Low Carbon Pulse - Edition 3
Global developments in the energy transition
Welcome to Edition 3 of Low Carbon Pulse sharing significant energy transition news that has come to our attention during the period 26 October 2020 to 6 November 2020.
Time frames for transition to Carbon Neutrality from three of Asia's largest economies
In Edition 1 of Low Carbon Pulse, it was noted that the People's Republic of China is to transition to carbon neutrality by 2060 (2060 Goal) and to achieve its GHG emission peak before 2030. In Edition 2, the impending announcement of Japan's transition to [a carbon neutral society] was noted. It was anticipated that President Xi Jinping's 2060 Goal might be reflected in the PRC's 14th Five-Year Plan (2021-2025) for National Economic Development, and the Long Range Objectives Through the Year 2035. The Communist Party of China (CPC) Central Committee's proposals for formulating the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035, was adopted at the fifth plenary session of the 19th CPC Central Committee on 29 October 2020 (Five-Year Plan). The Five Year Plan includes targets for reductions by 2025, not as yet the 2060 Goal. One of the elements of the Plan is to reduce carbon emissions, support some places to take the lead in reaching the peak of carbon emissions, and formulate an action plan for peak carbon emissions by 2030. Some commentators suggest that the targets will require a relatively steep reduction in the use of fossil fuels (in particular coal) in the short term, by use of new technologies to capture and store carbon so as to facilitate the transition from the use of fossil fuels. A policy setting being discussed is the introduction of an absolute GHG emissions cap. As with all economies recovering from the impact of COVID-19 these policy settings will need to be balanced with drivers of recovery, including the difficult to decarbonise cement and steel industries. It has been estimated for PRC to achieve the 2060 Goal investment of more than USD 5 trillion will be needed, including towards continued development of renewable power generation capacity.
See: China's 2060 carbon neutral goal bill could hit over $5 trillion
The progress being made in China in the development of renewable energy capacity on a project by project basis is globally significant (for example, China Huaidan Corporation's recently announced 2.2GW solar farm and 220 MW energy storage system near Shuzhou), but in combination is globally critical.
See: China’s 2060 net-zero goal needs large-scale negative emissions tech
On Tuesday October 27, 2020, Japan's Prime Minister, Yoshihide Suga announced formally the goal that Japan aims to transition to net zero GHG emissions by 2050 (as foreshadowed in Edition 2 of Low Carbon Pulse). To achieve this goal, the Prime Minister noted that research and development was required in key areas, and that the transition went hand in hand with the digitising of the Japanese economy. Prime Minister Suga said that: "Responding to climate change is no longer a constraint on economic growth". The goal has been welcomed broadly, both for the contribution to the reduction in GHGs, and for recognition that this transition will be good for economic growth in Japan, and regionally with like-minded countries, including the PRC.
On Wednesday October 28, 2020, South Korea's President, Moon Jae-in, announced in the National Assembly of South Korea, that South Korea will be carbon neutral by 2050. The announcement of this goal, was accompanied by a vow to replace coal with renewables by 2050. The 2050 goal and the coal objective are part of the Green New Deal, which provides for funding of up to USD 7 billion and anticipates some tried and test policy settings, including ceasing to finance overseas coal generation plants and implementing a carbon tax, as well as the creation of urban forests, recycling and creating low-carbon industrial complexes. As is the case with Japan, Korea sees the possibilities of hydrogen as one of the means of achieving its 2050 goals. It might be expected that Korea's transition from coal is likely to be undertaken at a quicker rate than any transition away from natural gas: there are no reported plans to develop new coal fired power stations in Korea.
Within the last two months, three of Asia's largest economies, and the world's first, fifth and sixth largest GHGs emitters have set clear goals. Over the coming months and years, we will follow the development of policy settings to achieve these goals, and the impact of, the setting and achievement of these goals on countries that export fossil fuels to each of them. As things stand, many commentators are suggesting, consistent with the time frames that are required to transition from coal (both thermal and metallurgical), that GHG emissions are expected peak by 2030.
See: Japan to set emission ambition of net zero by 2050
North Sea carbon capture and storage (CCS) projects
As may be apparent from the first three editions of Low Carbon Pulse, there are a number of perspectives that recur, and some as themes. One of these is the view of the International Energy Agency that it will be "virtually impossible" to achieve GHG emissions reduction targets without CCS projects. The question posed in response to this perspective is how quickly can this occur.
Following hot-on-the-heels of the Longship Project (outlined Edition 2 of Low Carbon Pulse), an alliance has been announced by oil and gas major, BP, to develop a CCS project in the North Sea: the GHG is to be stored in saline acquifers below the sea bed. As reported, the CCS will allow the storage of nearly 50% of the industrial GHG emissions arising in the UK in a CCS facility in the North Sea.
The CCS project will store GHGs captured at two separate carbon capture projects on the east coast of England. Other participants in this alliance are other Big Oil companies, Eni, Equinor, Shell and Total, and the National Grid. As currently scheduled, the CCS project will be operational by 2026. In other countries considerable geotechnical work is planned to determine appropriate under storage sites.
See: China’s 2060 net-zero goal needs large-scale negative emissions tech
France releases tenders for hydrogen projects:
On 9 September 2020, France released its National Strategy for the Development of Carbon Free Hydrogen (the "Strategy"). The Strategy has defined three goals:
- to install enough electrolysers to make a significant contribution to the decarbonisation of the economy;
- to develop clean mobility, in particular for heavy vehicles; and
- to build an industrial sector in France that creates jobs and guarantees a certain technological expertise.
Consistent with the Strategy, two requests for proposals have been released.
One entitled "Briques technologiques et démonstrateurs hydrogène" (technology bricks and hydrogen demonstrators) for the production and transport of hydrogen for which proposals are due by 31 December 2022.
The other one, called "Ecosytèmes territoriaux hydrogène" (territorial hydrogen ecosystems), focuses on industrial and mobility applications, particularly for utilities and heavy transport vehicles through renewables or carbon-free hydrogen. Proposals are due on 17 December 2020, 16 March 2021 and 14 September 2021.
Both requests for proposals reflect the view that the heavy vehicle and public transport industries will be early movers in the transition from use of fossil fuels to use of hydrogen as an energy carrier.
Port of Rotterdam (the story so far) and hydrogen exchange:
The Port of Rotterdam is the first port globally to use a hydrogen powered terminal tractor - the YT203-H2, which is currently deployed in the United Waalhaven Terminals. The terminal tractor has been developed by zepp.solutions (the fuel cell system developer) and Terberg Benschop (vehicle tractor manufacturer).
This deployment is consistent with Government Strategy on Hydrogen (GSH) published by the Dutch Government, and continues initiatives already underway in the Dutch ports sector, including the Porthos project in Rotterdam (capturing CO2) and the associated H-Vision project (to allow large scale production of blue hydrogen). The Porthos / H-Vision projects illustrate the need for pragmatic policy settings: blue hydrogen is seen as paving the way for green hydrogen production by developing a supply of hydrogen. This approach to policy settings recognises that while blue hydrogen production is a worthwhile end in itself, it does not set in stone the policy settings. This approach to policy setting is consistent with the Norwegian Government in respect of Project Longboat (as outlined in Edition 2 of Low Carbon Pulse).
As is the case with many road maps, plans and strategies of Governments, the GSH recognises the importance of the port and industry sectors in achieving climate neutral industry by 2050. Also the GSH recognises the role for cooperation across the globe, and in so doing recognises the roles that different countries may take. One of the roles that The Netherlands is naturally suited to take is that of a location for a trading and close to potential load (for delivery by pipeline) for, and loading (for delivery as export) of, hydrogen.
Four Dutch port authorities and Gasunie are arranging a study to be undertaken into the practical design of a hydrogen exchange. This initiative followed the conclusion that a hydrogen exchange (and electricity exchange) could act as a catalyst for the development for trade in a hydrogen market (and clean energy) contemplated in a study titled, A Hydrogen Exchange for Climate. It can be expected that other ports and clusters of ports around the world will follow suit, with some ports already having established energy exchanges, and able to respond to provide a market for this new trade, for example the Hainan Energy Exchange (at the free port of Hainan, China).
Finally, the GSH recognised the role that the Northern Netherlands was likely to play was significant in the near term. On October 30, 2020, the Northern Netherlands Hydrogen Investment Plan was published. The Plan contemplated Euros 9 billion of investment. The Plan is the work of businesses and government bodies and describes the region as the Hydrogen Valley (of Europe). The adaptation of Silicon Valley reflects both the potential of the hydrogen industry, but also the importance of the development of technology to it.
See: Hydrogen exchange offers opportunities for a hydrogen market
See: The Northern Netherlands Hydrogen Investment Plan 2020
Russia – In the Framework
By a decree published on November 4, 2020 (the day before the USA formally left the Paris Agreement), President Vladimir Putin has directed his government to work towards GHG emission reductions while at the same time ensuring strong economic development (Russian Decree). As is becoming apparent around the world, the two are not mutually exclusive, in fact increasingly one is seen as necessary for the other. The decree directs government to work torwards a reduction in GHG emissions of up to 70% of 1990 levels by 2030. Given the size, and other characteristics, of Russia, it is contemplated that carbon sequestration is likely to play an important part in achieving these goals.
While response to the decree has been mixed and muted (possibly because of the wall to wall coverage of the US Presidential Election), the decree provides clear goals. The strength of the goals may be regarded as more closely aligned with those of corporations that are members of the World Business Council on Sustainable Development (see below) than the Paris Agreement, but the decree is tied to the achievement of GHG emission of up to 70% of 1990 levels (and as such not forward looking to 2050 only) and should be seen as an opportunity for economic development and increased trade.
As with other top 10 emitters of GHGs that have leant forward since the start of September 2020, with the Russian Decree, Russia has recognised the need for GHG emission reductions.
The Paris Agreement is an agreement between Parties to the United Nations Framework Convention on Climate Change (UNFCCC). The central objective of the Paris Agreement is to keep global temperature increases to 2oC below pre-industrial levels, and to pursue initiatives to keep increases to 1.5oC below pre-industrial levels. Also under the Paris Agreement, Parties to the UNFCCC agree to reductions in their 1990 GHG emission by 2030 and 2050.
See: Putin orders Russian government to work towards Paris climate goals
South Australia – Green, On the Grid and making the most of it
A Green Grid:
In Edition 2 of Low Carbon Pulse we noted that South Australia had dispatched electricity from renewable energy to cover 100% of the electrical energy load of the State – a world first. As a practical matter, this demonstrates that South Australia has one of the best developed renewable energy capacity bases in the world, with a little over 57% of annual load being matched by the dispatch of renewable electrical energy. Given the geographical location and the resources of South Australia, it had been ahead of the pace of change to respond to energy initiatives, including its container deposit scheme (to recycle beverage containers) and its transition to renewable energy. The same can be said on the shift to hydrogen. South Australia's Hydrogen Action Plan has near and medium term goals, and outlines how to achieve them. As it says on the tin: "South Australia has the wind, sun, land and infrastructure to be a world class renewable hydrogen supplier".
Green Hydrogen Hubs:
On Tuesday October 27, 2020, the Government of South Australia announced plans to develop three production hydrogen hubs in South Australia. The Government recognising that hydrogen "is shaping up as a game changer", but it is necessary to get [the cost down] so that [it is] an … attractive option for heavy transport, power generation and use by industry." South Australian Energy Minister, Dan van Holst Pellekaan.
Consistent with thinking in a number of countries, the three production hubs are to be located at ports, in the case of South Australia, at Port Bonython, Port Adelaide and Cape Hardy / Port Spencer. It was reported on November 6, 2020 that H2U is to develop a AUD 240 million hydrogen production facility, and related infrastructure at Port Bonython.
South Australia Premier, Steven Marshall, is reported as saying: "The $240 million demonstrator phase of the project is of global significance, but is just the pre-cursor to a much larger production and export facility, that could see us strengthen our energy ties with traditional partners".
See: Hydrogen policy paying off as South Australia lands new $240m plant
A place in the sun:
Given South Australia's transition to renewable energy since the mid-2000s, and the clear support of the Government of South Australia, it is possible to see the State becoming a leading exporter of clean energy, both nationally through the East Coast Grid and internationally through the export of hydrogen as an energy carrier. This will require an increase in installed renewable energy capacity (and associated energy storage), possibly to between three and six times current renewable energy capacity. It has been estimated that if the three production hubs are developed, and the potential of them maximised, that South Australia will have up to 12 GW of installed renewable energy capacity.
See: Hydrogen Prospectus shows epic future for SA Renewables
A place underground:
In addition to the progress to the development of the three production hubs, and the production of renewable hydrogen (i.e., green hydrogen), South Australia has reserves of brown coal from which it is possible to gasify to produce synthetic gas (syngas) which will then be used as feedstock to produce hydrogen, fertiliser in the form of ammonia (NH3), which may be processed further to produce urea (CO (NH2)2).
The USD 2.8 billion Leigh Creek project appears to be proposing the use of different technology: we understand that up to 41 gasifiers will be used to source raw coal gas from the brown coal of the Leigh Creek Mine (coal gas comprising predominantly methane (CH4)) which will then be processed to produce syngas. As with the other activities in South Australia, this is an exciting development. While the Leigh Creek Mine project will be subject to the usual approval processes, it demonstrates again the ability of South Australia to respond to opportunity.
See: South Australia names hydrogen hubs to foster “epic” growth in wind and solar
Singapore's first utility scale energy storage system (ESS)
It was reported on October 27, 2020 that the first utility scale ESS was installed: the ESS has been supplied and installed by Wartsila for Sunseap Energy Ventures. The ESS is supported by Singapore's Energy Market Authority and Singapore Power Group.
In the context of the supply of electrical energy in Singapore, this may be regarded as a key element of the development of a system able to respond to load requirements so as to achieve optimal operation and grid flexibility, and as more intermittent and variable renewable energy sources may be added to the Grid, assure system integrity and stability.
See: Sunseap leads NTU, Wärtsilä consortium for Singapore's first utility-scale energy storage system
A break though to carbon neutrality
Breakthrough Energy is a collection of entities founded by Bill Gates, former CEO and Chair of Microsoft Corporation, and other technology business leaders. Breakthrough Energy was founded to speed the transition to clean energy sources, and a clean energy future.
On November 4, 2020, it was announced that Breakthrough Energy is supporting the European Green Hydrogen Acceleration Center (EGHAC). Consistent with its name, the goal EGHAC is to accelerate the development of the green hydrogen economy in Europe to Euro billion by 2025.
The EGHAC is to be managed by EIT InnoEnergy. Jacob Ruiter, EIT InnoEnergy board member stated:
"The commercialisation of green hydrogen is absolutely vital if Europe is to achieve its ambitious goals of becoming the first net zero continent by 2050. Quite simply, there is no better way of decarbonising heavy industry and heavy transport, and it can play a significant role in supporting grid flexibility through storage."
This establishment of EGHAC is entirely consistent with the broad recognition that government, industry and technology developers and providers need to come together to develop technology and markets in tandem, and in parallel if possible.
See: Bill Gates Fund and EIT InnoEnergy Announces New Initiative to Speed Climate Neutrality
World Business Council on Sustainable Development (WBCSD)
The WBCSD was established in 1995 to provide guidance to many of the world's largest corporations as to the ways and means of achieving and maintaining sustainable practices in their businesses. The vision of the WBCSD is of: "a world where more than 9 billion people are all living well and within the boundaries of our planet". The mission of the WBCSD is: "to accelerate the transition to a sustainable world by making more sustainable businesses more successful."
In an initiative consistent with the 30 year time-lines announced by Japan and Korea, membership criteria for the WBCSD require corporations to have plans to achieve net zero GHG emissions within 30 years, i.e., by 2050.
Amongst, 200 others, Equinor is a member of the WBCSD, as are other Big Oil companies.
See: GHG Management
Equinor announces its own road map to 2050 net zero target – "every step of the way"
On November 2, Equinor, the Norwegian Oil and Gas Company, announced that: "Equinor is committed to being a leader in the energy transition". Recognising that GHG emission reduction as part of energy transition is as much about ultimate consumption (i.e., combustion) of energy carriers as it is about extraction, production, refining and transportation and distribution of them, Equinor is committed to reducing GHG emission "every step of the way". Equinor estimates that 85% of GHG emissions from fossil fuels arise on consumption of the products derived from oil and gas.
To ensure that Equinor walks every step of the way, it has introduced the concept of Scope 1, 2 and 3 GHG emissions from the ultimate use of fossil fuels by reference to the equity participation that Equinor has in the mass of fossil fuels produced. As is the case with good policy settings for government, the Equinor reduction settings work to the near term (2025), the medium term (2030 to 2035) and long term (2050). Equinor's stepped path is in line with Norway's policy settings generally, including to reduce net carbon intensity to zero by 2050.
As is the case with an increasing number of the members of the Big Oil club, Equinor is embracing energy transition as part of its own business transition. In tandem or in parallel, or possibly even as part of the "every step of the way" business strategy, is the near term intention to develop 4 to 6 GW of renewable energy capacity by 2026, and the medium term intention to develop 12 to 16 GW by 2035, representing Equinor's equity participation in both joint and sole developments of renewable energy.
See: Norwegian oil giant Equinor announces 2050 net-zero target
First, 40 by 30, Second 11 by 30, and third Grid integrity and stability
At the ruling Conservative Party conference in September 2020, Prime Minister, Boris Johnson, announced plans to increase the off-shore wind capacity of the United Kingdom from 10 GW to 40 GW by 2030 (40 by 30).
The Scottish Government has publishing it goal to harvest up to 11 GW of power from off-shore wind (11 by 30).
As these goals have been reflected upon, the work required to achieve them has focused the minds of industry participants, commentators and journalists. A number of newsfeeds have reported on the need for Grid development and augmentation to be coordinated, and to get well-ahead of the development of new off-shore wind capacity so as to allow timely and effective connection of that new capacity to the Grid.
To many industry participants, this should be regarded as shared responsibility and risk, and needs to be seen and contracted as such: there have been many instances around the world in which connection and dispatch has been delayed as a result of the time taken to undertake and to complete stability and system integrity assessments, and the coordination of them across projects. It is not economically efficient or sustainable to have to use queuing to manage timing of connection, and may even act as a drag on investment.
Background: In simple terms, the development of the supply side of the electricity market is one half of the task, the other half of the task is the delivery of the electrical energy generated to the load for it while maintaining the integrity and the stability of the Grid transmitting the electrical energy to the load. As a general statement, the greater the proportion of intermittent or variable electrical energy generation (including solar and wind) the more challenging it is to maintain system integrity and stability.
See: Offshore wind policy statement
Interconnection
As the renewable energy industry considers the location of the world's best renewable energy resources, threshold questions arise, critically, is it possible to transmit energy as electrical energy to load or is it necessary to produce an energy carrier, for example, hydrogen, and to deliver that energy carrier to the market in which it will be consumed / used.
The announcement of the proposed 3,700 – 4,500 km high voltage direct current (NT / SIN HVDC) interconnector to transmit electrical energy from the 10 GW Newcastle Waters Solar Station project in Australia's Northern Territory to deliver 2.2 GW of electrical energy to Singapore has prompted a number of participants to turn their minds to what is possible technically, and what this means within a financial model. Low Carbon Pulse – Edition 2 provides detail of the Newcastle Waters Solar Station project.
The Norway to Britain North Sea Link (the Statnett and National Grid project) is scheduled to commence transmission in 2021. The North Sea Link comprises a 720 km submarine link. The NT / SIN HVDC will be longer by a multiple of between just over 5 or 6.
While the financial modelling parameters of these projects are well understood, it does not harm to remind ourselves of the key dynamics, assuming that the supplier of electrical energy is transmitting that electrical energy to the load:
1. development and operation and maintenance costs of the solar facility, the interconnector and energy storage, on the cost side of the model, expressed in USD per kWh; and
2. revenue from electrical energy, which in the case of a solar facility is a function of:
- the term of the supply; and
- quantity of electrical energy capable for dispatch, in turn being a function of:
- the capacity factor of the solar facility, being the nameplate of the renewable energy facility, its capacity, actually generated for dispatch, said to be in a range of 10% to 25% (with large-scale photovoltaic facilities having capacity factors at above 20% in certain countries); and
- the line losses, being the loss of energy that results from the transmission of the electrical energy from the point of dispatch to the load.
See: Photovoltaics News, in PV Magazine
Author: Michael Harrison, Partner.
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