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RENEWABLE ENERGY

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by EOS Intelligence EOS Intelligence No Comments

Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage

The transition to Electric Vehicles (EVs) is picking pace with concentrated efforts to achieve the net-zero carbon scenario by 2050. The International Energy Agency (IEA) estimated that global EV sales reached 6.6 million units in 2021, nearly doubling from the previous year. IEA projects that the number of EVs in use (across all road transport modes excluding two/three-wheelers) is expected to increase from 18 million vehicles in 2021 to 200 million vehicles by 2030, recording an average annual growth of over 30%. The estimation is based on policies announced by governments around the world as of mid-2021. This scenario will result in a sixfold increase in the demand for lithium, a key material used in the manufacturing of EV batteries, by 2030. With increasing EV demand, the industry looks to navigate through the lithium supply disruptions.

Lithium supply shortages are not going away soon

The global EV market is already struggling with lithium supply constraints. Both lithium carbonate (Li2CO3) and lithium hydroxide (LiOH) are used for the production of EV batteries, but traditionally lithium hydroxide is obtained from processing of lithium carbonate, so the industry is more watchful of lithium carbonate production. BloombergNEF, a commodity market research provider, indicated that the production of lithium carbonate equivalent (LCE) was estimated to reach around 673,000 tons in 2022, while the demand was projected to exceed 676,000 tons LCE. In January 2023, a leading lithium producer, Albemarle, indicated that the global demand for LCE would expand to 1.8 million metric tons (MMt) (~1.98 million tons) by 2025 and 3.7 MMt (~4 million tons) by 2030. Meanwhile, the supply of LCE is expected to reach 2.9 MMt (~3.2 million tons) by 2030, creating a huge deficit.

There is a need to scale up lithium mining and processing. IEA indicates that about 50 new average-sized mines need to be built to fulfill the rising lithium demand. Lithium as a resource is not scarce; as per the US Geological Survey estimates, the global lithium reserves stand at about 22 million tons, enough to sustain the demand for EVs far in the future.

However, the process of mining and refining the metal is time-consuming and not keeping up pace with the surging demand. As per IEA analysis, between 2010 and 2019, the lithium mines that started production took an average of 16.5 years to develop. Thus, lithium production is not likely to shoot up drastically in a short period of time.

Considering the challenges in increasing the lithium production output, industry stakeholders across the EV value chain are racing to prepare for the anticipated supply chain disruptions.

Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage by EOS Intelligence

Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage by EOS Intelligence

Automakers resort to vertical integration to tackle supply chain disruptions

At the COP26 climate meet in November 2021, governments of 30 countries pledged to phase out the sales of petrol and diesel vehicles by 2040. Six automakers – Ford, General Motors, Mercedes-Benz, Jaguar Land Rover, Quantum Motors (a Bolivia-based automaker), and Volvo – joined the governments in this pledge. While Volkswagen and Honda did not officially sign the agreement, both companies announced that they are aiming to become 100% EV companies by 2040. Other leading automakers have also indicated EVs to be a significant part of their future product portfolio. Such commitment shows that EVs are indeed going to be the future of the automotive industry.

To keep up with the market demand, automakers have resorted to vertical integration to gain better control over the EV supply chain – from batteries to raw materials supply, including lithium.

Building own battery manufacturing capabilities

Till now, China has dominated the global battery market. The country produced three-fourths of the global lithium-ion batteries in 2020. At the forefront, automakers are looking to reduce their reliance on China for the supply of EV batteries. Moreover, many automakers have invested in building their own EV battery manufacturing capabilities.

While the USA contributed merely 8% to the global EV battery production in 2020, it has now become the next hot destination for battery manufacturing, mainly because of the government’s vision to develop an indigenous EV battery supply chain to support their target of 50% vehicle sales to be electric by 2030. As per the Inflation Reduction Act passed in August 2022, the government would offer up to US$7,500 in tax credit for a new EV purchase.

However, half of this tax credit amount is linked to the condition that at least 50% of EV batteries must be manufactured or assembled in the USA, Canada, or Mexico. Taking effect at the beginning of 2023, the threshold will increase to 100% by 2029. To be eligible for the other half of the tax credit, at least 40% of the battery minerals must be sourced from the USA or the countries that have free trade agreements with the USA. The threshold will increase to 80% by 2027. In October 2022, the Biden Administration committed more than US$3 billion in investment to strengthen domestic battery production capabilities. While some automakers had already been planning EV battery production in the USA, after the recent announcements, the USA is likely to become the next EV battery manufacturing hub.

BloombergNEF indicated that between 2009 and 2022, 882 battery manufacturing projects (with a total investment of US$108 billion) were started or announced in the USA, of which, about 25% were rolled out in 2022.

In September 2021, Ford signed a joint venture deal with Korean battery manufacturer SK Innovation (BlueOvalSK) to build three battery manufacturing plants in the USA with a total investment of US$11.4 billion. Once operational, the combined output of three factories will be 129 GWh which is enough to power 1 million EVs.

In August 2022, Honda announced an investment of US$4.4 billion to build an EV battery plant in Ohio in partnership with Korean battery manufacturer LG Energy Solutions.

As of January 2023, GM, in partnership LG Energy Solutions, announced to build four new battery factories in the USA that are expected to have a total annual capacity of 140GWh.

Toyota, Hyundai, Stellantis, and BMW are a few other automakers who also announced plans to establish EV battery production facilities in the USA during 2022.

Automakers are also expanding battery manufacturing capabilities in the regions closer to their EV production base. For instance, Volkswagen is aiming to have six battery cell production plants operating in Europe by 2030 for a total of 240GWh a year.

In August 2022, Toyota announced plans to invest a total of US$5.6 billion to build EV battery plants in the USA as well as Japan which will add 40 GWh to its global annual EV battery capacity.

Focusing on securing long-term lithium supply

While vertically integrating the battery manufacturing process, the automakers are also directly reaching out to lithium miners to lock the lithium supply to meet their EV production agenda.

Being foresightful, Toyota realized early on the need to invest in lithium supply, and thus acquired a 15% share in an Australian lithium mining company Orocobre (rebranded as Allkem after its merger with Galaxy Resources in 2021) through its trading arm Toyota Tsusho in 2018. As a part of this agreement, Toyota invested a total of about US$187 million for the expansion of Olaroz Lithium Facility in Argentina and became an exclusive sales agent for the lithium produced at this facility. In August 2022, a Toyota-Panasonic JV manufacturing EV batteries struck a deal with Ioneer (operating lithium mine in Nevada, USA) securing a supply of 4,000 tons of LCE annually for five years starting in 2025.

Since the beginning of 2022, Ford secured lithium supply from different parts of the world through deals with multiple mining companies. This included deal with Australia-based mining company Ioneer working on Rhyolite Ridge project in Nevada, USA, US-based Compass Minerals working on extraction of LCE from Great Salt Lake in Utah, USA, Australia-based Lake Resources operating mining facility in Argentina, and Australia-based Liontown Resources operating Kathleen Valley project in Western Australia.

GM is also among the leading automakers that jumped on the bandwagon. In July 2021, the company announced a strategic investment to support a lithium mining company, Controlled Thermal Resources, to develop a lithium production site in California, USA (Hell’s Kitchen project). The first phase of production is planned to begin in 2024 with estimated lithium hydroxide production of 20,000 tons per annum, and under the agreement, GM would have the first rights on this. In July 2022, GM announced a strategic partnership with Livent, a lithium mining and processing company. As part of this agreement, Livent would supply battery-grade lithium hydroxide to GM over a period of six years beginning in 2025. The automaker continues to invest in this direction; in January 2023, GM announced a US$650 million investment in the lithium producer Lithium Americas developing one of the largest lithium mines in the USA, which is expected to begin operations in 2026. As a part of the deal, GM will get exclusive access to the first phase of lithium output, and the right to first offer on the production in the second phase.

The year 2022 also witnessed other automakers investing heavily in partnerships with mining companies to secure a long-term supply of lithium. The partnership between Dutch automaker Stellantis and Australia-based Controlled Thermal Resources, Mercedes-Benz and Canada-based Rock Tech Lithium, Chinese automaker Nio and Australia-based Greenwing Resources, are few other examples.

There are also frontrunners who are directly taking charge of the lithium mining and refining process. In June 2022, the Chinese EV giant BYD announced plans to purchase six lithium mines in Africa. If all deals fall in place as planned, BYD will have enough lithium to manufacture more than 27 million EVs. American Tesla recently indicated that it might consider buying a mining company. In August 2022, while applying for a tax break, Tesla confirmed its plan to build a lithium refinery plant in the USA.

This vertical integration is nothing new in this sector. In the early days of the auto industry, automakers owned much of the supply chain. For instance, Ford had their own mines and steel mill at one point in time. Do we see the automakers going back to their roots?

Battery makers are also looking for alternatives

Some of the battery makers, especially the Chinese EV battery giants, are going upstream and expanding into lithium mining. For instance, in September 2021, Chinese battery maker Contemporary Amperex Technology (CATL) agreed to buy Canada’s Millennial Lithium for approximately US$297.3 million. Another Chinese battery maker Sunwoda announced in July 2022 that the company plans to buy Laguna Caro lithium mining project in Argentina through one of its subsidiaries.

However, being aware that the lithium shortage is not going to be resolved overnight, battery makers are ramping up R&D to develop alternatives. In 2021, CATL introduced first-generation sodium-ion batteries having a high energy density of 160 watt-hours per kilogram (Wh/kg). This still does not match up to lithium-ion batteries that have an energy density of about 250 Wh/kg and thus allow longer driving range. Since sodium-ion batteries and lithium-ion batteries have similar working principles, CATL introduced an AB battery system that integrates both types of batteries. The company plans to set up the supply chain for sodium-ion batteries in 2023.

Zinc-air batteries, which are composed of a porous air cathode and a zinc metal anode, have been identified as another potential alternative to lithium-ion batteries. Zinc-air batteries have been proven to be suitable for use in stationary energy storage, mainly energy grids, but it is yet to be seen if they could be as effective in EVs. Application of zinc-air batteries in EVs – either standalone or in combination with lithium-ion batteries – is under development and far from market commercialization. A World Bank report released in 2020 indicated that mass deployment of zinc-air batteries is unlikely to happen before 2030.

EOS Perspective

Despite all the measures, the anticipated lithium shortages will be a setback for the transition to EV. One of the major factors will be the escalating costs of lithium, which will in turn impact the affordability of EVs.

Lithium prices have skyrocketed in the past two years on the account of exploding EV demand and lithium supply constraints. The price per ton of LCE increased from US$5,000 in July 2020 to US$70,000 in July 2022.

One of the key reasons driving the adoption of EVs has been the cost of EVs becoming comparable to the cost of conventional internal combustion engine vehicles because of the continually decreasing lithium battery prices. By the end of 2021, the average price of a lithium-ion EV battery had plunged to US$132 per kilowatt-hour (kWh) as compared to US$1,200/kWh in 2010.

Experts project that EVs will become a mass market product when the cost of the lithium-ion battery reaches the milestone of US$100/kWh. Being so near to the milestone, the price of lithium-ion batteries is likely to take a reverse trend due to the lithium supply deficit and increase for the first time in more than a decade. As per BloombergNEF estimates, the average price of the lithium-ion battery rose to US$135/kWh in 2022. Another research firm Benchmark Mineral Intelligence estimated that the cost of lithium-ion batteries increased by 10% in 2022. This would have a direct impact on the cost of EVs as batteries account for more than one-third of the cost of EV production.

The automakers are still healing from the chip shortage, which we talked about in one of our previous articles: Chip Shortage Puts a Brake on Automotive Production. They are now faced with lithium supply constraints which are not expected to ease down for a couple of years. And then there is also a looming threat of a shortage of other minerals such as graphite, nickel, cobalt, etc., which are also critical for the production of EV components. While the world is determined and excited about the EV revolution, the transition is going to be challenging.

Nuclear Fusion – Reality or a Fairy Tale by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Commercial Nuclear Fusion – Reality or a Fairy Tale?

Nuclear fusion has recently gained attention as a potential source of clean energy. It was a result of the US National Ignition Facility in California achieving a major milestone in December 2022 in which researchers were able to produce more energy than was used to ignite it for the first time. Several countries are cooperating in the world’s largest fusion experiment project called ITER, focused on the construction and operation of an experimental fusion reactor located in France. Large cap companies such as Google and the ministries regulating energy policies across the globe are also investing in fusion energy projects and start-ups to promote fusion energy generation. Despite huge investments, commercializing fusion energy still has a long way to go due to certain technological and operational challenges associated with generation of this type of energy.

Ever-increasing carbon emissions due to the ongoing rise in energy consumption are driving the need for accelerating energy generation from renewable sources. As of October 2022, over 40% of global carbon emissions were caused by power generation. As per the International Energy Agency, carbon emissions from energy generation increased by 0.9% in 2022 in comparison with 2021, to reach 36.8GT.

Additionally, the energy crisis caused by the Russia-Ukraine war, particularly in Europe further augmented the need for energy generation using renewable sources. The surge in energy demand from households and industries is putting pressure on the existing energy supplies, thus resulting in high energy prices.

So far, solar and wind energy sources have been prominently used across countries to meet the rapidly increasing energy demand. Nuclear fusion is another alternative renewable source as it does not emit carbon emissions or produce long-lived radioactive waste products, unlike nuclear fission.

Nuclear fusion is an energy-intensive process and requires high temperatures for fusion reaction. In nuclear fusion process energy is released by combining two atomic nuclei into one heavier nucleus. The released energy is then captured and converted into electricity by a fusion machine. This process is also the key source of energy in the sun and other stars.

Nuclear fusion releases around four million times more energy as compared to coal, gas, or oil, and four times more than nuclear fission technology. Nuclear fusion can provide energy to an extent that can power up homes, cities, and whole countries.

Current state of the nuclear fusion energy

The potential of generating nuclear fusion energy has been recognized since the 1950s. Countries across geographies have been involved in nuclear fusion research, led by the EU, USA, Russia, and Japan along with vigorous programs underway in China, Brazil, Korea, and Canada. Various experimental fusion devices have been designed and constructed to advance and transform the way fusion energy is generated. These includes tokamaks, stellarators, and laser-based technology devices. Tokamaks and stellarators have been used more commonly for fusion energy research experiments.

Some of the tokamaks and stellarators built across countries for generating fusion energy include the Joint European Torus (JET) started in the UK in 1978, Wendelstein 7-X stellarator started in Germany in 1994, Korea Superconducting Tokamak Advanced Research (KSTAR) started in South Korea in 1995, the Mega Amp Spherical Tokamak- (MAST) initially started in the UK in 1997 and further upgraded to MAST-U in 2013, and Experimental Advanced Superconducting Tokamak (EAST) started in China in 2000, among others. Six countries including China, India, Japan, Korea, Russia, the USA, as well as the EU are cooperating in the world’s largest fusion experiment, ITER, an experimental fusion reactor currently under construction in France through EURATOM, the European Atomic Energy Community. ITER idea was first launched in 1985 and established in 2007. Its first experiment was scheduled to start in 2025 but is delayed due to Covid-19 disruptions. It is aimed at producing 500MW of fusion power from 50MW of input heating power.

Further, in 2017, China launched the China Fusion Engineering Test Reactor (CFETR) project as a follow-up to the ITER. This tokamak device is aimed at producing an extremely powerful magnetic field to confine plasma and generate fusion energy. This magnetic field can contain and control hydrogen gas ten times hotter than the core of the sun. CFETR is aimed at producing a peak power output of 2GW once completed in 2035, bridging the gap between scientific experiments and commercial use.

Extensive progress has been noticed in studying laser-based technology for fusion energy generation. Some of the facilities that use laser technology to produce fusion energy include the National Ignition Facility (NIF) at the Lawrence Livermore National Laboratory (LLNL) in the USA and the Laser Mégajoule (LMJ) in France.

The International Atomic Energy Agency (IAEA) also supports its member states in research activities related to fusion energy generation. It also organizes various workshops on fusion power plant concepts demonstration, technical meetings, and coordinates research activities.

Nuclear Fusion – Reality or a Fairy Tale?by EOS Intelligence

Nuclear Fusion – Reality or a Fairy Tale? by EOS Intelligence

Some of the breakthroughs achieved in fusion energy experiments to date

There has been significant progress in the research and development activities focused on nuclear fusion energy generation. Researchers are continuously emphasizing optimizing the condition of plasma through changes in density, temperature, and confinement time to achieve the required level of performance for a power plant. Several nuclear reactors were able to sustain high temperatures during the fusion process. For instance, in January 2022, the EAST reactor in China sustained temperatures of 126 million degrees Fahrenheit, which is nearly five times hotter than the sun, for 17 minutes, and thus, broke the record for longest sustained nuclear fusion.

In February 2022, the Joint European Torus (JET) achieved a record performance for sustained fusion energy of 59MJ over five seconds.

Also, in September 2022, the Korea Superconducting Tokamak Advanced Research (KSTAR) experiment achieved plasma temperatures of 120 million kelvins for up to 20 seconds, a key demonstration of simultaneous high temperatures and plasma stability.

Recently in December 2022, a major breakthrough was achieved at the US National Ignition Facility in California by using inertial confinement fusion which released more energy than was pumped in by the lasers for the first time in the world. The laser shot released 3.15MJ of energy in comparison with the 2.05MJ pumped to the hydrogen isotope pellet by lasers. This breakthrough is likely to pave the way for the abundant clean energy in the future.

Breakthroughs driving further investment in fusion energy R&D

Breakthroughs achieved over the past years in various projects have attracted significant investment by both government and private sector in the research and development of fusion energy. For instance, in February 2023, Israel’s Ministry of Energy (MoE) proposed to provide US$11.5 million to establish a national nuclear fusion institute in Israel. This initiative includes major universities of Israel namely the Hebrew University of Jerusalem, Ben-Gurion University of the Negev, the Technion and Tel Aviv University, the Weizmann Institute of Science, as well as NT-Tao, an Israel-based start-up which is engaged in the development of a compact system for nuclear fusion.

Similarly, in October 2022, the UK government announced to provide US$249.6 million of funding for the Spherical Tokamak for Energy Production (STEP) project’s first phase which will include concept design by the UK Atomic Energy Authority by 2024. STEP is a program aimed at designing and constructing a prototype fusion energy plant by 2040.

In March 2022, the US Department of Energy (DOE) proposed to provide around US$50 million of federal funding to support US scientists involved in conducting experimental research in fusion energy science. Of this, US$20 million was to support tokamak facilities and US$30 million to support fusion research to improve the performance of fusion and increase the duration of burning plasma. In addition to this, the US government’s budget for the financial year 2023 included US$723 million for the Office of Science Fusion Energy Sciences research in enabling technologies, materials, advanced computing and simulation, and new partnerships with private fusion efforts. This amount included US$240 million for the ongoing construction of ITER tokamak. Also, the budget for the financial year 2024 includes US$16.5 billion to support climate science and clean energy innovation including US$1 billion to advance fusion energy technology.

Private funding in fusion companies has also increased significantly in the recent past. As per the Fusion Industry Association Report 2022 published in July, private sector funding amounted to about US$4.8 billion in total, witnessing an increase of 139% since 2021. Fusion companies also received an additional US$117 million in grants and other funding from governments. Big resource groups such as Equinor based in Norway, Google and Chevron based in the USA have also invested in fusion energy research. For instance, in July 2022, Chevron together with Google and Japan-based Sumitomo Corporation invested in TAE Technologies, a US-based nuclear fusion start-up, in a US$250 million fundraising round to build its next-generation fusion machine.

In addition to this, entrepreneurs including Bill Gates and Jeff Bezos are also providing financial support. In December 2021, Commonwealth Fusion Systems (CFS) raised around US$1.8 billion in series B funding from various key investors including Bill Gates, DFJ Growth, and Emerson Collective among others, to commercialize fusion energy.

Companies engaged in nuclear fusion energy generation

More than 35 companies are engaged in fusion energy generation for commercial use, such as Tokamak Energy, General Fusion, Commonwealth Fusion Systems, Helion Energy, Zap Energy, and TAE Technologies, among others. These fusion companies are increasingly emphasizing collaborations and experimenting with new technologies to produce fusion energy and make it available for commercial use.

In March 2023, Eni, an energy group based in Italy, and Commonwealth Fusion Systems (CFS) based in the USA, a spin-out of the Massachusetts Institute of Technology (MIT), signed a collaboration agreement aimed at accelerating the industrialization of fusion energy.

In February 2023, TAE Technologies achieved a breakthrough in its hydrogen-boron fusion experiment in magnetically confined fusion plasma. This experiment was a collaboration between Japan’s National Institute for Fusion Science (NIFT) and TAE Technologies.

Also in February 2023, Tokamak energy proposed to build new fusion energy advanced prototype at the United Kingdom Atomic Energy Authority’s (UKAEA) Culham Campus, UK, using power plant-relevant magnet technology. It also built the first set of high-temperature superconducting magnets for testing nuclear fusion power plants. This super magnet can confine and control extremely hot plasma created during the fusion process.

Certain breakthroughs achieved over the years in the nuclear fusion energy field have encouraged the entry of various start-ups across geographies. For instance, Princeton Stellarators, a US-based start-up focused on building modular, utility-scale fusion power, was founded in 2022. Another start-up named Focused Energy, a Germany-based fusion company was founded in 2021 to develop a fusion power plant based on laser and target technology. In September 2021, the company raised US$15 million in seed funding led by Prime Movers Lab along with additional investment from various entrepreneurs.

Start-ups are also emphasizing raising funds to create new fusion technologies and make a significant impact on the industry. In February 2023, NT-Tao, an Israel-based nuclear fusion start-up founded in 2019 raised US$22 million in a series A funding round aimed at developing a high-density, compact fusion reactor to provide clean energy.

Additionally, in January 2023, Renaissance Fusion, a France-based start-up founded in 2020, raised US$16.4 million in a seed funding round led by Lowercarbon Capital. The company is engaged in the development of a stellarator reactor for fusion energy generation.

Challenges to nuclear fusion energy generation

Although a lot of companies and governments across geographies are investing in nuclear fusion energy generation experiments, building full-scale fusion generating facilities requires advanced engineering, advanced vacuum systems, and superconducting magnets. One of the key challenges in fusion process is the requirement of extremely high temperature to produce energy. Also, it becomes difficult to control plasma at such high temperatures.

Additionally, lack of availability of materials that can extract heat more effectively while withstanding their mechanical properties for a longer duration is another challenge affecting the fusion energy generation process.

Moreover, fusion research projects are also facing capital and financing challenges due to high upfront costs, return uncertainty, and long project duration. Capital investment involved in building and operating a fusion reactor is high due to complex technology that requires significant investment in R&D, high energy requirement, use of advanced materials, and regulatory requirements aimed at ensuring the safety and low environmental impact of the fusion reactor. The cost of building a fusion reactor ranges between tens to hundreds of billions of dollars. It can vary depending on various factors such as size, design, location, materials, and technology used.

Since fusion energy is a new technology, there is uncertainty about when nuclear fusion will become a viable and cost-effective energy source such as other energy sources including wind and solar. This makes it difficult for investors to invest in fusion projects and predict the return on investment.

However, ongoing research and development activities aimed at building advanced, highly efficient, and cost-effective fusion reactors, and commercializing fusion energy generation at a large scale are likely to overcome these challenges in the long term.

EOS Perspective

Accelerating climate crisis is driving the investment in nuclear fusion research and development as it does not create carbon emissions and long-lasting nuclear waste products. Over the past several years, various fusion research projects, university programs, and start-ups have achieved breakthroughs in the fusion energy field. The most recent breakthrough at US National Ignition Facility in California, which released more energy than was pumped in by the lasers, has paved the way to the nuclear fusion gold rush and sparked excitement among investors, companies, and researchers.

Many fusion companies such as Commonwealth Fusion Systems and TAE Technologies are claiming to exceed breakeven by 2025 and commercialize fusion energy by 2030. Billions of dollars have been invested in nuclear fusion energy generation experiments but no company or projects have been able to achieve breakeven yet.

Several new fusion projects are planning on using advanced materials and putting a new generation of supercomputers to tweak the performance of ultrahigh-temperature plasma, but commercializing fusion energy is still far from reality. Moreover, the fusion process is very complex, requires extreme temperature for fusion reactions, and involves huge energy costs. Thus, other alternative clean energy sources such as wind and solar are likely to remain the near-term methods to meet sustainable energy demand. At the same time, it should be expected that the increasing government support and investment by large cap organizations and entrepreneurs are likely to help set up viable fusion power plants in the future.

Sustainable electronics transforming consumer tech companies by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Sustainable Electronics Transforming Consumer Tech Companies

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Globally, electronics are discarded at alarming rates, generating unprecedented amounts of e-waste. On the other side, finite resources such as minerals and metals, which are used to make these electronics, are getting depleted. To foster sustainability across the electronics value chain, many tech companies are adopting strategies such as incorporating long-lasting product design, using recyclable and biodegradable materials, using clean energy for power generation, etc. However, sustainable electronics concept is still in a nascent stage of adoption and a lot of work needs to be done. Strict legislations, cross-sectoral collaborations, organizations facilitating networking and knowledge sharing, and changes in business models are needed to implement sustainability across various business units in the electronics industry.

Growing need for sustainability in electronics

Global consumption of electronics is rising exponentially and is expected to double by 2050. This increase is set to adversely affect the environment leading to more mining of raw materials, an unprecedented increase in e-waste, and increased carbon emissions during manufacturing.

Globally, people are discarding electronics sooner than before due to availability of new electronics, owning outdated models, obsolescence, etc. Over the last few years, nearly 50 million tons of e-waste has been generated annually. Only 17% of this e-waste is recycled globally, and the rest is transported and dumped in developing countries such as Pakistan, Nigeria, and India, which do not have adequate facilities for processing and handling e-waste. This e-waste ends up in landfills accounting for approximately 70% of hazardous chemicals and pollutes the air and water streams. Moreover, e-waste generated globally contains recyclable or reusable raw materials, scrap rare earth metals, plastics, and valuable elements, which are valued at US$62.5 billion per year.

Given the economic and environmental cost of e-waste as well as responding to growing consumer preference for sustainable products, several companies are looking to transition to sustainable electronics. Sustainable electronics are products that are made using recycled or reusable and biodegradable materials as well as products that generate low carbon emissions during manufacturing and distribution.

Sustainable electronics transforming consumer tech companies by EOS Intelligence

Sustainable electronics transforming consumer tech companies by EOS Intelligence

Recycling, clean energy power, and modular design for sustainable electronics

Over the last few years, consumer tech companies have been adopting many strategies for manufacturing electronics sustainably. In 2021, tech giants, Cisco, Dell, Google, Microsoft, Vodafone, and many others, together formed a “Circular Electronics Partnership (CEP)” to accelerate the circular economy for electronics by 2030, and to help businesses and organizations overcome barriers to sustainable electronics.

Several companies are looking to increase the life span of their smart phones to make them more sustainable. Increasing the phone’s life span by two years can reduce carbon emissions to a great extent, as 80% of the carbon emissions come during manufacturing, shipping, and the first year of phone usage. Fairphone, a Dutch-based smart phone manufacturer, has introduced smart phones with a lifespan of approximately 5 years, higher than the average lifespan of 2.5 years. Similarly, Teracube, a US-based sustainable smart phone manufacturer has launched phones that can last up to 4 years.

Many companies are also designing their products with modularity, which allows users to repair, upgrade, customize, and disassemble their gadgets easily. For instance, Framework Computer, a US-based laptop manufacturer, sells laptops that can be upgraded. The company offers upgrading kits that contain laptop main boards and top covers, to customize the device as per the user’s need. Similarly, Fairphone manufactures modular smart phones, which are easy to repair and upgrade. These kinds of gadgets eliminate the user’s need to buy new ones, saving both costs and wastage.

There is also an increased interest among consumer electronics companies to use recycled materials in various products. Sony, a Japan-based multinational corporation, has developed a recycled plastic, SORPLAS, and is using it in a range of its products such as audio systems, and televisions since 2011. In 2022, Logitech, a Swiss-American manufacturer of computer peripherals and software, used recycled plastic in 65% of its mice and keyboards. Similarly, in 2021, Acer, a Taiwan-based electronics corporation, launched a series of PCs named Vero, which uses recycled plastics for the chassis and keycaps. Acer also launched the Earthion program, an eco-friendly initiative, in the same year and started working closely with suppliers and partners to bring various sustainability measures in product design, packaging design, and production. Tech giant, Apple, stopped selling chargers and headphones along with the iPhone in 2020 to cut e-waste. The company used 20% of recycled material in all its products in 2021 and uses robots to disassemble or separate metals from e-waste. There is 40% recycled content in MacBook Air with Retina display and 99% recycled tungsten is used for iPhone 12 and Apple Watch Series. Samsung, a multinational electronics corporation, is using recycled plastics in refrigerators, washing machines, air conditioners, TVs, monitors, and mobile phone chargers.

Due to this increased demand for recycled materials, recycling companies are receiving investments to a significant extent. In 2021, Closed Loop Partners, a US-based investment firm, invested an undisclosed amount in ERI, a US-based electronics recycler that supplies materials to companies such as Best Buy, Target, and Amazon, to extend the capacity for the collection and processing of electronics. Similarly, in 2022, Australian Business Growth Fund (ABGF), an investment fund focused on small to medium-sized Australian businesses, invested US$7.5 million in Scipher, an Australia-based urban mining and e-waste recycling business.

Significant activity has been happening in the refurbished electronics market as well due to the rising consumer awareness of sustainability. Trade-in and refurbishment reduce e-waste piling up at landfills, as it limits buying newer gadgets and thereby paves way for greater sustainability across the electronics industry. Back Market, a France-based marketplace of renewed devices (which provides refurbished devices with a one-year warranty), has raised over US$1 billion since its launch in 2014. In 2022, Verdane, European specialist growth equity investment firm, announced an investment worth US$124 million in Finland-based Swappie, a re-commerce company that sells previously owned, new, or used smart phones. Vodafone too announced a major initiative to extend the life of new mobile phones and to encourage customers to trade in or recycle their old devices. The company is planning to provide customers in European markets with a suite of services, including insurance, support, and repairs for their devices in 2022. Samsung collaborated with iFixit, online repair community for its self-repair program in 2022. The company said that under this program, Galaxy device owners in the USA can make their own repairs to the Galaxy Tab S7+, Galaxy S20, and S21 products using easy-to-repair tools available from iFixit.

Tech companies have also started transitioning to renewable energy and looking for ways to reduce their carbon emissions. Intel, a US-based technology company, uses green energy of up to 3,100,000 MWh annually in the manufacturing of processors and computer accessories. Samsung’s facility operations in the USA and China switched to 100% renewable energy in 2019. In 2021, Microsoft entered into a partnership with IFC, a member of the World Bank Group, to reduce carbon emissions in the organization’s supply chain. IFC is said to work with selected Microsoft suppliers in emerging markets, primarily in Asia, to identify technical solutions and financing opportunities to reduce emissions in the production process.

Legislation to aid the shift toward the circular economy in electronics

For years, many countries did not have appropriate policies enforcing sustainability across the electronics industry. Nevertheless, the trend is reversing with several countries adopting legislation for the circular economy. For instance, in 2020 the European Commission announced a circular electronics initiative that would promote eco-design (a design that considers environmental aspects at all stages of the product development), right-to-repair rules, including a right to update obsolete software, and regulatory measures on universal chargers, to name a few. France became the first European country to pass the Anti-Waste for a Circular Economy Act (AGEC) in 2020, which requires producers of electronic devices to provide details on how repairable their products are. According to AGEC, manufacturers are required to scale their products at a rate of 1-10 based on the reparability index. France also plans to introduce a durability index by 2024, whereby manufacturers would be asked to describe the full lifecycle of their products. Moreover, the US government passed an order in 2021 to draft regulations that protect the consumer’s right to repair electronic devices and other tools.

It is not easy to manufacture sustainable electronics

While sustainable electronics are the need of the hour and several leading players have already started promoting and investing in this space, the sector faces many challenges. Currently, there are no established standards, concepts, or definitions concerning sustainable electronics and there is no strict legislation to enforce sustainability practices in the electronics industry. There are some rating systems that identify energy-efficient products followed in USA and Europe (for example, USA’s ENERGY STAR program). However, registering and complying with the ratings and their requirements is up to the manufacturer and is not mandatory. Moreover, e-waste regulations in several countries are poorly enforced due to low financing, and illegal practices such as dumping e-waste, and incineration by the informal sector still persist.

Most electronics companies are also not transparent about their environmental performance, and impact is often hidden. The term ‘sustainable’ is widely misused as a promotional tactic by companies targeting environmentally conscious consumers.

The electronic industry also operates on a linear established model, wherein products are manufactured (with planned obsolescence) and sold to consumers. Incorporating circular strategies for recycling and reuse requires a lot of remodeling and reconfigurations across the supply chain and the rising consumption of electronic devices makes it difficult to adapt to any new changes. Challenges, such as complex recycling process, costs of recycling, and consumer perception of green electronics also hamper sustainability development. Most electronics are not designed for recycling and are made of a complex mixture of materials such as heavy metals, highly toxic compounds, glass, plastics, ferrous and nonferrous materials, etc. Recycling these materials is tedious and involves several steps such as dismantling, removing the hazardous waste, shredding into fine materials, and sorting the materials into various types. The process is also resource and cost-intensive requiring human labor, more processing time, and requires adequate infrastructure such as various material screening types of equipment. Recycling e-waste could also be polluting, with potential exposure to toxic metal fumes.

Finally, the perception of consumers about sustainable electronics also needs to be changed, which is challenging. There is a notion among customers that the use of recycled, sustainable materials in electronics means products would be of lower quality. A lot of investment would be required to educate and convince consumers about the benefits of sustainable electronics and to address any concerns about quality. In most cases, it is difficult to pass on these costs to the consumers as they are unlikely to accept higher prices. Thus, this cost would be required to be absorbed by the companies themselves. Due to this, most current initiatives toward sustainable electronics can be best described as half measures.

EOS Perspective

The economic benefits of sustainable electronics are enormous. The resource scarcity and the price fluctuation of various minerals and metals make them necessary to recycle, recover, and reuse in the circular economy. Over the last few years, consumer electronics manufacturers have taken many sustainability initiatives such as reducing energy consumption, eliminating hazardous chemicals, introducing biodegradable packaging, incorporating recycled and recyclable materials in products and investing in renewable energy projects. Also, refurbished electronics segment is growing fast, while interest is surging in introducing devices with built-in reparability. While several small initiatives are being taken by leading players, electronics manufacturers mainly do not know how to introduce sustainability across their products in a mainstream fashion.

Sustainability in electronics has still a long way to go. Several legislative initiatives are underway toward a circular (sustainable) electronics economy and it is high time for electronics manufacturers to be proactive and rethink their business models. A complete business model transformation is required to integrate sustainability across every unit. Cross-sector collaborations with stakeholders such as product designers, manufacturers, investors, raw material producers, and consumers are crucial to understanding the technical know-how. It is essential to analyze the entire life cycle of products from choosing raw materials to their disposal and to prioritize circular strategies for such products. Electronic manufacturers also need to come up with creative and rewarding ways for consumers to be willing to choose sustainable products as in the end, the industry cannot flourish without consumer acceptability. The future of sustainable electronics can be bright and manufacturers who see this as a potential business opportunity rather than a problem will benefit in the long term.

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Clean Energy: How Is India Faring?

The rising annual average global temperature due to global warming is alarming. These changes affect virtually every country in the world, and India is no exception in witnessing extreme weather conditions. To illustrate this, the country faced floods in 2019 that took 1,800 lives across 14 Indian states and displaced 1.8 million people. Overall, the unusually intense monsoon season impacted 11.8 million people, with economic damage likely to be around US$10 billion.

Concerns over rising global temperature causing climate change

According to the latest climate update by the World Meteorological Organization (WMO), there is a 50% probability of the annual average global temperature temporarily exceeding the pre-industrial level by 1.5 °C in at least one of the next five years. As a result, there is a high chance of at least one year between 2022 and 2026 becoming the warmest on record, removing 2016 from the top ranking.

India has also been bearing the brunt of climate change with the average temperature rising by around 0.7°C between 1901 and 2018. The temperature in India is likely to further rise by 4.4°C and the intensity of heat waves might increase by 3-4 times by the end of the century. In the future, India is likely to face weather catastrophes such as more recurrent and extreme heat waves, intense rainfall, unpredictable monsoons, and cyclones, if clean energy transition measures are not taken.

Clean Energy – How is India Faring by EOS Intelligence

India to witness economic losses if initiatives are not taken

The rising population, industrialization, and pollution levels in India are causing emissions (greenhouse gases, carbon dioxide), depleting air quality, and impacting the environment adversely. Also, with coal being a major source of energy in India’s electricity generation, pollution levels are further rising. These factors intensify the need to take clean energy initiatives seriously. If India does not take timely actions to reduce reliance on fossil fuels, it may suffer a heavy loss of nearly US$35 trillion across various sectors by 2070. Industries such as services, manufacturing, retail, and tourism are likely to lose around US$24 trillion over the next 50 years if India neglects climate warnings.

Renewable energy generation in India seeing a boost

The Indian clean energy sector is the fourth most lucrative renewable energy market in the world. As of 2020, India ranked fifth in solar power, and fourth in the wind and renewable power installed capacity globally.

The installed renewable energy capacity in India was 152.36 GW as of January 2022, accounting for 38.56% of the overall installed power capacity. Energy generation from renewable sources increased by 14.3% y-o-y to 13.15 Billion Unit (BU) in January 2022. The Indian government set an ambitious target of achieving 500GW installed renewable energy capacity by 2030, with wind and solar as key energy sources to achieve the target.

The government has been taking several measures to boost the clean energy sector. In the Union Budget 2022-2023, the government allocated US$2.57 billion for Production Linked Incentive (PLI) scheme to boost manufacturing of high-efficiency solar modules. The scheme provides incentives to companies to increase domestic production of solar modules in order to reduce dependence on imports.

Furthermore, the Indian government has undertaken several initiatives to foster the adoption of clean energy practices, one of them being the Green Energy Corridor Project, which aims at channelizing electricity produced from clean energy sources, such as solar and wind, with conventional power stations in the grid. Another project, the National Wind-Solar Hybrid Policy, was rolled out in 2018 by the Ministry of New and Renewable Energy (MNRE) as an initiative to promote a large grid-connected wind-solar PV hybrid system for efficient utilization of the transmission infrastructure and land.

Big-scale projects in development

To meet the growing energy needs of the country, the Indian government is taking measures to look at alternative sources of energy. At the 2021 United Nations Climate Change Conference, India announced its ambitious target of meeting 50% of its energy needs from renewable energy by 2030. In the near term, India aims to achieve 175GW renewable energy installation by the end of 2022.

Besides rolling out various policies and reforms, India has been taking several other measures as well to facilitate the growth of the renewable sector and to meet the energy targets. One such measure is the series of agreements signed by India and Germany in May 2022, which would see India receiving up to US$10.5 billion in assistance through 2030 to boost the use of clean energy. Furthermore, 61 solar parks have been approved by MNRE, with a total capacity of 40GW. Most of these solar parks are under construction.

Apart from the government, also the key industry players see potential in the clean energy market and have ambitious plans to ramp up renewable energy capacity as well as their investments in the sector.

Indian public sector companies including IOC, BPCL, and private sector conglomerates such as Reliance Industries, Tata Power, and the Adani Group have already announced billions of dollars’ worth of investments in renewable energy projects. BPCL is planning to invest up to US$3.36 billion in building a diversified renewables portfolio including solar, wind, small hydro, and biomass. Adani Green Energy is planning to invest US$20 billion to achieve 45GW of renewable energy capacity by 2030. RWE (German multinational energy company) and Tata Power are likely to collaborate to develop offshore wind projects in India. They are planning to install 30GW of wind energy projects by 2030.

Current and future challenges

Despite the measures taken by various renewable industry stakeholders, India still faces several pressing challenges that it needs to overcome.

The solar energy segment accounts for a majority share (60%) of India’s commitment of 500GW by 2030. With the ongoing momentum, India needs to install 25GW of solar capacity each year. In the first half of 2021, India could only add 6GW of renewable energy capacity, indicating a slowdown in the rate of energy addition. Besides the supply chain disruptions caused by the pandemic, another reason for the slowdown could be the high component prices.

India’s solar industry relies excessively on imports of solar panels, modules, and other parts. Before the pandemic, in 2019-2020, India imported US$2.5 billion worth of solar wafers, cells, modules, and inverters. These components have become 20-25% more expensive since the pandemic. To keep the clean energy market economically viable, the Indian government needs to increase the domestic production of solar equipment.

Another issue is the fact that power distribution companies in some states of India do not encourage solar net-metering because of the fear of losing business and becoming financially unstable. Thus, it is imperative for the government to introduce a uniform, consumer and investor-friendly policy regarding buying solar electricity equipment and accessories across all states in India.

Moreover, some solar ground-mounted projects have encountered difficulty because of the opposition from local communities and environmentalists for their negative impact on the local environment. According to energy pundits, rooftop solar installments are more eco-friendly and are able to create substantial employment opportunities. Consequently, increasing the current target for rooftop installations from 40% to 60% is considered to be a viable proposition for the near future.

Wind energy market also faces challenges due to lack of developed port infrastructure, higher costs of installing turbines in the sea, and delays in starting projects due to the pandemic. As a result, India’s first offshore wind energy project in Gujarat is yet to take off after four years of tender announcements by the government to invite companies to set up the project.

Some of the other challenges of wind power generation in India are additional costs including investments needed in transmission assets to evacuate additional power, issues related to ownership of wind plants by multiple owners, low Power Purchase Agreement (PPA) bound tariffs on existing assets, as well as lack of incentives to start new wind power projects.

EOS Perspective

As a large developing economy, India’s clean energy targets and ambitions are not just transformational for the country but the entire planet. The energy targets set by India are formidable, but the transition to clean energy is already happening; however, not without challenges.

With government support and aid, the Indian clean energy sector is likely to overcome some of those challenges. For instance, to reduce dependence on expensive imports, the government started taking measures to boost domestic production of solar modules through its Production Linked Incentive (PLI) scheme. Moreover, in 2017, the government increased taxes on solar panels and modules and hiked the basic customs duty on imports of solar and wind energy equipment to encourage domestic production of this equipment. In the budget for FY 2022, the government injected US$133 million into the Solar Energy Corporation of India and US$200 million into Indian Renewable Energy Development Agency. The capital will be used by these entities for running various central government-sponsored incentive programs to attract foreign and domestic companies to invest in this sector. In fact, foreign investors/companies already see potential in India’s clean energy sector, which led to FDI worth US$11.21 billion between April 2000 and December 2021.

India has immense clean energy potential, which has not been fully exploited yet. The shift to renewable energy presents a huge economic opportunity for India. The clean energy sector in the country has the potential to act as a catalyst for economic growth by creating significant job opportunities. According to a January 2022 report by the Natural Resource Defense Council (NRDC), India can generate roughly 3.4 million short and long-term jobs by installing 238GW of solar and 101GW of wind capacity to accomplish the 2030 goal.

In order for the clean energy sector to meet the energy targets and flourish in the future, it will continue to require government support and brisk actions to overcome the challenges.

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Commentary: Europe’s Energy Woes – The Way Forward

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Europe is struggling to build up energy supply ahead of anticipated growth in demand due to economic rebound after pandemic outbreak and the winter months. Considering the knock-on effect of the energy crisis on industrial growth and consumer confidence, the prime focus for Europe is not only to respond to the mounting energy issues in the short term, but to also establish energy sustainability and security for the future.

In October 2021, the European Commission published an advisory for the member states to take some immediate steps to ease the effect of the energy crisis. Governments were urged to extend direct financial support to the most vulnerable households and businesses. Other recommended ways of intervention included targeted tax reductions, temporary deferral of utilities bill payments, and capping of energy prices. About 20 member states indicated that they would implement the suggestions outlined by the European Commission at a national level. While these measures may aid the most vulnerable user segment, there is not much that can be done to safeguard the wider population from the energy price shocks.

Energy security and sustainability is the key

While a magical quick-fix for Europe’s energy crisis does not seem to exist, the ongoing scenario has exposed the region’s vulnerabilities and serves as a wake-up call to move towards energy security and self-sufficiency.

Diversify energy mix

In general, petroleum products and natural gas contribute significantly to Europe’s energy mix, respectively accounting for about 35% and 22% of the total energy consumed in the EU. The remaining energy needs are fulfilled by renewable sources (~15%), nuclear (~13%), and solid fossil fuels (~12%).

The high dependence on fossil fuels is one of the main reasons behind Europe’s ongoing energy crisis. In order to mitigate this dependency, Europe has made concerted effort in the development of renewable energy production capabilities. In 2018, the European Commission set a target to achieve 32% of the energy mix from renewables by 2030, but in July 2021, the target was increased to 40%, clearly indicating the region’s inclination towards renewables.

Expediting renewable energy projects could help Europe to get closer to energy self-sufficiency, although the intermittency issue must also be accounted for. This is where nuclear energy can play a critical role.

After Fukushima disaster in 2011, many countries in Europe pledged to phase-out nuclear energy production. France, Germany, Spain, and Belgium planned to shut down 32 nuclear reactors with a cumulative production capacity of 31.9 gigawatts by 2035. However, in the wake of the current crisis, there is a renewed interest in nuclear power. In October 2021, nine EU countries (Czechia, Bulgaria, Croatia, Finland, Hungary, Poland, Romania, Slovakia, and Slovenia) released a joint statement asserting the expansion of nuclear energy production to achieve energy self-sufficiency. France, which generates about three-fourth of its electricity through nuclear plants, is further increasing investment in nuclear energy. In October 2021, the French government pledged an investment of EUR 1 billion (~US$1.2 billion) in nuclear power over the period of 10 years.

Look beyond Russia

More than 60% of EU’s energy needs were met by imports in 2019. Russia is the major partner for energy supply – in 2019, it accounted for 27% of crude oil imports, 41% of natural gas imports, and 47% of solid fossil fuels imports. While Europe is accelerating the development of renewable energy production, fossil fuels still remain an important source of energy for the region. In the face of escalating political differences with Russia, there is a need to reduce energy reliance on this country and to build long-term partnerships with other countries to ensure a steady supply.

EU has many options to explore, especially in natural gas imports. One of them is natural gas reserves in Central Asia. The supply link is already established as Azerbaijan started exporting natural gas to Europe via Trans-Adriatic Pipeline (TAP), operational since December 31, 2020. In the first nine months, Azerbaijan exported 3.9 billion cubic meters of gas to Italy, 501.7 million cubic meters to Greece, and 166 million cubic meters to Bulgaria. Trans-Caspian Pipeline (TCP) is a proposed undersea pipeline to transport gas from Turkmenistan to Azerbaijan. This pipeline can connect Europe with Turkmenistan (the country with the world’s fourth-largest natural gas reserves) via Azerbaijan. As a result, Europe has heightened its interest in the development of this pipeline.

Eastern Mediterranean gas reserve can also prove to be greatly beneficial for the EU. In January 2020, Greece, Cyprus, and Israel signed a deal to construct a 1,900 km subsea pipeline to transport natural gas from the eastern Mediterranean gas fields to Europe. This pipeline, expected to be completed by 2025, would enable the supply of 10 billion cubic meters of gas per year from Israel and Cyprus to European countries via Greece.

Africa is another continent where the EU should try to strengthen ties for the imports of natural gas. Algeria is an important trade partner for Europe, having supplied 8% of natural gas in 2019. Medgaz pipeline connects Algeria directly to Spain. This pipeline currently has the capacity to transport 8 billion cubic meters of gas per year, and the ongoing expansion work is expected to increase the capacity to 10.7 billion cubic meters per year by the end of 2021. In addition to this, Nigeria is planning the development of a Trans-Sahara pipeline which would enable the transport of natural gas through Nigeria to Algeria. This will potentially open access for Europe to gas reserves in West Africa, via Algeria. Further, as African Continental Free Trade Agreement came in to effect in January 2021, the natural gas trade within countries across Africa received a boost. Consequently, liquefied natural gas projects across Africa, including Mozambique’s 13.1 million tons per annum LNG plant, Senegal’s 10 million tons per annum Greater Tortue Ahmeyim project, and Tanzania’s 10 million tons per annum LNG project, could help Europe to enhance its gas supply.

Business to strive to achieve energy independence

While governments are taking steps to reduce the impact of the energy crisis on end consumers, this might not be enough to save businesses highly reliant on power and energy. Therefore, businesses should take the onus on themselves to achieve energy independence and to take better control of their operations and costs.

Some of the largest European companies have already taken several initiatives in this direction. Swedish retailer IKEA, for instance, has invested extensively in wind and solar power assets across the world, and in 2020, the retailer produced more energy than it consumed.

There has also been growing effort to harness energy from own business operations. In 2020, Thames Water, a UK-based water management company, generated about 150 gigawatt hours of renewable energy through biogas obtained from its own sewage management operations.

However, a lot more needs to be done to change the situation. Companies not having any means to produce energy on their own premises should consider investing in and partnering with renewable energy projects, thereby boosting overall renewable energy production capacity.

Energy crisis is likely to have repercussions on all types of businesses in every industry. Larger entities with adequate financial resources could use several hedging strategies to offset the effect of fluctuating energy prices or energy supply shortage, but small and medium enterprises might not be able to whither the storm.

Economist Daniel Lacalle Fernández indicated that energy represents about a third of operating costs for small and medium enterprises in Europe, and as a result, the ongoing energy crisis can trigger the collapse of up to 25% of small and medium enterprises in the region. Small and medium enterprises need to actively participate in government-supported community energy initiatives, which allow small companies, public establishments, and residents to invest collectively in distributed renewable energy projects. By early 2021, this initiative gained wide acceptance in Germany with 1,750 projects, followed by Denmark and the Netherlands with 700 and 500 projects, respectively.

EOS Perspective

Europe must continue to chase after its green energy goals while developing alternative low-carbon sources to address renewables’ intermittency issue. This would help the region to achieve energy independence and security in the long term. In the end, the transition towards green energy should be viable and should not come at a significant cost to the end consumers.

On the other hand, immediate measures proposed so far do not seem adequate to contain the ongoing energy meltdown. Further, energy turmoil is likely to continue through the winter, and, in the worst-case scenario, it might result in blackouts across Europe. If the issue of supply shortages remains difficult to resolve in the short term, a planned reduction in consumption could be the way forward.

In view of this, Europe would need to actively encourage energy conservation among the residential as well as industrial sectors. Bruegel, a Brussels-based policy research think tank, suggested that the European governments could either force households to turn down their thermostats by one degree during the winter to reduce energy consumption while not compromising much on comfort, or provide financial incentives to households who undertake notable energy saving initiatives.

This is perhaps a critical time to start promoting energy conservation among the masses through behavioral campaigns. Like businesses, it is necessary to enhance consumers’ participation in the energy market and they should be encouraged to generate their own electricity or join energy communities. The need of the hour is to harness as well as conserve energy in any way possible. Because, till the time Europe achieves self-sufficiency or drastically strengthens the supply chain, the energy crunch is here to stay.

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Hydrogen: Fuel of the Future for Shipping?

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Just like many other carbon-emitting sectors, the shipping industry is also working to reduce its contribution to greenhouse gases and get closer to carbon neutrality. For this, the sector is pinning its hopes on hydrogen-based fuel. Being one of the most polluting industries in the world, the shipping sector is also one of the most difficult ones to introduce such a profound change. This is owing to the massive size of commercial vessels, long distances, hydrogen storage issues, and commercial costs. Although small-level adoption of hydrogen fuel has already begun, it remains unknown whether it will be functional in large commercial vessels as well.

As per the International Maritime Organization (IMO), the shipping industry was responsible for 2.9% of the total anthropogenic emissions in 2018, up by almost 10% between 2012 and 2018. It is expected that the sector’s contribution towards global greenhouse emissions will significantly increase by 2050 if proper efforts are not made towards decarbonization. To counter the situation, the IMO has set a global target to cut annual shipping emissions by 50% by 2050 (based on 2008 levels). In response to this, shipping corporations and other stakeholders across the shipping industry have been exploring different ways to reduce their impact on the environment. One of the most critical aspects in this is replacing fossil fuel with a greener fuel. This is where hydrogen fuel might find its place.

As we discussed in one of our previous articles (China Accelerates on the Fuel Cell Technology Front), hydrogen fuel is considered to be the fuel of the future for the transportation sector, as it produces zero emissions. Moreover, with regards to shipping, it is one of the only conceivable options at the moment.

That being said, using hydrogen fuel alone cannot solve the issue of reducing the sector’s carbon footprint, as it depends on how the hydrogen fuel is produced. Currently most of the hydrogen that is produced (and used in other industries), is produced using fossil fuels, while only a small portion of it is produced using renewable energy. Hydrogen produced through renewable energy is much more expensive, which keeps the production levels low. If ships run on hydrogen fuel produced using mainly fossil fuels, while the fuel itself would produce zero emissions, the whole process will not carbon efficient. However, with the shipping industry making real efforts to consider a change in fuel, it is expected that production of hydrogen through renewable sources will ramp up, which in turn may reduce costs (to some extent) owing to economies of scale.

Hydrogen Fuel of the Future for Shipping by EOS Intelligence

 

At the moment, several leading players have pledged to develop new or modify existing vessels so that they can run on hydrogen fuel, however, these are currently either prototypes or short-distance small vessels. Antwerp-based Compagnie Maritime Belge (CMB) Group, which is one of the leading maritime groups in the world, commissioned the world’s first hydrogen-powered ferry in 2017, named Hydroville. It is currently operational between Kruibeke and Antwerp. It runs on a hybrid engine, with options of both hydrogen and diesel. CMB, which has been a pioneer and advocator of clean fuel for the shipping industry, also partnered with Japanese shipbuilder, Tsuneishi Group, to develop and build Japan’s first hydrogen-powered ferry (in 2019) and tugboat (in 2021). Moreover, it launched a joint venture with the Japanese firm to develop hydrogen-based internal combustion engine (H2ICE) technology for Japan’s industrial and marine markets. In another move to find a strong foothold with the shipping fuel of the future, CMB Group acquired UK-based Revolve Technologies Limited (RTL) in 2019, which specializes in engineering, developing, designing, and testing hydrogen combustion engines for automotive and marine engines. Moreover, CMB is building its own maritime refueling station for hydrogen automobiles and ships at the Antwerp port, which will produce its own hydrogen through electrolysis.

Similarly, in November 2019, Norwegian ship building and design company, Ulstein, developed a hydrogen-fueled vessel, called ULSTEIN SX190. The vessel is the company’s first hydrogen-powered offshore vessel providing clean shipping operations to reduce the carbon footprint of offshore projects. The vessel, which uses fuel-cell technology, can operate for four days in emission-free mode at the moment. However, with constant development and investment in the hydrogen fuel space, it is expected that it will be able to run emission-free for up to two weeks, post which it will have to fall back on its diesel engine. Ulstein also launched another hydrogen-powered vessel in October 2020, called ULSTEIN J102, which can operate at zero-emission mode for 75% of the time. Since Ulstein used readily available technology in developing the J102, the additional cost of adding the hydrogen-powered mode was limited to less than 5% of its total CAPEX. This vessel design is expected to cater to the offshore wind industry.

A leading oil corporation, Shell, also announced that it is looking at hydrogen as the key fuel for its fleet of tanker ships in the coming future as the company aims to become carbon neutral by 2050. In April 2021, the company commenced trials for the use of hydrogen fuel cells for its ships in Singapore. The trial encompasses the development and installation of a fuel cell unit on an existing roll-on/roll-off vessel that transports wheeled cargo such as vehicles between Singapore and Shell’s manufacturing site in Pulau Bukom. Shell has chartered the vessel, which is owned by Penguin International Ltd, however, Shell will provide the hydrogen fuel.

In addition to this, several other companies across Europe and Japan are undertaking feasibility studies to understand and assess the use of hydrogen fuel to power ferries and also the production of hydrogen fuel from renewable sources for the same purpose. For instance, in 2020, Finland-based power company, Flexens conducted a feasibility study to generate green hydrogen through wind farms in order to fuel ferries in the Aland group of islands. Similarly, Japan-based companies, Kansai Electric Power, Iwatani, Namura Shipbuilding, the Development Bank of Japan, and Tokyo University of Marine Science and Technology, are collaborating on a feasibility study to develop and operate a 100-foot long ferry with hydrogen fuel. The ferry is expected to be in operation by 2025.

Apart from small ferries, hydrogen fuel is also making a slight headway with commercial vessels. In April 2020, a global electronic manufacturer, ABB, signed an MoU with Hydrogène de France, a French hydrogen technologies specialist to manufacture megawatt-scale hydrogen fuel cells that can be used to power long-haul, ocean-going vessels. While most of the currently operational hydrogen technology is used in small-scale and short-distance vessels, this partnership, which builds on an already existing 2018 collaboration between ABB and Ballard Power Systems, is expected to bring this technology for larger vessels (which in turn are responsible for most of the carbon emissions).

In April 2021, French inland ship owner, Compagnie Fluviale de Transport (CFT), in partnership with the Flagships Project (which is a consortium of 12 European shipping players), launched the first hydrogen-powered commercial cargo vessel, which will ply the Sevine river in Paris. The vessel is scheduled for delivery in September 2021. In 2018, the Flagships project was awarded EUR 5 million of funding from the EU’s Research and Innovation Program Horizon 2020.

While several companies are bullish about hydrogen fuel being the answer to the industry’s carbon woes, others are skeptical to what extent hydrogen fuel can replace the current traditional fuel, especially given the challenges with regards to large commercial vessels. For instance, Maersk, global player in the shipping industry, does not feel that hydrogen fuel is suitable for container ships as the fuel takes up a lot of physical space in comparison with traditional bunker oil.

As per estimates, hydrogen fuel takes up almost eight times as much space as gas oil would take to power the same distance. The more space is occupied by the fuel, the less space is left for carrying containers, and this negatively impacts its container-carrying capacity and revenue per trip/ship. Moreover, container vessels travel extremely long distances across oceans, and carrying that much hydrogen fuel in either liquid or compressed form at this moment is not physically and commercially viable. To be stored as a liquid, hydrogen needs to be frozen using cryogenic temperatures of -253˚C, which makes it expensive to store. Currently about 80-85% of the sector’s emissions come from large commercial vessels such as cargo ships, container ships, etc., and considering that hydrogen can play only a limited role in these vessels, its adaptability and effectiveness as a tool to reduce carbon emissions may be restricted.

However, that being said, the industry is open to alternative fuels and one such fuel is ammonia, which in turn is also produced from hydrogen. Thus using green hydrogen to create green ammonia is another option to explore. Ammonia can be used either as a combustion fuel or in a fuel cell. Moreover, it is much easier and cheaper to store since it does not need cryogenic temperatures and takes up about 50% less space compared with hydrogen fuel, since it is much denser. Thus ammonia seems to fit the needs of commercial vessels in a better manner, however, at present most of ammonia being produced (mainly for the fertilizer industry) uses hydrogen obtained from fossil fuels. Moreover, it further uses fossil fuels to convert hydrogen into ammonia. Thus, to create green ammonia, additional renewable energy will be required, which adds to further costs.

EOS Perspective

Given the industry’s vision to reduce its carbon footprint and the ongoing efforts, investments, and feasibility studies, it is safe to say that hydrogen will definitely be the fuel of the future for the shipping industry, whether used directly or processed further into ammonia. However, how soon the industry can adapt to it is yet to be seen.

Moreover, the industry cannot bear the cost of the transition alone. To transition to a greener future, the shipping industry needs support in terms of on-ground infrastructure and investments in production of green hydrogen. Till the time production of green hydrogen reaches economies of scale, it will definitely be much more expensive compared with traditional fuel. This in turn, will make shipping expensive, which would possibly impact all industries that use this service. While the shipping industry may absorb a bit of the high costs during the transition phase, some of it will be passed down to the customers, which is likely to be met with resistance and in turn will impact the overall transition.

On the other hand, green hydrogen projects are expensive to set up and require significant investment and gestation period. Hydrogen companies do not want to rush into making this investment, unless they see global acceptability from the shipping sector. Thus while the transition to a more carbon-neutral fuel is inevitable, it may not be a short-term transition. Unless governments and regulatory bodies come up with strict regulations or a form of a carbon tax on the sector to expedite the transition, the change is likely to be slow and phased, especially when it comes to large commercial vessels.

Pumped Hydro Energy Storage Plants
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Australia Puts Its Power behind Pumped Hydro Energy Storage Plants

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Australia, as most countries across the globe, is increasing its focus towards renewable energy for future sustainability. These initiatives are faced with the inherent challenge in the renewable energy development – intermittency of supply, i.e. the fact that the supply is not continuously available (e.g. sunlight or wind) and it cannot be modulated according to demand. To tackle this, power companies and the Australian government are making significant investments in pumped hydro energy storage (PHES) plants. These plants facilitate the storing of energy when supply is high but demand is low, so that it can be used when demand supersedes supply levels. Currently, several PHES projects are under assessment and development in Australia.

In 2015, the Australian government set renewable energy targets of 33,000 GWh in large-scale generation, equaling to about 23.5% of Australia’s total electricity generation by 2020. The ongoing pace of new and upcoming solar and wind power projects during 2017, 2018, and 2019 has ensured that the targets set under the Renewable Energy Targets (RET) scheme are met. Moreover, if the current rate of renewable installations continues, Australia is on track to achieve 50% renewable electricity by 2025 and 100% by early 2030’s.

To make renewable energy more sustainable, the government is looking at storage options for solar and wind energy. Solar and wind energy are inherently intermittent in nature. This means that energy can be harnessed based on availability of these resources and not based on the demand at a certain time. This makes renewable energy supply less predictable and dependable in comparison with fossil fuel-based energy.

This is where pumped hydro energy storage can prove useful. PHES plants can store renewable energy on a large scale within the electrical power grid. Fundamentally, PHES plants work in a similar way as regular hydro energy plants, wherein water flows from a higher reservoir to a lower reservoir, generating electricity by spinning the turbines. However, the key difference in case of a PHES plant is that in case when more energy is being produced than the current demand level, the plant uses the spare energy to pump the water back from the lower reservoir to the higher reservoir, thereby making it available again to generate power when the demand rises.

PHES stations are all the more beneficial when integrated with renewable energy generating grids. Since it is difficult to ascertain how much energy will be produced through wind and solar at a given time, pumped hydro energy storage helps balance it in accordance to the demand levels. When wind and solar grids produce more energy than currently required, the excess energy can be used to push the water uphill in the integrated PHES plant, which can be used later when energy produced through renewables is lower than the demand levels. Thanks to this, these plants act as energy-storing batteries.

PHES stations are all the more beneficial when integrated with renewable energy generating grids. Since it is difficult to ascertain how much energy will be produced through wind and solar at a given time, pumped hydro energy storage helps balance it in accordance to the demand levels.

PHES projects across Australia

Owing to these benefits, Australia is extensively exploring this technology. It is estimated that the country is looking to add about 363 GWh of new pumped hydro energy storage capacity, through nine projects that are under consideration and development. In addition to this, there are several other projects that are at initial stages of assessment and do not have a specified capacity yet. As per experts, Australia needs about 450 GWh of storage to support a 100% renewable electricity grid. Some of the most prominent PHES projects in Australia include Snowy 2.0, Marinus Link Project (Battery of the Nation), and Kidston project.

Snowy 2.0

Snowy 2.0 (an expansion of the 70-year-old Snowy Hydro scheme) is the largest energy storage project in Australia, with capacity of 2,000 MW. The plant will offer 350 GWh of pumped storage. The project, which is to be developed and operated by Snowy Hydro (an Australia-based electricity generation and retailing company), is estimated to cost US$2.8-4.2 billion (AU$4-6 billion) and is expected to commence operations by 2024. It has received US$1 billion (AU$1.38 billion) in federal funding.

Moreover, it has partnered with large global technology companies, such as Germany-based Voith Group, which has been contracted to supply the electrical and mechanical components such as the reversible pump turbines and variable-speed pump turbines to be used in the storage hydro power plant.

Marinus Link Project (Battery of the Nation Project)

The Marinus Link Project is a part of Tasmania’s Battery of the Nation program, under which a second interconnector will be built across the Bass Strait. This high voltage interconnector will ensure smooth supply of hydro power to Australia’s mainland. Tasmania has huge potential for wind and hydro electricity generation and an initial assessment by state-owned Hydro Tasmania (Tasmania’s largest electricity generator) indicates that the state has 14 potential sites for PHES plants, with a cumulative capacity of 4,800 MW.

The project is expected to cost US$0.9-1.2 billion (AU$1.3-1.7 billion) for the 600 MW capacity interconnector link or US$1.3-2.2 billion (AU$1.9-3.2 billion) for the 1,200 MW capacity link. The Australian government has provided US$39 million (AU$56 million) in federal funding to help fast-track the interconnector, while the Tasmanian government has committed about US$21 million (AU$30 million) to support the feasibility assessment of three shortlisted pumped hydro energy storage sites in north-western Tasmania.

The interconnector, which is expected to deliver 2,500 MW of renewable hydro power along with 16 GWh of storage to Tasmania and Victoria is expected to be completed by 2025 and reach economic feasibility by early 2030s.

Kidston Pumped Hydro Project

Another project that is gaining significant traction is the Kidston pumped hydro energy project, which is a 250 MW project (2 GWh of pumped storage) in northern Queensland, and is proposed by Genex Power. It is estimated to be completed by 2022.

The Kidston project will also be integrated with an already built 50 MW solar farm. It will help store solar energy when it is in surplus and release it back to generate more electricity when solar energy cannot be harnessed.

Genex Power plans to build another 270 MW solar plant and 150 MW of wind energy capacity over a phased period. In June 2018, the company’s pumped hydro project secured about US$358 million (AU$516 million) in concessional loans from the federal government’s Northern Australia Infrastructure Facility (NAIF).

Moreover, in December 2018, Genex Power signed a deal with EnergyAustralia (Australia’s third-largest power company, owned by Hong Kong’s CLP Holdings), giving exclusive rights to the latter to negotiate an off-take agreement for Kidston’s (solar plus pumped hydro) output, encompassing an option to buy 50% stake in the PHES component. Under the term sheet of the agreement, EnergyAustralia will have exclusive rights to negotiate, finalize, and execute a long-term purchase agreement with Genex, however the contract currently is non-binding and is subject to a number of conditions.

In addition to these, there are several other projects that are currently in the feasibility or development stage. In May 2018, Delta Electricity, an Australian electricity generation company, received development approval from the South Australian government for a 230 MW Goat Hill pumped hydro project. Altura Group (Australia-based renewable energy project developer and advisor) has been hired as the project developer. The project is expected to cost about US$284 million (AU$410 million) and the South Australian government has committed about US$3.3 million (AU$4.7 million) to facilitate final project development. The project is expected to be completed by late 2020.

Another such project is EnergyAustralia’s Cultana Pumped Hydro Energy Project, which is the first sea water pumped hydro energy storage project in Australia. The project will have a capacity of 225 MW. In 2018, it received US$0.35 million (AU$0.5 million) funding from ARENA (Australian Renewable Energy Agency) to support the US$5.6 million (AU$8 million) feasibility study. The project is currently undergoing feasibility studies and concept development and, if approved, it is expected to be completed by 2023.

Similarly, in April 2019, Australian utility company, AGL Energy, unveiled plans to build a 250 MW pumped hydro energy storage facility in South Australia’s Adelaide Hills region. While the company has received the right to develop, own, and operate the plant, the project is currently under assessment. If approved, the project is expected to be completed by 2024.

PHES projects and their viability

Large sums of investment into PHES projects by private companies as well as the federal government indicate its criticality in the overall transition of Australia’s energy grid to include a larger share of renewable sources. Moreover, several coal-based energy plants are retiring in Australia in the near future, which will further create an opportunity for renewables with storage options to replace the current form of generation. As per experts, the cost of energy from wind and solar combined with storage (from either pumped hydro or other form of batteries) will be lower than generation from new coal or natural gas plants post the retirement of existing coal and gas plants. This further makes the case for huge investments in pumped hydro energy storage.

As per experts, the cost of energy from wind and solar combined with storage (from either pumped hydro or other form of batteries) will be lower than generation from new coal or natural gas plants post the retirement of existing coal and gas plants. This further makes the case for huge investments in pumped hydro energy storage.

However, apart from PHES plants, there are other forms of storage as well. These primarily comprise of lithium-ion batteries. One example of such a battery is Tesla’s Hornsdale Power Reserve Battery. It is located in Narien Range (South Australia), was constructed in December 2017, and has a storage capacity of 129 MWh. However, these batteries are not a direct competitor/substitute for PHES plants, as they are usually smaller projects than pumped hydro energy storage plants and have a relatively shorter life as well. Moreover, pumped hydro energy storage is a more cost-effective way of storing energy, when compared with lithium-ion batteries.

Investments in PHES projects are significantly higher, when compared with lithium-ion batteries. This makes these projects long-term in nature, especially with regards to return on investments. These projects have a lifespan of about 90-100 years (and are highly capital intensive), whereas lithium-ion batteries have a lifespan of 10-15 years.

Therefore, the government is being fairly cautious about commissioning PHES projects at the moment. In fact, all of the current projects under review may not be commissioned considering their economic viability. PHES plants need a revenue of about US$139,000 (AU$200,000) per MW per year to be economically viable. While this can be achieved in the long run when there is higher electricity volatility owing to greater dependency on renewables (after the coal generators have retired), currently this cost cannot be justified as electricity volatility is lower with coal and natural gas generation. Moreover, different political parties have a different take on Australia’s energy mix. Thereby, the boost provided to the PHES sector with respect to cheap financing and subsidies will depend on the political party in power, which in turn will affect the economic viability and profitability of pumped hydro energy storage plants.

Moreover, new technologies are being developed at lightning speed, which may further affect the uptake for PHES plants. One such emerging technology is concentrating solar power, in which solar energy is stored in molten salt. This technology can provide several hours of storage and can also act as a baseload power plant. However, currently, this technology is much more expensive when compared with pumped hydro energy storage technology. At the same time, with growing focus on renewables globally, there are always possibilities of new technologies that solve the energy volatility problem in a most cost-effective and efficient manner.

EOS Perspective

Pumped hydro energy storage plants seem to surely have a secure place for themselves in Australia’s energy grid in the long run. With coal and natural gas generators retiring, there will be an increasing push for renewables to fill in their shoes. Renewable energy needs storage options that are stable and effective. PHES plants developed today will be operating for the next century providing a good base for Australia to move to a 100% renewable energy when it is ready. While investments in these projects run high, several large energy players in the Australian market are looking for investment opportunities in this form of storage as they believe it will play a critical role in Australia’s energy grid in the coming years.

However, most of the works regarding PHES plants is currently on paper, with majority of the projects still at the stage of seeking financing. The project closest to completion currently is the Kidston Project, which also failed to secure a confirmed off-take agreement (i.e., pre-contracted purchase agreement) with EnergyAustralia and had to settle for an agreement to negotiate an off-take based on the fulfillment of a few conditions. This hints towards a cautious approach adopted by large utility players when it comes to investing in pumped hydro energy storage projects. With utility players, such as EnergyAustralia, claiming that before committing to huge investments in this space, they would like clarity and stability in the national energy policy (that includes an emission trajectory), a lot falls into the government’s keenness to support renewable energy in the future. While it may seem like things are moving in that direction, a stronger emission policy or a higher renewable target is likely needed for matters to gain momentum.

Fuel cell technology
by EOS Intelligence EOS Intelligence No Comments

China Accelerates on the Fuel Cell Technology Front

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For the past decade, China has been on the forefront of the New Energy Vehicles (NEVs) revolution. Although most of its focus has been on battery-powered electric vehicles (BEVs), the government has recently also begun to put its financial might behind hydrogen fuel cells for vehicles. Unlike battery-powered vehicles that need regular and long-periods of charging (therefore are more suitable for personal-use vehicles), hydrogen fueled vehicles do not need frequent refueling and their refueling is quick. This makes them ideal for long-distance buses, taxis, and long-haul transport. However, the existing infrastructure to support fuel cell-powered cars is limited. Thus, despite having inherent benefits over electric vehicles (especially in case of commercial vehicles), fuel cell vehicles fight an uphill battle to build a market for themselves in China, owing to the challenges in acceptability, infrastructure availability, and sheer economies of scale.

Over the last decade, the Chinese government heavily backed the production and sale of electric vehicles through substantial subsidies, investment in infrastructure, and favorable policies. This resulted in the sector picking up rapidly and reaching 1.2 million vehicles sold in 2018. However, the government has begun to reduce the subsidies provided to the sector and the focus is slowly shifting to fuel cell vehicles.

How do fuel cell vehicles work?

Fuel cell vehicles use hydrogen gas to power their electric motor. Fuel cells are considered somewhat a crossover between battery and conventional engines in their working. Similar to conventional engines, fuel cells generate power by using fuel (i.e. pressurized hydrogen gas) from a fuel tank.

However, unlike traditional internal-combustion engines, a fuel cell does not burn the hydrogen, but instead it is chemically fused with oxygen from the air to make water. This process, which is in turn similar to what happens in a battery, creates electricity, which is used to power the electric motor.

Thus, while fuel cell vehicles are electric vehicles (since they are solely powered by electricity), they are similar to conventional vehicles with regards to their range, refueling process, and needs. This makes them ideal for long-haul commercial vehicles.

Chinese government bets big on fuel cell vehicles

Under China’s 13th Five-Year Plan, the government has laid out a Fuel Cell Technology Roadmap, in which it aims to operate over 1,000 hydrogen refueling stations by 2030, with at least 50% of all hydrogen production to be obtained from renewable resources. In addition, it has set a target for the sale of 1 million fuel cell vehicles by 2030.

To achieve these ambitious targets, the Chinese government plans to roll-out a program similar to its 2009 program – Ten Cities, Thousand Vehicles, which promoted the development and sale of battery electric vehicles and hybrid vehicles. It currently plans to promote fuel cell vehicles in Beijing, Shanghai, and Chengdu. Considering the vast success garnered by this program, it is likely that the government will also be successful in achieving similar targets for fuel cells.

Moreover, while the government is phasing out subsidies for BEVs, it is continuing them for fuel cells. As per the government guidelines issued in June 2018, US$32,000 purchase subsidy is available for fuel cell passenger vehicles, while US$48,000-US$70,000 purchase subsidies are available for fuel cell buses and trucks. However, for the buses to receive subsidy, they are required to drive a minimum of 200,000 km in a year.

While the government is phasing out subsidies for BEVs, it is continuing them for fuel cells. As per the government guidelines issued in June 2018, US$32,000 purchase subsidy is available for fuel cell passenger vehicles, while US$48,000-US$70,000 purchase subsidies are available for fuel cell buses and trucks.

Moreover, the government also provides subsidy for the development of hydrogen refueling stations. A funding of US$0.62 million is available for hydrogen refueling stations having a minimum of 200kg capacity.

In addition to these national subsidies, state-wise subsidies are also available for several regions such as Guangdong, Wuhan, Hainan, Shandong, Tianjin, Henan, Foshan, and Dalian. Local subsidies differ from region to region and are given as a ratio of the national subsidy. For instance, it equals 1:1 in Wuhan, while it is 1:0.3 in Henan province. On the other hand, local or state subsidies are cancelled for BEVs (except buses).

Apart from subsidies given to fuel cell infrastructure and vehicle manufacturers, the price of hydrogen is also heavily subsidized, making it cheaper than diesel in many cases.

China’s fuel cell vehicle market picks up steam

The government’s backing and subsidies have stirred interest of several international players towards China’s fuel cell vehicle market. Considering its success and dominance of the BEV market, these players are placing their bets on China achieving similar volumes and success in the fuel cell sphere.

Chinese companies have also begun to invest heavily in fuel cell technology companies globally. In May, 2018, Weichai Power, a Chinese leading automobile and equipment manufacturer, purchased a 20% stake in UK-based solid oxide fuel cell producer, Ceres Power. Similarly, in August 2018, Weichai Power entered into a strategic partnership with Canada-based fuel cell and clean energy solutions provider, Ballard Power Systems. As part of the strategic partnership, the company purchased 19.9% stake in Ballard Power Systems for US$163.3 million. In addition, they entered into a JV to support China’s Fuel Cell Electric Vehicle market, in which Ballard holds 49% ownership. Through this partnership, Weichai aims to build and supply about 2,000 fuel cell modules for commercial vehicles (that use Ballard’s technology) by 2021.

China Accelerates on the Fuel Cell Technology Front - EOS Intelligence

Global leader in industrial gases, Air Liquide, has also partnered with companies in China to be a part of the fuel cell movement. In November 2018, the company entered into an agreement with Sichuan Houpu Excellent Hydrogen Energy Technology, a wholly-owned affiliate of Chengdu Huaqi Houpu Holding (HOUPU), to develop, manufacture, and commercialize hydrogen stations for fuel cell vehicles in China. In January 2019, the company also partnered with Yankuang Group, a Chinese state-owned energy company, to develop hydrogen energy infrastructure in China’s Shandong province to support fuel cell vehicles in that region.

Another global player, Nuvera Fuel Cells (US-based fuel cell power solutions provider) has also engaged with local companies to foster growth in China’s fuel cell vehicle market. In August 2018, the company entered into an agreement with Zhejiang Runfeng Hydrogen Engine Ltd. (ZHRE), a subsidiary of Zhejiang Runfeng Energy Group based in Hangzhou. Under the agreement, Nuvera will provide a product license to ZHRE to manufacture the company’s 45kW fuel cell engines for sale in China. While the fuel cells will be initially manufactured in Massachusetts, it is expected that they will be locally manufactured by 2020.

In December 2018, the company signed another agreement with the government of Fuyang, a district in Hangzhou (in Zhejiang province), to start manufacturing fuel cell stacks locally in 2019. The agreement also includes an investment by Nuvera to establish a production facility in Fuyang region. These fuel cell stacks will be used to power zero-emissions heavy duty vehicles (such as delivery vans and transit buses), which comprise 10% of on-road vehicle fleet, but account for 50% fuel consumption.

In addition to the fuel cell energy producers, global car manufactures have also shifted their attention to fuel cell vehicles market in China. In October 2018, Korean car manufacturer, Hyundai, entered into a MoU with Beijing-Tsinghua Industrial R&D Institute (BTIRDI) to jointly establish a ‘Hydrogen Energy Fund’. The fund aims to raise US$100 million from leading venture capital firms across the globe to spur investments in the hydrogen-powered vehicle value chain. This agreement will help the Korean automobile manufacturer identify and act upon new hydrogen-related business opportunities in China and will eventually help pave the way for Hyundai Motors to make a foray into the Chinese fuel cell vehicle market in the future.

A bumpy road ahead for fuel cell vehicles

While the industry players are working along with the government to meet the ambitious targets set by the latter, fuel cell vehicles must overcome several challenges for them to be a realistic alternative to conventional and electric vehicles.

Currently, the infrastructure for fuel cell vehicles is by far insufficient. More so, it is extremely costly to develop, costing about US$2 million to build a refueling station with a capacity of about 1,000 kg/day. While the government is investing heavily in developing hydrogen refueling stations (for instance, China Energy, China’s largest power company, has been building one of China’s largest hydrogen refueling stations in Rugao City, Jiangsu Province), it requires long term partnerships and investments from private and global players to meet its own targets. Until an adequate number of refueling stations is constructed, especially on highway routes (facilitating truck and bus transportation), fuel cell vehicles will remain in a sphere of concept rather than commercial and mass use.

Another challenge faced by the industry is that hydrogen, the main fuel, is also considered to be highly hazardous, and storing and transporting it is currently difficult. Moreover, it is difficult to convince customers to purchase hydrogen-powered vehicles because of this perceived notion of hydrogen being unsafe. In addition to providing subsidies and incentives for building fuel cell vehicles, the government must also invest in marketing campaigns and enact policies that raise awareness about hydrogen in fuel cell vehicles as a safe and green energy.

In addition to providing subsidies and incentives for building fuel cell vehicles, the government must also invest in marketing campaigns and enact policies that raise awareness about hydrogen in fuel cell vehicles as a safe and green energy.

A lot of new technologies are also being explored to further make transporting and storing hydrogen safer. A German company, Hydrogenious Technologies, has developed a carrier oil that can carry hydrogen in a safe manner. This oil is non-toxic and non-explosive and thus makes transporting, storing, and refueling hydrogen safe. Moreover, using hydrogen mixed with this carrier oil to refuel fuel cell cars follows a similar refueling process as that of a conventional car, with one cubic meter of the oil carrying about 57kg hydrogen, which in turn is expected to give a car a driving range of 5,700km. However, the carrier oil is still in its nascent stage of development and would take time and resources to gain commercial applicability.

However, one of the largest challenges that fuel cell vehicles face is direct competition from battery electric vehicles. BEVs have a 10-year head start over fuel cell vehicles whether it comes to government support, technological development, infrastructure, or acceptability. Moreover, BEVs are cheaper both in terms of cars price and cost of running, which is an important factor for consumers. In addition, BEV players are constantly working towards reducing charging time and increasing driving range. Since both are green technologies, it is likely that the consumer prefers the one which has now proven to be a successful alternative to conventional vehicles in terms of pricing and supporting infrastructure. Although higher subsidies for fuel cell vehicles may help bridge the gap, it is yet to be seen if fuel cell cars will be able to give stiff competition to their green counterparts.

EOS Perspective

There is no doubt that the Chinese government intends to throw its weight behind the fuel cell technology for automobiles. In 2018 alone, the central and local governments spent a total of US$12.4 billion in supporting fuel cell vehicles. This has helped attract the attention of several local and international companies that want a share of this growing market.

It also helps that hydrogen as a fuel has several benefits when compared with battery power, the key advantages being short refueling time and long driving range. Moreover, some consider hydrogen to be a cleaner fuel when compared with battery power as the electricity required to create hydrogen (which is created by pumping electricity into water to split it into hydrogen and oxygen) can be derived from renewable sources from China’s northern region, which are currently going to waste.

Despite these inherent benefits, it will be difficult for fuel cell vehicles to catch up with battery-powered vehicles as the latter have significantly advanced over the past decade (leaving fuel cell vehicles behind).

Moreover, China’s model of promoting green energy is yet to pass its ultimate test, i.e., to sustain and flourish without government support. Since the government has now begun to phase out its support to BEVs, it is to be seen if the large group of domestic electric vehicle makers can survive in the long run or the market will face significant consolidation along with slower growth. Thus it becomes extremely critical for the Chinese government and companies in this sector to understand the feasibility of the market post the subsidy phase. Fuel cell vehicle market should take advantage of learning from the experience of battery powered vehicles sector, which was the pioneer of alternatives to conventional combustion vehicles.

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