April this year the IMO adopted an initial greenhouse gas (GHG) strategy for international shipping. Called the “Initial IMO Strategy on Reduction of GHG emissions from ships”, it says: “The Initial Strategy envisages for the first time a reduction in total GHG emissions from international shipping which… should peak as soon as possible and to reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008, while, at the same time, pursuing efforts towards phasing them out entirely.”

The IMO also includes rules on ship design “to strengthen the energy efficiency design requirements for ships [to achieve] reduction of CO2 emissions per transport work by at least 40% by 2030, and 70% by 2050”. That sets a clear target for the shipping engineers to sit down with those at the forefront of the renewable energy industry, find some answers and launch those new ships.

Which alternative fuels are best?

T&E concludes that “a mix of alternative zero emission technologies including battery-electric, liquid hydrogen and ammonia would cause the least additional strain on the broader energy system. Synthetic fuels such as electro-methane and electro-diesel, on the other hand, would be the least optimal and also extremely difficult to monitor and enforce.”