Why can’t we be friends? The case of lithium ion batteries and fuel cells

Tesla’s rise from the play-thing of millionaires, to one of the world’s most valuable automotive companies and most recognized global brands, is the shot in the arm for green mobility that the world surely needed. Indeed, few automotive companies could claim to have made significant progress in decarbonizing the mobility sector before the Model S, Model X and eventually Model 3 entered the scene. The biggest exception being the Nissan Leaf, which is the worlds most sold electric vehicle model, with more than 320,000 units shipped to date[1].

However, while there are many things that the world should thank Elon Musk for, his antipathy to Fuel Cells is not one of them. While there is little point in denying the discrepancy in electrical efficiency between a Battery Electric Vehicle (BEV) and Fuel Cell Electric Vehicle (FCEV), to call the technology “mind boggling stupid” is green-on-green fire at its finest. At a time where less than 3% of global energy in transport is considered renewable (largely composed of biofuels, whose green credentials are frequently challenged), it is more important than ever to focus on the real goal – the gradual phasing out and substitution of internal combustion engine (ICE) vehicles.

The BEV advocate arguments against FCEVs are clear. The technology is too expensive, and its round-trip efficiency remains significantly below BEVs (around 45%-60% for FCEVs v.s. 80%-90% roundtrip for BEVs). For these reasons, BEV advocates are concerned that less knowledgeable policymakers and indeed consumers, will conflate FCEVs and BEVs, creating a convenient excuse to prolong the life of ICE vehicles. Further, BEV advocates sometimes articulate genuine concerns that in an environment where public sector investment is constrained, dividing limited resources between building infrastructure for BEVs and FCEVs results in underdeveloped networks that delays the public uptake of both.

Source: CCC, 2018, p.56, https://www.theccc.org.uk/wp-content/uploads/2018/11/Hydrogen-in-a-low-carbon-economy.pdf

These concerns are well founded. But they are also wrong.

Firstly, BEV advocates often forget that the story of Hydrogen is much bigger than mobility alone. Indeed, the current global Hydrogen market is already valued at in excess of $100bn per annum (and forecast to grow at 8% pa until 2026), in contrast to the automotive battery market (including Li-Ion), which will reach USD $95bn by 2025 (at a forecast growth rate of 7.9% over the period). Further, Hydrogen is forecast by Shell, the IEA, IRENA and leading OEMs to be the key source of fuel for heavy mobility, driven by the inescapable fact that hydrogen is simply more energy dense than any battery alternative available and even at scale, it retains a lead over Li-Ion solutions.

Source: Hydrogen Council, 2018, p.14, http://hydrogencouncil.com/wp-content/uploads/2017/06/Hydrogen-Council-Vision-Document.pdf

Beyond mobility though, many see Hydrogen as the only serious solution (alongside CCS) to large scale de-carbonisation of the World’s largest source of energy demand – heat. Indeed, demand for energy for industrial, commercial and residential heat accounts for over 50% of global energy consumption, with few clear solutions beyond Hydrogen and/or CCS available (and in some instances electrical solutions, mainly at lower temperatures). Indeed, countries like the UK are already exploring if Hydrogen could de-carbonise an entire countries gas grid by 2050, while the EU is funding a range of pilots that utilise Hydrogen as a feedstock for the steel industry.

Consequently, whether BEVs dominate the mobility sector in the short to medium term or not, Hydrogen and Fuel Cells are not going anywhere. Indeed, the technology itself is already over 150 years old, with the first fuel cells made in 1830.

The second point though is that BEV batteries and fuel cells are actually natural partners. The BEV may be considerably more efficient for short distances, but over long distances the charging issue remains a significant (and in some cases perhaps insurmountable) barrier to erasing consumer range anxiety concerns. Combining batteries for short journeys and a fuel cell for long distances is a natural hybrid, and one which automotive companies such as Mercedes have already realized. The GLC F Cell is the start of a trend that illustrates the value of such clean energy hybrids, allowing up to 450km of range and thus averting consumer range anxiety concerns. Further, such hybrids allow grid planners to focus on developing EV charging infrastructure at the sub 50kW range, leaving the more immediate refueling needs to Hydrogen refueling stations.

The importance of hybrid infrastructure is important. It is easy to forget that few countries have sufficiently modern and robust grids to support rapid charging at the scale needed for global EV roll-out. Indeed, many countries do not have fully automated SCADA systems at the distribution level and are frequently impacted by rapid voltage fluctuations. This is compounded by the fact that many grid operators have a limited understanding of the transportation sector, and few automotive manufacturers understand the impact of their operations on national grids. A good example of this informational gap can be seen in the relative lack of discussion around whether the grid reinforcement requirements for installing superchargers are reasonable for utilities (and ultimately consumers) to incur, especially where the location is remote and there may not be significant local generation resources available. This is not to say that rapid charging systems are not perfectly applicable in well developed and automated grids, with careful planning and close coordination. But to assume this is the case globally, particularly in many emerging markets, is unrealistic.

BEV advocates may, and indeed do, reject these concerns. The increasing range of batteries and changing consumer patterns are frequently cited as evidence that the barriers to BEV adaption can be surmounted. Further, the nature of certain vehicle applications that have a “return to base” function, increase confidence that significant and widespread BEV supercharging is less of a barrier for commercial vehicle fleets and municipal owned vehicles. Many also argue that BEVs provide battery storage resources to the grid, thus strengthening it rather than weakening it. This may all be true, but the world is bigger than California and Germany.

Few BEV advocates have successfully explained how widespread fast charging BEV infrastructure can be developed outside of developed countries, where grid failures are common and where the initial experiences with rapidly fluctuating levels of power demand and supply on the grid are already causing challenges. Further, while hydrogen can be stored for months and can be generated and transported across multiple areas, it is less clear how BEVs can provide comparable flexibility to ensure rapid charging for vehicles across large remote areas. Indeed, this may explain why countries like Australia are increasingly investing in both BEV and FCEV.

But even if the hatchet between BEVs and FCEVs cannot be buried for mobility, it is important to note that for the power sector these two technologies are already being paired. Indeed, the Raglan Mine micro-grid and HDF Energy’s project to replace diesel gensets in French Guiana, both show that hybrid battery and Hydrogen Fuel Cell base systems, have a powerful complementarity that should be recognized.

Ultimately emotions will probably determine the future of relations between BEV and FCEV advocates more than economics or technology arguments alone. But with the growing global pressure to accelerate the clean energy transition, and to meet the 1.5 degree target, it may be preferable for these technologies to take a moment to assess if the perceived enemy is not in fact a natural friend.

Footnote:

[1] CleanTechnica have also argued that even by 2021 the Nissan Leaf will remain the most sold EV vehicle globally: https://cleantechnica.com/2018/12/25/the-best-selling-electric-vehicles-when-will-tesla-model-3-be-1/

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Germany’s Electric Vehicle (EV) dilemma

Why the coming electric vehicle revolution threatens to up-end the entire German economic model

While Germany has long been admired as a leader in the clean energy transformation, notably for its package of energy policies termed the “energiewende”, the reality is that German industries have often born the brunt of these changes as have the tax payers. However, while Germany was able to absorb the hits to Siemens, RWE and Eon resulting from power sector reforms, the challenge posed by Electric Vehicles is altogether more serious. In this article I want to outline why, without a major new strategic plan, the global shift towards electric vehicles may not only up-end the entire German automotive industry, but transform the German economy as a whole.

First thing to note is how fast the Global EV market is growing:

It is hard to underestimate just how flat-footed policymakers have been, as have industry analysts, in predicting the uptake of electric vehicles. In fact, the growth has been so rapid that the International Energy Agency (IEA) revised up its original estimates for Global EV demand, such that The EV30@30 Scenario sees 228 million EVs (excluding two- and three-wheelers), mostly Light duty vehicles, in the global fleet by 2030. To contextualise this figure, the current light duty vehicle market is estimated at around 1.2bn, therefore EV’s will account for roughly 20% of global vehicles within the next 12 years[1].

Image 1

In 2013 the world had less than 500,000 EVs on the roads. By 2017 this number had reached 3 million. To reach the IEA target (which many believe is still conservative), the Global EV market will have to grow by an average of more than 12 million sales per year. But that doesn’t look unrealistic, given that the current EV market is growing by between 40%-60% per annum.

Image 2

But that number doesn’t tell the whole story. Current EV growth is not evenly distributed, rather it is heavily skewed towards a few key economies, with China accounting for 50% of Global EV demand, followed by the USA, then Norway[2].

Image 3

Car companies can see the threat:

Whatever your personal views on Elon Musk, it is hard to argue that Tesla has not been a huge driver in explaining why global automotive companies are increasingly focusing on the EV space. As Forbes noted in its summary on the market in 2018:

“Porsche aims at making 50% of its cars electric by 2023. JLR has announced it will shift entirely towards electric and hybrid vehicles by 2020. General Motors, Toyota and Volvo have all declared a target of 1 million in EV sales by 2025. By 2030, Aston Martin expects that EVs will account for 25% of its sales, with the rest of its line up comprising hybrids. By 2025, BMW has stated it will offer 25 electrified vehicles, of which 12 will be fully electric. The Renault Nissan & Mitsubishi alliance intends to offer 12 new EVs by 2022.[3]

However, while manufacturers see the need to pivot towards EV’s they need domestic infrastructure and demand to drive that growth. This is why Germany has a problem.

The German economy literally begins and ends with cars:

The German economic model is based on exports. Germany remains the World’s largest exporter, running a trade surplus in excess of 6% of GDP, and as of 2016, Cars represented 12.3% of the total exports of Germany, followed by Vehicle Parts, which account for 4.63%[4]. To put this another way, according to the German Trade and Investment (GTAI) association, the automotive industry accounted for 10% of German GDP in 2016[5].

Image 4

Source: OEC, 2018[6]

The German car industry also explains the unique model of the German economy. Due to the highly specialised demands of traditional, internal combust engine (ICE) vehicles, automotive manufacturers have traditionally required an extensive range of specialist suppliers. This has not only helped to create the famous German “Mittlestand”, but also to sustain it. This has been essential to ensuring a distribution of wealth and job opportunities across Germany and as a result, the German automotive industry employed 825,500 people in 2018, generating a turnover of Eur 423bn and sustaining over 940 German businesses from OEM’s to parts suppliers.

But EVs are very different. By some estimates, a regular ICE vehicle has around 2,000 moving parts requiring exactly the specialists that Germany have. By contrast, EVs have 20[7]. This dramatic change is estimated to put at least 75,000 German jobs at risk in the car powertrain sector alone, according to research by the Fraunhofer institute[8] (up to 100k if the switch was faster than modelled). But as if losing 10% of the workforce alone wasn’t a concern, the other issue is that future car models won’t make sense to build in Germany at all.

Car manufacturing is driven by domestic demand:

Germany remains a minnow in the Global EV demand scene. It was only ranked 4th in Europe in 2016, and barely scraped 2nd place by new EV sales in 2017.

Image 5To add insult to injury, there were only 28,000 EVs in Germany as of 2016 (from over 2 million globally) and[9] even worse, the most popular EV in Germany isn’t even one of the multiple German brands, its Kia[10].

Image 6

It is perhaps unsurprising then, that given Germanys considerable lag in entering the EV space, a number of leading German manufacturers have decided that they cannot compete with the lead that competitors have built up in parts of the new automotive supply chain. In a particularly embarrassing blow for German Industry, Bosch, “Germany’s biggest and most important supplier of car components[11]”, ruled in March 2018 that it wouldn’t even try and compete with the Chinese and Korean firms that dominate the manufacturing of batteries for electric vehicles[12].

Image 7So what does this mean?

It is clear that Germany has a formidably capable and resourceful industrial base. But it is also clear that the transformation of the EV market has caught Germany’s leading companies badly off-guard. Despite widespread anticipation that German car companies would easily and rapidly overtake Tesla, the initial feedback from the first wave of “Tesla killers” has been disappointing[13].

Time has not run out on Germany to adapt to the disruptive forces roiling the global automotive sector. But Germany is starting from far-behind and the stakes are high. A failure to adapt could mean more than job losses and faltering economic growth. It could mean an end to the German “Mittlestand” and the economic engine that built the modern Germany. What that means in a time of populist politics should give all German politicians pause for serious concern.

 

References

[1] IEA, 2018, https://webstore.iea.org/registerresult/1?returnurl=%2fdownload%2fdirect%2f1045%3ffilename%3dglobal_ev_outlook_2018.pdf

[2] EV sales, 2018, http://www.ev-volumes.com/

[3] Forbes, 2018, https://www.forbes.com/sites/sarwantsingh/2018/04/03/global-electric-vehicle-market-looks-to-fire-on-all-motors-in-2018/#62970a12927f

[4] OEC, 2018, https://atlas.media.mit.edu/en/profile/country/deu/#Exports

[5] GTAI, 2018, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=2ahUKEwjQjrrMotLdAhWJTt8KHXqQDgAQFjABegQIBRAC&url=https%3A%2F%2Fwww.gtai.de%2FGTAI%2FContent%2FEN%2FInvest%2F_SharedDocs%2FDownloads%2FGTAI%2FIndustry-overviews%2Findustry-overview-automotive-industry-en.pdf&usg=AOvVaw1MoymuoslNxq8CGePOtmYu

[6] OEC, 2018, https://atlas.media.mit.edu/en/visualize/stacked/hs92/export/deu/all/show/1995.2016/

[7] Cnbc, 2018, https://www.cnbc.com/2016/06/14/electric-vehicles-will-soon-be-cheaper-than-regular-cars-because-maintenance-costs-are-lower-says-tony-seba.html

[8] Autonews, 2018, http://europe.autonews.com/article/20180605/ANE/180609877/ev-push-threatens-75000-german-auto-industry-jobs-study-says

[9] EV sales, 2017, http://www.ev-volumes.com/country/germany/

[10] Cleantechnica, 2018, https://cleantechnica.com/2018/05/19/shocking-electric-car-takes-1-in-germanys-april-2018-electric-car-sales-ranking/

[11] The Verge, 2018, https://www.theverge.com/2018/8/15/17685634/germany-car-industry-battery-cells

[12] GTM, 2018, https://www.greentechmedia.com/articles/read/bosch-abandons-ev-battery-manufacturing

[13] FT, 2018, https://www.ft.com/content/3f5ded00-bd7d-11e8-8274-55b72926558f

Brexit remains the right choice for Britain

On the 21st of February 2016 I publicly advocated for the UK electorate to vote leave in the UK’s referendum on continued membership of the European Union. Between that time and the night of the referendum, I campaigned constantly for the campaign to leave the European Union, with my final public plea published on the 21st of June 2016. On the 23rd of June 2016, 17.4 million UK nationals voted to leave the European Union; a majority of 52%.

Since that time friends and acquaintances have often asked me if I made a mistake. More importantly, many of those who listened to my views during the Brexit campaign, and who voted Leave subsequently, asked me if they have made a mistake. It is for those who listened to me and who followed my guidance that I say this clearly: Brexit remains the right choice for Britain.

Brexit myths:

I want to start by dispelling some Brexit myths that have built up since the referendum.

Firstly, I want to dispel you of the notion that the UK government is doing nothing, has developed no plans, no ideas or serious proposals for how to implement Brexit. The UK has issued extensive strategies, contingencies and proposals to work alongside the EU that cover atomic energy, a new EU trade deal, EU citizens’ rights, Northern Ireland, existing judicial proceedings, law & securityscience and innovation, Data protection for UK & EU citizens, advice for UK citizens living in the EU, advice for EU citizens living in the UKguidance on trucking, on aviation, and so on. The UK has also guaranteed UK organisations all funding they would have received from the EU until 2020 (when the EU budget was due to end anyway). When people read in the papers that the UK has done nothing and has no plan, you need to understand that this is a tactic not a description of reality.

It suits the EU negotiators to refuse to engage with the UK, to run down the clock and ignore proposals. This includes the use of technology on Northern Ireland’s border, which the EU’s own investigation showed was a feasible and practical solution. Smart and sensible ideas are being ignored by EU negotiators as part of the EU’s negotiating tactics. These tactics are brilliantly described by Yanis Varoufakis in his book on how the EU ignored extremely detailed, expertly modelled and internationally supported Greek proposals during their debt renegotiation with the EU in 2015.  In short, ignoring sensible suggestions to force an ultimatum is a tried and tested EU tactic, along with leaking and selectively quoting private conversations. This is normal and should be expected. Importantly, it should be understood that the EU is trying to create a narrative that the UK is unprepared, but this is only a cleverly fabricated narrative. It is not grounded in facts.

Secondly, I want to emphasise that the existential challenges at the heart of the European Union, namely its democratic deficit, its growing illiberal tendencies, and the failure of the EU principle of solidarity, remain unresolved. As the famous pro-European, Hungarian philosopher Ivan Krastev recently noted, the EU’s continued failure to resolve the bloc’s divisions on immigration is straining the solidarity of members and even their adherence to the EU’s Human Rights Act. The rejection of drowning refugees by Italy is one recent example of this, and Hungary’s recent anti-migrant act is another. Moreover, despite the best efforts of strongly pro-European individuals, such as Guy Verhofstadt and Emmanuel Macron, to warn of Europe’s need for reform, the only concession that has been granted to these voices has been the creation of a small EU budget (separate from the EU commission budget). However, even this proposal is less progressive than it seems, because of a German-imposed requirement for funds to be linked to acceptance of migrants, thus immediately reducing funding to countries in Eastern Europe and increasing Germany’s receipts of EU funds.

Thirdly, while it has been popular for commentators to accuse people who voted Brexit of being racist and suggesting that the country wishes to revert to a little England mentality, the facts do not support their narrative. While Austria, Hungary, Italy and Poland discuss plans for an “anti-migrant Axis”, recent polling data from June 2018, shows that UK public attitudes towards immigration in the UK were more positive than at any time since 2011, a stunning rebuke to the initial rise in hate crime that immediately followed Brexit[1].

Brexit migrants FT

Brexit migrants eurobarometer 1Brexit migrants eurobarometer 2

It is also important to dispel another Brexit myth that if the referendum were to be held again today the result would be different. The data proves otherwise. As of December 2017, polling from YouGov showed that 55% of the UK public thought that Brexit should happen, regardless of their original view on the referendum. Recent data all indicates a similar result. None of which is to say the current British government is doing a great job. It is plain for the British public to see that they are not.

Building a better Britain:

Rebuffing growing misinformation is vital, but the backbone of my belief in Brexit is distinct from these arguments. I believe in Brexit for the following reasons:

I believe Brexit remains the right choice for Britain because I believe it allows us to build a trade policy that is fairer to the British people, delivering better economic outcomes. While the US, Chinese and Indian economies boom, the UK is locked into a customs union with the slowest growing economic area on earth. As of 2017, 15 out of Britain’s top 25 trading export partners are from outside the EU, and 11 of those (including US, India, China, Australia, Japan and Canada) accounted for 36.4% of all UK exports. These trading relationships relied on the dreaded WTO rules. Amusingly, Canada has confirmed that the UK could have enhanced free trade access from the first day of Brexit. They will not be alone[2].

Brexit economies

I believe Brexit will also make Britain’s immigration policy fairer. For immigration it remains fundamentally unjust that a doctor, engineer or an experienced entrepreneur will find it harder to work in the UK if they come from the USA, Canada, Chile, Japan or Colombia than an 18-year-old from France, Estonia, Portugal or Austria. Moreover, despite having a free-movement area with the EU, data from the UN overwhelmingly shows that British citizens would rather live in Australia, Canada and the USA than any country in Europe[3]. UN data shows that more Brits have chosen to live in Australia than all of Western Europe combined.

UK immigrants

Brexit allows the UK to correct these imbalances and create an immigration system based on reciprocity that allows British citizens to live and work where they actually are trying to go, whilst building trade bridges with nations that are growing. Dynamic ideas to addressing these opportunities of new immigration systems and free trade deals include the potential of the UK joining regional free trade groupings such as NAFTA and the TPP, while others have also floated the idea of a new Australia, Canada, New Zealand UK free trade zone (CANZUK). I would suggest that the UK should explore new trade and visa options with dynamic regional markets such as the Pacific Alliance in Latin America too.

Lastly, I believe in Brexit because of the phenomenal role it has played in restoring British democracy. While the traditional major political parties in France, Germany, Italy, Austria, Greece, Spain and the Netherlands have almost all collapsed, or seen their share of the vote significantly cut, the British main parties have rebounded to their highest combined share of the vote in almost 30 years. It is not hard to see why. In the 2000’s Europe grew up with a political obsession for “middle-way” politics, a convenient euphemism for technocratic governance and offering voters no real choice. It was common to hear the refrain “they are all the same”, and why bother voting? The electorate didn’t see the point in voting, and UK voter turnout fell below 70% for the first time since the advent of universal franchise. It appears that if people are not offered a chance to vote for what matters to them, they turn to parties that will offer them that choice. Across Europe the radical left and fascist right-wing parties have surged. Many of them are now in government. Brexit has stopped all of this. The far-right is almost entirely annihilated in polling (with the only revival recently due to the risk of a soft Brexit), the Labour party is the largest political movement in Europe and the UK’s election turnout is at its highest in over 20 years.

Closing Comments:

Before I finish, I also want to address the recent news surrounding Brexit. It is clear that the Conservative cabinet is deeply divided by it, but reassuringly so is the nation and so are the Labour party. It can seem concerning to see bickering at a public level from the Cabinet, but the very fact that there are disagreements and strongly held views attests to the fact that the current UK government is reflecting a broader sway of stakeholder interests than it is credited with. The current UK white paper is a demonstration of this. While ensuring the UK leaves the Single Market and the Customs Union, it also ensures that the UK regulatory framework is aligned on goods with the EU so that businesses do not face disruption. Clearly this deal does not suit all parties, but this is the point of compromise.

The resignations of Boris Johnson and David Davis are less controversial than the press would like them to be. The fact that they were staggered suggests an attempt to avoid triggering a crisis of confidence and a leadership challenge, as has been affirmed by David Davis. Secondly, it leaves Theresa May free to pursue a plan she believes in without cabinet members who do not endorse that plan. The greater risk does not come from the resignations but rather any further attempts by naïve and reckless cabinet members like Phillip Hammond to pretend that the Conservatives can repeal Brexit and escape without being destroyed and permanently dividing the nation. As the FT recently put it, the Conservative party is the party of Brexit.

It is easy to become disheartened by Brexit when the headlines often seem full of gloom, but it is important to take a step back. For every well-timed fear story like the Airbus threat to leave the UK, there are stories like Boeing committing to further UK spending and Australia awarding BAE UK massive defence export contracts. For every threat of jobs leaving London, like the 5,000 threatened finance roles, there are new commitments by companies like Facebook to employ up to 800 new staff, with office space for 6,000. The news will always try to showcase a clickbait headline, but if you can, try and ignore the noise.

Lastly we should not be afraid of a “no-deal Brexit”. Such an event would cost the EU over £100 billion, creating a continent wide recession, with the most severe impact being felt in Ireland and Germany. Given the growing anger and division in Europe over the increased EU contributions required by the EU’s wealthier states (Germany’s contribution will increase 16%) and how the shortfall in funding should be addressed, combined with the on-going battles over asylum, immigration and law & order, the EU would be suicidal to refuse to offer concessions in the face of a ‘no deal’. The path has been challenging and we are not out of the woods yet, so one should steel one’s nerves and prepare to witness continued anti-Brexit campaigning right until the eleventh hour. Just remember – Brexit is the best choice for the future of Britain.

 

 

[1] For further great information and graphics on how the UK is considerably more tolerant towards immigration than the majority of EU members, check out the Eurobarometer scores from April 2018: https://ec.europa.eu/home-affairs/news/results-special-eurobarometer-integration-immigrants-european-union_en

[2] There has been a significant effort by the EU to scare Britons about the challenges of trading from outside the single market and relying on WTO rules. Lets put this in context: The EU’s average tariff rate for countries like the US, Canada, etc, was 2.3% on goods as of 2013 (spoiler: it has not increased since), while for cars the EU recently proposed reducing global car tariffs to zero. While many organisations have highlighted the importance of non-tariff barriers, i.e. different product rules & standards, it is worth noting that batteries (for electric vehicles), micro-chips for phone, computers and tablets, as well as basic raw materials, all enter the EU from non-EU members. In short it may increase some short term costs, but accessing a broader array of markets will make UK goods more competitive as further free trade deals are signed.

[3] To put this into context, as of 2017 the UN estimated that there were 3.8 million UK expats across the world. The largest EU locations for British nationals were Spain (308,872), Ireland (278,000 people), France (188,000), Germany (103,700) and Italy (72,000). Many of which are retired and not of working age. In the Anglosphere the largest locations were Australia (1,351,846), USA (748,206), Canada (624,411) and New Zealand (272,071).

The cynicism is unjustified – Hydrogen is the key to a clean transport future

The world’s largest free trade deal fundamentally re-shaped the future of Transportation – and no one noticed.

In December of 2017, the EU and Japan announced that they had agreed the terms of a vast international free trade deal. The deal, still subject to final approvals in the EU and from the Japanese diet, will create a combined economic free trade area of 600mn people worth 30% of GDP. But while the focus has been on the changes to agriculture, sustainability and regulatory alignment, a key provision has slipped almost unnoticed from the public eye. A regulatory drawbridge for hydrogen vehicles has been created.

In one of the most startling changes, barely noticed by the press, the EU have been allowed to sell hydrogen cars straight into the Japanese market, bypassing stringent legislation for Japanese specialist steel and labelling standards. In addition, the EU has agreed that “Furthermore, EU manufacturers that are not yet as far advanced in the development of this technology of the future can, thanks to the specific and much lighter conditions, import hydrogen fueled cars for testing and validation purposes and use the Japanese infrastructure of hydrogen filling stations to fine-tune their cars.”

Why does this matter? It matters because (arguably) the world’s most technologically advanced nation has bet big that the future of transportation will be Hydrogen and it is now luring all the world’s largest automakers to build out their R&D and manufacturing within Japan.

Hydrogen cars:

In 2020, Japan will host the Olympic games and the vehicles of those games will be hydrogen fueled. The aim is to put 40,000 hydrogen fuel cell vehicles (HFCVs) onto the roads by 2020, including over 160 charging spots. However global current sales of HFCVs are low, with only 1,600 sold in H1 of 2017. In part this is because the vehicle selection remains limited and the cheapest versions…are not that cheap. As a result, there are no shortage of critics. Elon Musk is famous for deriding the chances of hydrogen vehicles, a view widely shared amongst the lithium battery bulls.  However, with its ability to re-charge a car in under 5 minutes and its exceptional long range, the battle for vehicle dominance is far from over.

In only 5 years’ the global electric vehicle fleet has risen from ~50k cars to over 2mn worldwide, driven by government subsidies and falling costs as production increased. Analysts believe those same drivers could transform the hydrogen market too. In early 2017, Honda and GM announced targets for mass production of HFCVs by 2020, while Toyota, Honda, Hyundai, BMW and Daimler have committed $10.7 billion into research and development of hydrogen-based products over the next five years. There are now even a range of apps that can show you all the planned and current Hydrogen re-fueling points, like this one.

Granted, I am a confessed Hydrogen fan and have been so for a while. So in the interests of fairness, I also leave an attached rebuttal of the case for Hydrogen cars here, though it is a little dated. But regardless of whether Hydrogen will transform the light vehicle car market, there are plenty of other sectors where Hydrogen technology is likely to transform our transportation system.

De-carbonizing transport:

Depending on the source, transportation accounts for between 14% and 23% of global greenhouse gas emissions (GHGs). This sector is also growing rapidly, as aspiring middle class citizens seek to travel more and to own their own forms of transport. Ride-sharing, urbanization and automated driving all offer potential avenues in the longer term, however poor urban planning, under-educated regulators and significant cost challenges will ensure that these solutions are unable to meaningfully reduce emissions until 2040 if not later. Moreover, they only deal with the simplest solution of all, light duty vehicles.

Using IEA estimates from the Global Tracking framework, a joint World Bank and IEA publication, global renewable transport numbers remain a significant concern for efforts to de-carbonise the global energy system. According to the IEA, Electric vehicles must reach 160mn by 2030 to meet the 2 degrees target set at Paris and over 200mn to reach the below 2 degrees target. In other words, the world has to manufacture and sell at least 158mn EVs in 13 years globally, mostly fueled by clean electricity and with sufficient grid infrastructure to handle re-charging.

Achieving the Paris commitments for light duty electric vehicles alone should put pause to the idea that we can electrify shipping, aviation, rail and heavy freight with batteries as well meeting the Paris commitments for electric light duty vehicles. The only credible alternatives are hydrogen, LNG or CNG.

Compare and contrast: the new Tesla truck with the Nikola Two. The Tesla truck will have a maximum range of 300-500 miles and will require 30 minutes of full charge to add 400miles. It will also require the equivalent demand from the grid of 3,000 – 4,000 UK homes when it is charging. That is per truck…In contrast, the Nikola Two can cover 800 – 1,200 miles with a 15 minute re-fuel time. The bigger brother of the Nikola Two, the Nikola One, has similar statistics but has received $2.3bn in pre-orders, totaling over 8k. Nikola isn’t the only company in the field either. Toyota has its own project, called “Project portal”, while Kenworth is examining HFCV options as well.

Looking at the aviation space, Hydrogen fuel cell planes have already been developed and successfully tested, including the HY4 passenger craft. The plane already has a range of 1,500 kilometers and expansions for a 19 passenger plane are underway. By contrast, experts from WIRED estimated that electric batteries will take until 2045 to have a commercially viable battery plane available. Even in the smaller plane segment, the current record distance set for an EV plane is 300 miles in a two seater plane, largely modelled on a glider technology.

In freight, Alstrom and Hydrogenics already have tested Hydrogen on trains in Germany, while Ontario is looking at Hydrogen trains to replace the current rolling stock on the GO rail network. Aside from promoting local businesses, the trains are almost silent and emit none of the harmful particles associated with diesel or other fuel sources. There clearly will remain a role for electrification of urbanized rail, but even in a small landmass like the UK, the costs of electrifying entire train lines have forced planners to move towards mixed fuel and electrification trains. In this regard, Hydrogen is likely to compliment electrification for long distance commuter trains. The UK is already considering this option.

Then we have shipping. The maritime industry is one of the worst sources of pollution in coastal cities, with cities like Hong Kong calculating that 50% of all locally produced air pollution comes from the maritime industry. In Norway, parts of Canada and the USA, various attempts to introduce LNG bunkering have produced significant results in reducing maritime emissions, with Vice estimating 20% less CO2 emissions per ship, but hydrogen is likely to be the next major frontier. So far both Viking Cruises and Royal Caribbean have committed to procuring hydrogen powered ships, while Norway’s Fiskerstrand Holding AS is building a hydrogen ferry and the Port of San Francisco is mulling a $5mn investment in a Hydrogen fueling station. They are unlikely to be the last movers.

But perhaps the most surprising thing about Hydrogen now is its wider application in more niche services. For Amazon, hydrogen fuel cells have allowed the firm to revolutionize its warehousing forklifts, so much so that the company invested $70mn into a fuel cell company called Plug Power, while Walmart reacted with its own investment of $80mn in the same firm. Why? Well according the leading US body NREL, hydrogen fuel cell forklifts are at least 10% cheaper than alternatives over a 10 year investment. But the effect is not limited to forklifts. Amazon now uses Hydrogen powered drones in its warehouses to monitor inventory. With a flight time of two hours, compared to 30 minutes for a comparable electric powered drone, Pincs aerial drones offer savings of up to 5% of the total inventory stock.

Final comments:

On our current global trajectory there is almost zero chance of the world reaching its Paris climate commitments, let alone the wider level of agreement needed to reduce CO2 emissions below the two degrees limit by the middle of the century.

Our energy system is going through the most rapid transformation in its history. It is going to be messy, complicated and littered with failures. It is going to cost more than it may have done had we guessed everything right at the start, and for decades there will be debates around this subject. But one thing is clear. Without hydrogen in transportation, there is no clear evidence that we can save our planet.

In 2003 to 2004, the UK government overwhelmingly backed the idea that Hydrogen would be a key fuel of the future. Like most new ideas, the hype came early and failed to deliver. In product innovation this is often the case. The dot.com boom was preceded by the explosion of the internet almost a decade later, with the worlds largest companies all being tech stocks. Electric vehicles themselves were considered the car of the future….in the 1900’s!! Yet it took over 100 years to become the new focus of policymakers hopes for a clean transportation future.

Hydrogen has had a lot of bad press, some of its deserved. But if we are serious about climate change, investors need to drop the cynicism and engage with the technology.

The renewables driven revolution in electricity pricing

Away from the public eyes, one of the most radical transformations of wholesale electricity markets in the last 100 years is occurring. Since the time of Thomas Edison, almost all the electricity that we use has come from the combustion of fuels. By releasing the latent energy in coal, gas, wood or oil, we convert latent energy into heat, and use that heat to create steam. The steam forces a magnet to spin around a set of wire coils, thus creating a current. It is this innovation in science that created the modern world, but today a growing proportion of the developed (and developing) world’s electricity no longer comes from fuels. I am of course talking about wind and solar.

When power is created from the combustion of fuels it is dispatchable. This means that it can be turned on and off whenever the owner of the power station wishes. While a Nuclear plant will often generate electricity around 92% of the time, making it effectively a constant (hence “base”) generation source, most fuel based generation sources run for much less time. In the USA, coal and gas plants often run less than 60% of the time. By contrast wind and solar are not dispatchable. Rather, their production output is variable. Wind and Solar do not require a fuel to create energy, but they cannot control when they will produce electricity. It is this contrast that is at the crux of the challenge.

To ensure a power grid has sufficient electricity for all consumers, a grid operator such as National Grid, must estimate demand and source that demand on an annual, monthly, daily, hourly and sub-hourly basis. In complex power markets like the UK, the sourcing of electricity supply comes from an auction system. This is why wholesale power prices are in upheaval.

To match supply with demand, national grid asks companies that produce electricity to make offers to supply electricity. Each company states how much electricity it can supply and the price it will accept to supply that level. These prices are then sorted from lowest to highest and national grid will accept all bids necessary until it reaches the supply level it requested. This is called “Merit Order Dispatch”.

To explain this is shown in the table below:

Electricity needed 100MW   
Clearing auction price £30/MWh  
       
Bidder name Bidding price Quantity of power offered Quantity of Power Accepted
Wind 1 £10/MWh 20MW 20MW
Solar 1 £20/MWh 20MW 20MW
Nuclear 1 £25/MWh 30MW 30MW
Gas 1 £30/MWh 30MW 30MW
Coal 1 £40/MWh 30MW 0MW

As wind and solar have no fuel, their cost to run is essentially zero. As such they can bid any price they like. For Nuclear, the cost of fuel is considerably less than building the site, so it also bids a low price. By contrast gas and coal have to buy their fuels to combust them. As shown in the table above, coal can’t compete against wind and solar on cost and so it losses the auction. Everyone else is paid the marginal cost of production, which is the amount that gas receives (£30/MWh) and they supply the grid.

So what does this mean? Essentially as we build more wind and more solar, we will increase the number of electricity supply bids into the market which are below the viable level for any fuel based generation. This is why the USA’s Department of Energy wants to pay a subsidy to coal and nuclear. As wind and solar are not dispatchable, there is a concern that all dispatchable fuel sources will be unable to compete in the price auctions for the majority of the year, except for periods when electricity demand is extremely high. That would make most plants economically unviable, as they would be required to cover all of their capital costs, maintenance and staffing, based on generating electricity for less than 50% of the year. If these plants go, then what will provide the electricity when the sun goes down and the wind doesn’t blow? That is the question that energy market regulators are asking in the UK, USA, Europe and across the developed world.

To many the concept that renewables are cheaper than fuel based sources doesn’t seem correct. Indeed, most renewables remain more expensive than coal (though not in all areas and not by much), when considering the total cost of the system. But it is important to understand that wind and solar are fundamentally different in how they are financially structured and that explains the pricing disruption. Operations and maintenance of renewable power plants are minimal. Building the assets is the expensive part. As a result, Renewables always want to sell their power at any price in order to re-coup the cost of construction. By contrast a coal plant or gas plant will lose money if they try to sell electricity for below the cost of their fuel source. This gives renewables an incentive to bid almost zero, thus guaranteeing that they will be able to sell almost all their electricity they generate at any time.

This is actually worse in countries that have adopted a renewable government subsidy called a Feed-In-Tarriff (FIT). Under a FIT, the government guarantees the owner of a renewable company that they will receive a fixed price for the production of their electricity. However, the electricity has to be generated and supplied to the market in order to claim the subsidy. As a result, renewables have no incentive to put in competitive prices for auctions because they already have a fixed price.

What does all of this mean though for businesses, consumers and investors? Well for now it means that the annual average wholesale cost of electricity has fallen in countries like the UK on a constant basis. That also means that most households and industries have paid less in energy bills than would otherwise have been the case.Wholesale market

But while the costs of electricity have fallen, other costs are occurring across the system. As coal and gas plants cannot compete in the market they are forced to close the plants early and suspend new constructions. A great win for climate change, but an outcome that has cost European utilities half a trillion euros according to the economist. In California, where solar PV deployment is high, prices in the wholesale market now go negative for periods of the day. Yes that is correct. Producers effectively pay other people to take the power that is being produced. In the same is happening in Germany.

The move towards greater renewables in the electricity mix is vital. But like any great transformation there will be unintended and unanticipated consequences. The greater the growth of renewable energy, the more inevitable it will become that wholesale power markets will change. If consumers are focused that could potentially lead to longer term price stability and cost savings. But only if they know where to look.

UK Climate change – progress report

Ask many British industry experts whether the UK has an energy strategy and you’ll mostly be met with laughs or exasperated expressions. But while the UK may look like a mess to industry insiders, the country has been remarkably successful in de-carbonising its economy.

Let’s start with the big question: is the UK on track to meet its legally binding 2007 target of reducing CO2 emissions by 80% below 1990 standards by 2050? The answer appears to be yes. From 1990 to present the UK has reduced its gross emissions from 800mn tonnes of CO2 per annum to under 500mn tonnes. On a net basis (including emissions captured by newly planted vegetation or offset against renewables/re-forestation in other parts of the world), the UK has also fallen from 600mn tonnes in 1990 to 400mn tonnes by 2015.

UK climate target

But if emissions are falling, the next question is whether this is due to government policy or if this was inevitable. Examples of an inevitable decline would point to aspects like declining economic growth, de-industrialisation, declining population growth and basic energy efficiency gains. Thus, the question is whether any of these features have a role to play in the UK’s declining emissions story.

The answer is a partially. The UK population grew by over eight million people between 1990 and 2017, while the UK economy grew from USD $1trn in 1990 to USD $2.6trn today. These factors should have contributed to increased greenhouse gas emissions, but offsetting some of these rises is the decline in manufacturing from 17% of UK GDP in 1990 to 9.69% in 2016 . Nevertheless, UK CO2 emissions per capita have fallen from 9.7 tons in 1990 to 6.31 tons in 2017 .

As a consequence we can state that the fall in UK emissions seems to be primarily driven by alterations in the UK energy supply.

UK Renewable Generation

As the table above shows, the UK has expanded its share of Renewable Generation from 5GWs to 35GWs in little over 7 years (the equivalent of 10 – 12 Hinkley points). However it is worth noting that a significant proportion of the renewable electricity generated has come from re-converting the Drax power station in Yorkshire, so that 50% of the towers now run on biofuels (aka woodchips). Drax power station was the 2nd largest power plant in Europe when it was built, with ~4GW of coal capacity. Today over 60% of the electricity it generates comes from woodchips, mostly from North Carolina and Canada. Perhaps not (in this authors view) exactly “renewable” but certainly a step up from Coal.

It’s worth pausing to mention coal briefly. In 1990 the UK relied on coal for circa 30% of its electricity needs. Today that figure is below 9%. Moreover no new coal plants will be built in the UK and in April[1], the National Grid reported that the UK had its first day without any coal fired electricity generation in over 200 years. This trend seems set to continue. In 2017 Scotland set a record for 70% of generation coming from renewable resources, while the UK has averaged 50% of electricity from renewable resources for the 2017 period to date.

Bizarrely perhaps for people accustomed to thinking of the UK as wet and windy, the leading source of Renewable generation in the UK is now Solar PV.

UK Renewable Energy techs

The stalling of wind has been largely driven by strong local community resistance and cuts to the UK’s principal subsidy tool, the Feed in Tariff regime. However Solar PV has surged and UK developers now believe that Solar PV can be built without subsidies and will compete at around the £70 – £90 per Megawatt hour. This is comparable to the Levelized Cost of Energy that a new Combined Cycle Gas plant would require. In a further sign of confidence Blackstone (a leading Private Equity fund) and Lightsource (a leading UK developer) approved a £1bn fund to buy already operational UK solar sites in 2017[2]. It is precisely the emergence of a secondary market, through tie-ups between PE firms and Developers, which reflect the maturity of Solar PV in the UK market and should attract further buyers.

Beyond the wholesale market, the most exciting new frontier is on the retail side. The latest papers by the UK energy regulator Ofgem and the UK Department for Business, Energy, Industry & Skills (BEIS) have highlighted sweeping changes to the classification of battery storage and how these assets can earn revenues. Alongside more favourable battery deployment laws, the UK is also introducing TimeOfUse tariffs into the retail sector, allowing savvy energy users the opportunity to reduce their electricity bills through smart meters and smart appliances. In a sign of things to come, Ikea has announced a scheme to sell Solar PV panels and Lithium ion storage batteries to UK home owners. These changes, while still too early to fully assess, indicate a continued progression towards a distributed UK clean energy system.

Of course the UK has much more it can do. At circa 100,000 Electric Vehicles on the road (from over 20mn ICE vehicles), the UK has a long journey to reach a 20% reduction in transportation by 2020. Similarly on the heating side, the UK will be fortunate to reach a 10% reduction, despite a committment to a 20% reduction by 2020. But these failures have to be placed in context.

Improving Energy Efficiency is the key to reducing heating emissions. But replacing/refurbishing existing housing stock is extremely hard. The simple fact is that if the UK built more new homes (the current rate is a pitiful 100-150k per annum) to even moderate specs, the UK would make significant progress in reducing its heating emissions. On the transportation side the UK may be lagging, but with the 3rd largest EV fleet in Europe (Norway is the largest) its hardly a laggard. EV’s remain expensive and at any rate the real emissions in transportation come from freight, rail, aviation and shipping. In all of these regards, the move towards electricification, hydrogen fuel cells and second generation bio-fuels is progressing and the UK remains a leader in funding Hydrogen deployment.

In short the UK probably deserves a 7/10 on its climate change score card. Could it do more? Certainly. But is it behind its targets? The evidence would suggets otherwise.

[1]Real Estate IPE, 2017 https://realestate.ipe.com/news/investment-vehicles/uk-pension-funds-allocate-11bn-to-blackrock-renewables-fund/10019933.article – Blackrock renewable funds

[2] Guardian, 2017, https://www.theguardian.com/environment/2017/apr/21/britain-set-for-first-coal-free-day-since-the-industrial-revolution

Exploring the commercial viability of integrated DER solutions in NY state 2016-17

Over nine months ago, myself and three fantastic colleagues Max Stadler, Fujia Zhang and Xitong (Kathy) Gao began work on researching distributed energy resource solutions for higher education institutions in New York state. The project was a collaboration between Johns Hopkins SAIS ERE department and Power Capital, a UK based Energy Consultancy.

Many wonderful people have supported our efforts and listened to the team drone on about this project. So as a small thank you, I have included a final version of our report here. It is available to be read, but the intellectual property remains with myself, Max, Xitong and Fujia so please contact us if you wish to use the content first.

Our project examined whether a new energy services compnay model was viable for the New York market and what sorts of market/regulatory pressures ar affecting these customers. We believe it is the firts report of its kind on this segment and market.

It has been a pleasure to work with such an exciting group of people on such a wonderful project. I hope others also find it of interest.

Exploring the commercial viability of integrated DER solutions in NY state 2016-17