Category: Electric Vehicles

Can the energy transition help EU energy needs?

August 11, 2022

As the EU grapples with the challenge of displacing Russian oil and gas and meeting immediate needs as Russian supplies are cut, the question of the scale and speed of the energy transition emerges. How fast can Russian supplies be displaced by the transition itself?

The two charts below show the current situation. Prior to the Russian invasion of Ukraine, oil and gas supplies from Russia and into Europe contributed to about 40% of overall European demand, with local production making up much of the balance in the case of gas, but just about half the balance in the case of oil. In the case of gas, the flow to Europe is about a quarter of Russian supply, but for crude oil and oil products it’s nearly half.

Both charts show that European production has declined over twenty years and in the case of oil reached an apparent plateau around 2012. It’s unlikely that local production increases could make up for the cut in Russian supplies, so that leaves three immediate options;

  • Immediately cut overall energy demand, which in turn could translate to a reduced need for Russian supply.
  • Find supplies elsewhere.
  • Accelerate the energy transition to reduce the overall need for oil and gas in the energy mix.

While it’s clear from recent announcements that the EU strategy will embrace all three options in the short term, the longer term strategy will almost certainly rest with the transition itself. But such a transition could well take all of this decade, and probably longer, to complete.

Gas supply is perhaps the more problematic issue, as supply is less flexible globally than oil due to pipeline constraints, LNG capacity (the availability of shipping, liquefaction and regassification facilities) and long term storage. While gas has become a flexible commodity in the 21st century, it still remains easier to reorganise, redirect and store oil. However, gas may be faster to displace than oil from an energy transition perspective.

The gas chart above also shows how the rapid deployment of wind energy across Europe could be used to offset Russian gas requirements, but it’s a journey that takes the best part of a decade. This assumes a compounding growth rate in wind deployment of 10% per year, slightly above current levels of 8%, but equivalent to the growth rate from 2010 to 2017. However, with a much larger installed base, 10% growth in 2029-2030 means installing some 50 GW of wind in that year versus the 15 GW installed in 2017 and again in 2021. So the annual installation rate has to at least triple. Of course wind isn’t the only technology, there is solar PV as well, at least for the southern latitudes of Europe.

Further to the above, if rapid growth in renewables is focussed entirely on displacing Russian gas or filling the void left by the absence of Russian gas, less progress will be made in displacing the current use of coal in the EU. This could make meeting the EU 55% by 2030 emissions reduction goal more challenging, as eliminating coal for a given electricity production can deliver twice the emissions reduction versus the same shift for gas.

By contrast, displacement of Russian oil through the energy transition looks to be a slower process, although it may turn out to be less necessary. Oil is a more flexible commodity in terms of source and destination, although there could still be pinch points in the system, for example inland east European refineries tied to Russian crude via pipelines. The largest portion of EU oil demand is for transport and within that the capacity for replacement in the 2020s sits with electrification of passenger vehicles, vans and city buses. Alternatives for larger trucks, ships, barges and planes are not yet mature enough for fast large scale deployment.

If we assume a very rapid deployment of electric vehicles (EV), to the extent that all new sales are electric by late in the 2020s (a rate faster than the current goal of 2035 for all EV sales), only about 50 million tonnes per year of oil is displaced by 2030, or about a fifth of the oil that comes from Russia. This is because of the time it takes to turnover the exiting stock of vehicles. Within Europe there are some 250 million passenger cars (Source: Eurostat), but new car sales are in the range 12-16 million vehicles per year, so in eight years only about half the total stock will be replaced anyway. With EVs currently comprising about 10% of new sales, albeit that share growing rapidly, replacing even half the total vehicle stock with EVs will take longer.

In the end, a rapid energy transition can contribute significantly to the EU weaning itself off Russian oil and gas, but this won’t happen in the next few years. By the end of the decade significant progress can be made, especially for gas, but it will likely be well into the 2030s before the same is achieved for oil.

Could the transition drive emissions up?

July 12, 2022

One question that comes up quite regularly about the energy transition is the amount of energy, and therefore emissions, required for the transition itself. This is the energy required for making solar PV modules, wind turbines, batteries and so on. Further up the supply chain there is also the energy required for the additional minerals, such as the lithium, nickel, cobalt and copper found in an electric vehicle (EV). These not only have to be mined, but also go through extensive industrial transformation and refining processes to make the actual materials required for the end use. Today, most of these processes use oil, coal and gas for energy, giving rise to carbon dioxide emissions.

Perhaps the most energy intensive part of the energy transition is the manufacture of lithium-ion batteries, now being widely deployed in EVs. Some commentators have even questioned the effectiveness of the EV as a mitigation route, particularly when the battery is made in China (currently a heavy reliance on coal for energy) and the vehicle is driven in a country with a high electricity emissions intensity (e.g. a country like Poland still largely dependent on coal fired power stations). The problem with this argument is that transitioning in a series of steps (e.g. first decarbonise the electricity supply, then start deploying electric cars) would take decades longer than transitioning in parallel steps (i.e. decarbonising the electricity supply at the same time EVs are deployed). Nevertheless, the parallel approach could drive up emissions in the short term, the question is by how much?

The manufacture of batteries for EVs provides a good example of the problem. In a recent article, MIT report that the Tesla Model 3 holds an 80 kWh lithium-ion battery and the CO2 emissions for manufacturing that battery would range between 3120 kg (about 3 tons) and 15,680 kg (about 16 tons), depending on the manufacturing location. The article notes that the vast majority of lithium-ion batteries—about 77% of the world’s supply—are manufactured in China, where coal is the primary energy source. That means most batteries are currently made with CO2 emissions at the higher end of the range, although as battery factories spring up across the world and particularly in the EU and US, that picture will change.

Bringing together a few assumptions about battery manufacture, EV deployment and embedded CO2 in both manufacture of EV batteries and driving EV cars, it is possible to get a back-of-the-envelope view of the scale of the issue. I will assume the following;

  • EV production rises from current levels (some 7 million vehicles per year) to all EV production globally by the mid-2030s (i.e. no more internal combustion engine cars are built after that time). This is an aggressive transition, but probably the minimum that is required for a 1.5°C goal.
  • Higher CO2 emission battery manufacture is currently at 77%, but the share declines to 40% by 2060 and the higher CO2 emissions also fall by 75% over the same timeframe as the manufacturing system decarbonises.
  • Lower CO2 emissions manufacture is therefore 23% now, but rises to 60% by 2060 and the manufacturing CO2 emissions fall to zero by 2050. Decarbonising industry to such an extent will require a variety of technologies, with carbon capture and storage playing a critical role.
  • The 80 kWh battery delivers 300 miles of range and the average vehicle travels 10,000 miles per year.
  • The electricity supply which EVs use is on average 0.4 tonnes CO2 per MWh now, falling to zero by 2060. The actual global average grid intensity is higher than 0.4 today, but EVs tend to be driven in lower intensity regions at the moment, e.g. the EU, California etc.
  • An EV produced today has a 15 year life.
  • The EV mitigates emissions from internal combustion engine vehicles at a rate of 120 gms/km. As a simplification, this doesn’t change throughout the calculation. It assumes that smaller cars are replaced earlier and that the average fleet efficiency of internal combustion vehicles improves over time.
  • The battery represents a net increase in car manufacturing emissions with other emissions in the manufacturing process about the same for both EVs and internal combustion vehicles.

The calculation is for net-emissions, which is;

[Battery manufacturing emissions] + [Indirect EV emissions during driving] – [Gasoline / Diesel emissions backed out by EVs] = Net Emissions

What we see from the charts below is that global passenger car emissions rise before they start falling when net-emissions cross the zero line. This happens in 2035. Clearly the year in which this happens depends on the assumptions made, with the CO2 from internal combustion vehicles not being used being a key determinant. For example, if this is raised to 180 gm CO2/km, the crossover point is around 2030.

The outcome certainly points to the longer term benefit of the EV transition, with global cumulative emissions over 25 Gt lower in 2060 than they would otherwise be. This is a material reduction when thinking about a 500 Gt carbon budget for 1.5°C. However, it also highlights an issue with the current global goal to reduce emissions by 45% by 2030 relative to 2010, as set out in the Glasgow Climate Pact; the EV revolution that we are currently in the midst of is unlikely to contribute to that reduction. If anything, it could make the task even more difficult.

In a post some time back I noted that the only real opportunities for change which could make a material difference to global CO2 emissions by 2030 are where replacement technologies are already being manufactured at scale or where governments are prepared to create social change. This quickly reduces the options to only three major opportunities: 

  • Significantly curtailing coal-fired power generation through replacement with renewables; 
  • Replacing internal combustion engine vehicles with electric vehicles; and 
  • Ending deforestation. 

Passenger vehicle emissions account for 4 Gt, or 10%, of global CO2 emissions today. If change in this sector can’t deliver any net reductions by 2030 and potentially adds to global emissions, then it calls into question any possibility of a 45% reduction in 8 years. Almost perversely, if EV production could be ramped up in the short term, the problem for 2030 gets worse while the longer term net global cumulative emissions picture gets better.

None of the above is to meant to argue against an EV transition, it is clearly the right way to go. But like many other aspects of the energy transition, it is more complex than it looks.

Battery trends

August 2, 2021

Two key advantages of fossil fuels are the energy density of the fuel itself and the ease of storing energy that a molecule based fuel offers. Most homes have a huge energy store sitting in the car gasoline tank in the garage, or perhaps in an LPG / propane tank in another part of the house. The ease of storage makes transport relatively simple, with everything from passenger cars to A380 planes dependent on the need to carry fuel with them. But as the shift away from fossil fuels gathers pace and electricity grows in importance as the energy carrier of choice, one critical technology emerges that we all already use but will grow in size and scale – battery storage. We need batteries to store electricity for portable use and to store electricity at city level scale to manage the power grid, particularly as intermittent renewable sources become prevalent.

Battery technology dates back to around 1800, but domestic batteries were made popular over 100 years ago with the introduction of the AA battery in 1907 by the American Ever Ready Company, following on from their successful D cell flashlights. Today, we use batteries for a variety of household devices, but battery use across society is set to expand rapidly as the energy transition gathers pace. Further, as battery technology improves, these handy energy stores are making their way into more and more devices and applications.

In 2010, global battery production was less than 5 GWh, but with the arrival of the electric car and the growth in grid storage, production in 2020 was nearly 400 GWh (Source: Wood Mackenzie). There is also a significant and growing pipeline of Gigafactory projects, with manufacturing capacity around 1.3 TWh by 2030 based on known and expected projects. But what about the demand potential?

Numerous auto manufacturers have signalled their intent to bring internal combustion engine (ICE) passenger car manufacturing to an end, with dates between 2030 and 2040 often cited for the full switch to electric vehicles (EV). As a stretch, let’s assume that all passenger ICE production ends by 2035, which by then might mean 70 million EVs produced globally per year. If each car requires an 80 kWh battery, then that’s 5.6 TWh of new capacity required each year. Although recycling of batteries and battery components will eventually change the manufacturing landscape, that won’t be the case in the first half of the 2030s. At that time the availability of material for recycling will be the result of production today, which is a tiny fraction of our assumed production in 2035.

Grid storage requirements are a significant unknown. In a report published earlier this year by the research firm Frost & Sullivan, they predict additional global grid battery storage capacity additions will likely reach 135 GWh (0.14 TWh) in the next nine years from the 8.5GWh annual capacity additions that were recorded last year. But capacity additions are scaling rapidly, with the much talked about Tesla installed 100 MWh facility in South Australia in 2016 now easily eclipsed by multiple 300-400 MWh projects. In a 2020 study released by RethinkX, they estimated that for areas of the United States, a shift to 100% wind and solar would require some 40-90 average demand hours of battery storage. In 2020 US electricity demand was 4300 TWh, which would imply around 30 TWh of battery storage. However, it is possible that there is overlap between grid storage and EV storage, which by 2035 might have reached 12 TWh sitting in US garages and at charging points (assuming at least 50% EV penetration by then).

Assuming a rapid transition, the US alone might need 20-25 TWh of installed storage capacity by 2035, with global installed capacity perhaps reaching 100 TWh by that time. That would require a 35% year-on-year expansion of battery production capacity for the next 15 years as shown in the chart. That means in 2035 global battery production is close to 100 times current levels. It also requires manufacturing capacity in 2030 of 8 TWh, six times that of the current project pipeline for new facilities.

Batteries require particular minerals and chemistry, which today consist of lithium, nickel and cobalt in the current generation of Li-Ion batteries. The chemistry of batteries is the subject of extensive research, which points to much lower requirements for these minerals per kWh of storage. A recent analysis by  the European Federation for Transport and Environment (Transport & Environment (2021), From dirty oil to clean batteries) states that over the period 2020 to 2030 the average amount of lithium required for a kWh of EV battery drops by half (from 0.10 kg/kWh to 0.05 kg/kWh), the amount of cobalt drops by more than three quarters, with battery chemistries moving towards a lower cobalt content (from 0.13 kg/kWh to 0.03 kg/kWh). For nickel the decrease is less pronounced – around a fifth – with new battery chemistry moving towards a higher nickel content as a fraction of the total, but still a decline per kWh (from 0.48 kg/kWh to 0.39 kg/kWh).

On the basis of the 2030 numbers above, production of 20 TWh (20,000 GWh in the chart above) battery storage per year in the early 2030s would need;

MetalEarly 2030s additional annual demand, million tonnesCurrent global production, million tonnesRequired increase in global production
Lithium1.00.0910 times
Cobalt0.60.154-5 times
Nickel7.82.74 times

This is a significant step-up in metals production, with history pointing against achieving it.

Data Sources: BP and statista.com

Metals supply could well become a limiting factor in the energy transition given the potential demand for electricity storage. These levels of production increase are feasible over time, but in the space of 10-15 years they represent double to triple the historical trend, although that is true for almost everything in attempting to reduce emissions by 40+% in a decade. The above analysis also doesn’t account for other demands on batteries; from vans and trucks, small ships, barges, small planes, household and commercial devices and so on.

Equally, we shouldn’t discount innovation and different directions of travel. Apart from a slower energy transition, other factors that might influence the outcome are a more rapid evolution of battery chemistry towards more widely available minerals and/or a shift away from chemical batteries to other storage and balancing solutions in the electricity grid. However, don’t expect to see a truly novel solution scale sufficiently in just a decade. The first commercial Li-Ion battery was marketed in 1991 and has taken 30 years to scale to current levels. it was based on research and development over the previous 20 years.

In any case, the decade ahead could well be a period of rapid change and expansion for the global mining industry.

An ambitious step-up on transport

May 21, 2021

Last week the German government announced a step-up in their ambition to reduce emissions, with a new target date for net-zero emissions of 2045. This will bring with it an even faster transition in the coming decade to 2030, which the government outlined by sector as follows;

Sector2019 reductions from 19902030 reduction goal relative to 1990
Electricity generation45.5%62.5%
Buildings41.9%66.7%
Transport0.6%42.1%
Industry33.8%50.7%
Agriculture24.4%35.6%
Other76.3%86.6%
Overall ambition35.7%56.5%

While most sectors have made significant progress to date, transport stands out as having not changed since 1990. The reality here is that the same basic energy service technologies are still in place for planes, trucks, ships and automobiles and that efficiency improvements have been broadly offset by demand growth, meaning no change in thirty years. In 1990 personal transport demand in the Eastern part of Germany would have been quite low, albeit rather inefficient, so the demand increase over the years would have been a factor. This is illustrated in the figure below (Source: Car ownership and usage trends in Germany – Response to the Commission on Travel Demand’s Call for Evidence: Understanding Travel Demand, Tobias Kuhnimhof, Institute of Transport Research at the German Aerospace Center (DLR), May 2017).

Key car stock and vehicle kilometres traveled trends in Germany since the early 1990

The goal for 2030 represents a very sudden and fast paced deployment of battery electric vehicles (BEV) or hydrogen fuel cell vehicles (FCEV), although the auto industry in Germany is not approaching this from a standing start. Over the past few years the likes of VW, Audi, BMW, Daimler and Porsche have been developing a new range of electric vehicles and releasing them into the market. In a recent statement by the CEO of Volkswagen Passenger Cars, he noted that 2020 was a turning point for Volkswagen and marked a breakthrough in electric mobility. Last year, the brand delivered nearly 134,000 battery electric vehicles (+197 percent versus 2019). However, despite a challenging market environment, Volkswagen delivered around 5.328 million vehicles across all drive systems to customers around the world, so this represents 2.5% of their production.

In Germany, transport emissions are 95% road based, with internal aviation, barges, coastal ships and trains making up the rest. Within the road sector, this breaks down to about 65% passenger vehicles, 25% heavy freight and 10% light commercial (N.B. this breakdown is approximate based on a variety of articles and EU data sources). As noted, many models of passenger BEV are now available to purchase and this is also becoming a reality for light commercial vans and small trucks, although the range isn’t as extensive at the moment. However, it is not the case for heavy freight trucks, where some BEVs and FCEVs have been demonstrated, but commercial availability is very limited.

So if we assume little change in the 5% non-road transport emissions and large scale rollout of heavy freight BEVs and FCEVs from 2025, the heavy lifting for the transport goal will have to be done by rapid uptake of passenger EVs and light commercial EVs. The overall picture from 2020 (pre-COVID) to 2030 could look like the table below;

Mode of transport2019 total emissions (scaled to 100)2030 emissions relative to 2020 scale
Passenger vehicles6230
Light commercial95
Heavy freight2418
Non-road transport55
Total10058
  (or 42% reduction)

Based on the above, the deployment calculation is relatively straight forward. In 2019 the sale of passenger BEVs in Germany was 65,000 units in a total market of 3.6 million units. However, in 2020 this number tripled to 194,000 units, so we enter the decade with BEV sales at around 5%. There are some 47 million vehicles on the road in Germany with, at best, 1% being electric (470,000 vehicles) at the start of 2021. Although sales of cars at between 3 and 4 million and a 47 million car fleet points to an average age greater than 10 years, assume nevertheless that 10% of the fleet is turned over each year – perhaps the German government will introduce policies to accelerate the retirement of older less efficient vehicles. The calculation will also assume, as a starting point, that 10% of the sales in 2021 are battery electric, or double the 2020 number.

The chart below shows how the fleet emissions change as sales change. As indicated in the table above, passenger vehicle emissions need to halve by 2030 such that Germany reaches its transport sector goal. That doesn’t happen until the deployment annual growth rate of BEVs reaches nearly 50%, or a doubling of sales every two years until 2027 when all passenger vehicle sales are BEV from then on.

A deployment rate that requires doubling production every two years is a formidable task. Although EV sales tripled in 2020 vs. 2019, this was from a very small base. Such a rate won’t be maintained as numbers climb. For rapid BEV growth it isn’t just about retooling the existing auto plants but also building new battery plants, sourcing the necessary minerals for the batteries (e.g. lithium, nickel, cobalt), ensuring sufficient infrastructure is available for battery recharging and most importantly, building customer confidence in the product. Should Germany fall behind this rate of deployment, the only remaining option will be much higher turnover rates for vehicles later in the decade, but that will mean temporarily producing new cars at a rate that is unsustainable in later years.

By 2025 Germany will need to produce nearly two million electric cars per year for domestic use, which will also mean battery production capacity of some 160 GWh (assuming an 80 KWh battery for each car). At the moment the battery ‘gigafactory’ pipeline for Germany has several projects, with the total approaching this sort of scale and there are plans for future production increases. The Fraunhofer Institute for Systems and Innovation Research ISI, even suggests that EU production capacities of 300 to 400 GWh could be achieved by 2025. The website Battery-News.de anticipates that the German market alone will account for more than 170 GWh of production capacity. By way of comparison, Europe currently has around 30 GWh of production capacity.This ambitious German plan for e-mobility is getting underway!

Electric vehicles and 2030

December 7, 2020

Over a decade ago in one of my very first posts in this blog, I responded to what appeared to be a working assumption in government that there would be between 1 and 2 million electric cars on the road in the UK by 2020. It was hard to imagine that this would be the case and harder to calculate a pathway that would deliver such an outcome. I noted at the time that after a dozen years and some significant stimulus, the number of hybrid vehicles on UK roads had risen to 300,000. So here we are in late 2020 and the number of battery electric vehicles on the road in the UK is around 200,000. There are plug-in hybrids in addition to this, roughly doubling the total population of plug-in vehicles to just under 400,000.

In recent weeks the UK government has significantly stepped up its ambition regarding passenger electric vehicle deployment, with a decision to ban the sale of internal combustion engine vehicles in 2030, albeit with some relaxation to 2035 for plug-in hybrid vehicles. The announcement prompted me to look back at the decade old post and to look at how the numbers stack up this time around.

With a population of some 67 million people, the UK has about 33 million cars or just under one car for every two people. This ratio has been rising slowly over the past few years, even as new car sales have edged downwards so we might expect something like 37 million cars in the UK fleet by 2030 for a population of 70 million. Assuming there isn’t a mad rush for internal combustion engine vehicles (ICE) in the years just prior to 2030, then in 2030 we could see some 2.6 million cars sold; more than in 2019 but only reaching the levels seen in 2015 and 2016 despite having 15-20% more cars on the road in total.

This means that in 2030, 2.6 million cars with a battery must be available for UK buyers. They could be pure battery electric (BEV) or plug-in hybrid (PHEV). While the PHEVs are popular today, will that still be the case in 2030? It could be that manufacturers are already abandoning that class of vehicle to simplify production lines, with a focus on ICE production for legacy markets and BEV production for the future. After all, there would be no place for the PHEV in the UK after 2035.

The UK buys about 3.5 – 4.0 % of global passenger vehicle production, so the purchase of 2.6 million vehicles would notionally require 70 million BEVs in production globally, or all passenger vehicle production. However, with a leading policy position on BEV uptake and local vehicle production of some 1.3 million vehicles per annum, the UK could be commanding a relatively higher percentage of the BEV market. This has been the case in Norway in recent years. Of course, other jurisdictions are also declaring earlier dates for the BEV transition, so there could be competition for the available vehicles. But let’s assume the UK can command 8% of BEV production in 2030, which would imply the need for global BEV production of 35 million vehicles in 2030.

Current global BEV production is 2-2.5 million per year, or 3.2% of total passenger vehicle production. That will need to grow by a factor of at least fifteen in ten years for the UK to meet its goal. If there is a limitation in the supply chain for BEVs it is most likely to be the battery. It won’t be the car body, wheels, suspension, electronics, steering system or even the motor (but it is a very different component to ICE) as the capacity for these exists today in one form or another. But large scale Li-Ion battery production is a new and growing industry that requires new supply chains, new sources of critical minerals like cobalt and new processing facilities to make compounds such as lithium hexafluorophosphate.

Cobalt supply might be challenging as most global production comes from one country, the Democratic Republic of the Congo. It is an important component of Li-Ion battery chemistry although battery manufacturers are taking steps to minimize the requirement. Early battery cathodes contained nickel, manganese and cobalt in equal proportions, but companies such as LG Chem are close to producing cathodes with 80% nickel and only 10% cobalt. Tesla’s first Model S, launched in 2012, was built with an average of 11 kg of cobalt per vehicle, but according to Benchmark Minerals that was down to about 4.5 kg in its successor car, the Model 3, which launched in 2018. Nevertheless, if production were to hit 35 million vehicles in 2030 and each vehicle required 5 kg of cobalt, that still amounts to 175,000 tonnes of cobalt. Current global cobalt production capacity is 150,000 tonnes but it is a widely used mineral.

BEVs aren’t the only products competing for Li-Ion batteries. By 2030 we should be seeing a variety of haulage trucks in the market, more electric buses, a continued escalation of consumer devices running on batteries and a surge in demand for grid scale battery packs to help manage renewable intermittency. While battery recycling will be a large industry in the decades ahead, this won’t be the case in 2030 as society will only just be starting the recycle the batteries being produced today, which represent a tiny fraction of 2030s demand.

Other factors will also come into play, but the size of the battery in every car will be important. Early BEV models were relatively small with limited range and had battery storage of around 25 kWh – the Nissan Leaf is a good example. That’s because batteries were very expensive. Today with battery prices falling rapidly, one Nissan variant known as the Leaf e+ has a 62 kWh battery pack. A review of multiple models from several manufacturers shows battery sizes heading towards 75-100 kWh. So let’s assume the average 2030 car has an 80 kWh battery with a range of around 500 kms.

Global Li-Ion battery manufacturing capacity today is around 400 GWh, or enough to make 6 million BEVs with a 62 kWh battery onboard. However, half that capacity is being split between consumer electronics, larger vehicles such as electric buses and home or grid energy storage. In the 2030 world of 80 kWh battery packs and production of at least 35 million vehicles, nearly 3 TWh of battery manufacturing capacity will be needed just for the BEVs. That might mean 5 TWh in total to cater for all the other applications. And therein lies the potential issue.

There is no doubt that battery manufacturing capacity is ramping up rapidly, but where might we be in 2030? A recent analysis by Wood Mackenzie looks at the current project pipeline for new manufacturing facilities and expects a quadrupling to 1.3 TWh by 2030. The same article that discusses the analysis also notes that this is not the most bullish forecast. Bloomberg New Energy Finance expects 1 TWh of battery production capacity by 2025, while Benchmark Minerals expects 1 TWh of capacity by 2022/2023, 1.35 TWh by 2025, and 2.5 TWh by 2030, with China’s CATL accounting for 332 GWh and Tesla, the fourth-largest producer, with 148 GWh of capacity in 2030. Based on current forecasts, nobody is expecting 5 TWh of capacity by 2030, although it is also fair to say that few in 2010 expected solar PV manufacturing capacity to be 160 GW per year by 2020.

So the bottom line for the  UK government and its ambitious plans means that not only must the UK command an outsize proportion of the BEV market, but that Li-Ion battery production is at least double the most ambitious current estimates for 2030.

Finally, assuming the needed rapid growth in BEV sales takes place and the UK reaches 100% sales by 2030, the number of vehicles on the road in that year would still be less than 10 million, out of a total of perhaps 37 million. It will take another decade or more beyond 2030 to turn over the whole fleet, which makes the recently announced 2030 goal of a 68% reduction against 1990 all the more difficult.

A Climate-Neutral EU by 2050

May 5, 2020

As the EU works to reset its emission reduction goals to align more closely with the 1.5°C goal of the Paris Agreement, a question arises around the scale and scope of the energy transition required. What will it look like? How fast should it proceed? Which technologies need to be accelerated to achieve the desired outcome? To help answer these and provide a perspective on the transition, my colleagues in the Shell Scenario team have produced a scenario sketch of the journey forward, arriving in 2050 with a net-zero emissions energy system (NB: The pathway was formulated in late 2019 prior to the COVID-19 pandemic and therefore does not include the energy system disruption being seen in 2020).

From a policy perspective, the EU has been addressing the climate issue for at least 15 years, with the EU Emissions Trading System in place since 2005. The 2020 energy situation arises from the 2007 climate and energy package, which included three key targets:

  • 20% cut in greenhouse gas emissions (from 1990 levels)
  • 20% of EU energy from renewables
  • 20% improvement in energy efficiency

The targets were set by EU leaders in 2007 and enacted in legislation in 2009. They are also headline targets of the Europe 2020 strategy for smart, sustainable and inclusive growth. Within this, the EU Emissions Trading System is the EU’s key tool for cutting greenhouse gas emissions from large-scale facilities in the power and industry sectors, as well as the aviation sector. The ETS covers around 45% of the EU’s greenhouse gas emissions. In 2020, the target is for the emissions from these sectors to be 21% lower than in 2005.

The year 2020 represents a halfway point from 1990 to 2050, during which 20% of the hard deployment work has been done, but with a number of key technologies available at scale that hardly existed or didn’t exist around the turn of the century. Solar PV and Electric Vehicles are two examples (although solar PV did exist in 2000, it was expensive and small scale). That leaves just 30 years for the remaining 80% reduction, which must also include bringing to scale several other technologies which are yet to be deployed in the EU. This is a tall order and the scenario sketch illustrates how extraordinarily stretching it will be.

The additional key technologies that must move quickly to scaled deployment are as follows;

  • Clean hydrogen production via electrolysis of water or removing and storing the carbon from natural gas;
  • Hydrogen fuel cell road transport for heavy goods (see chart below).
  • Carbon capture and storage in various industrial settings – e.g. steel, cement, petrochemicals.
  • Biomass power plants fitted with carbon capture and storage (as a negative emissions technology).
  • Air transport that utilizes hydrogen as a fuel – in the sketch first flights are imagined in the mid-2030s.
  • Advanced biofuels for planes, ships and heavy road transport (see chart below).
  • Grid scale electricity storage.
  • Electrification of light and heavy industry processes.
  • Use of hydrogen in homes for heating and cooking.
  • Some technologies that appear late in the sketch will need intensive development over the medium term. Hydrogen as a fuel for industrial facilities, but particularly iron ore smelting, is a good example.

On the assumption that development and demonstration of all the above proceeds rapidly, deployment kicks in for most during the 2030s. But in the 2020s the energy technologies that have been nurtured over the last twenty years must be accelerated. For example, by 2030 solar must be quadruple current deployment, wind nearly triple current deployment and nuclear must be growing again, not declining.

In the 2030s the really hard work starts, with carbon capture and storage moving from first demonstration in the EU by 2025 to 40 medium sized facilities (one million tonnes CO2 stored per annum) by 2030 and over 100 by 2035. New technologies such as hydrogen fuel cell trucks must become ubiquitous during the 2030s, with at least 600,000 vehicles on the road by the end of that decade.

Hydrogen trucks EU

Biofuels EU

All of the above will require both technology development incentives and deployment policies. The analysis assumes a rising carbon pricing mechanism – whether explicit or implicit – to more than €200 per tonne of CO2 equivalent by 2050 to deliver and sustain the emission cuts and CO2 management necessary for the EU to reach climate neutrality. But even the EU ETS will need to change, as I discussed in a recent post.

While carbon pricing is an efficient lever for reallocating resources and driving behavioural change, it will not be enough on its own. A sectoral approach to policy which brings clean technologies, fuels and products to market, as well as their deployment and diffusion at scale, must urgently be developed. It is essential that policy should help provide consumers and businesses with low-carbon alternatives to adopt.

In the sketch, 2050 marks a point of climate neutrality for Europe, helped by the development of large scale carbon sinks through reforestation. But this isn’t the end of the transition, merely a point of significance. The hydrogen economy will continue to grow, electrification of industry will expand and efficiency gains will continue to be made. As was illustrated in the Sky Scenario, Europe will likely shift to become a net-negative emission economy during the second half of the century, a necessary requirement to ensure global net zero emissions and a 1.5°C limit on warming.

Download the EU Sketch here.

Getting to net-zero emissions in the UK

May 9, 2019

Last week the Climate Change Committee (CCC) in the UK released its much anticipated report which is recommending that the government revise its emissions goal to net-zero in 2050. The Committee notes that this is an appropriate UK contribution towards the global need of meeting the goals of the Paris Agreement. The recommendation also follows in the wake of the IPCC Special Report on 1.5°C, which identified 2050 as the year in which the global economy should attempt to reach net-zero emissions in order to limit warming to 1.5°C with a 66% probability.

The recommendation is a shift from the current UK target which would see the country reach an 80% reduction by 2050, in support of which the country is broadly on track to deliver the first 3 interim carbon budgets to 2022. However, as it looks past 2022 the CCC notes there is insufficient early development of some technologies for the heavy lifting ahead. Examples of this include carbon capture and storage (CCS) and hydrogen for a variety of uses.

UK CCC

Nevertheless, the state of technology development, deployment and availability has shifted since the time of the first UK target back in 2008. The cost of wind and solar has dropped significantly, offshore wind is now a viable proposition, many electric car models are available and while not in the UK, some 20 CCS facilities are now running in various parts of the world. All of the technologies required to do the job set out by the CCC are in plain sight, although a number still require significant UK development for deployment in this country. The CCC report is also very clear on this issue.

2050 is just over thirty years away and that same time period reflecting backwards marks the time that I first arrived in the UK with Shell. In the next 30 years the whole energy system will need to shift to achieve net-zero emissions, but how does that compare with the changes seen over the last 30 years. While two thirds of that period has not been covered by the Climate Change Act and its carbon budgets, all but three years have been covered by the UK ratification of the UN Framework Convention on Climate Change.

The Sankey diagrams below reflect the change over the period, although the most recent from the IEA are 2016, so they won’t show the last two years of renewable energy development.

UK Primary 1989

UK Primary 2016

Overall primary energy consumption has fallen, with the most visible change being the shift away from coal and towards natural gas in power generation. Both bioenergy and renewables have also added to the generation mix. Nuclear plays an important and steady base load function. Natural gas is now the dominant contributor to the current power generation sector and in the past year there have been periods where coal has not played a role at all.  Back in 1989 coal made up most of the generating capacity. Oil demand within the UK has hardly changed over thirty years (slightly up) although production has halved.

As noted above, one feature that has surged since 2016 is the proportion of renewable energy in the generation mix. Recent figures from BEIS show that wind and solar have now exceeded nuclear on a quarterly basis.

UK Generation mix
UK Final 1989

UK Final 2016

In the final energy system, the changes are more nuanced. The overall share of electricity has moved from 16.7% of final energy to 20.4%, or a shift of 3.7% points in 27 years. The global rate of change is tracking at 2% points per decade, so the UK is well short of that pace of transition. A net zero emissions economy would likely need electricity to be the major component of final energy, say around 60%, so the UK rate of change will need to shift from 1.37% points per decade to around 11% points in each of the coming decades.

Transport hasn’t shifted at all in the past 30 years, with oil use in transport slightly increasing. Electricity is just starting to creep into this mix, but pure electric vehicles have reached only 0.7% (2018) of new car sales. Worryingly, the total number of petrol and diesel cars registered in the UK in 2018 was unchanged from 2013, a period which has seen the first major push to get consumers to go electric. Reaching net-zero emissions by 2050 will not just mean seeing all new purchases as electric, but seeing all new purchases from about 2035 onwards as electric. It can take up to 15 years to completely turn over the entire on-the-road fleet, although a future government could presumably accelerate this process with a buy-back-and-scrap scheme.

In the industrial sector, energy consumption has dropped by nearly a third, presumably through efficiency improvements as industrial output has hardly changed (see chart below). Importantly, electricity use has stayed largely the same. This means that the sector is gradually electrifying, although again the pace of change is below that required.
UK Industrial Production (1970-2019).

UK Industrial Production

Then there are the tricky bits, where the UK has made only limited progress. The CCC notes that radical change is needed in home heating, including a shift to hydrogen and heat pumps, with support from much better home insulation. But residential natural gas use has marginally increased in 30 years, despite significant improvements in boiler efficiency and the use of electricity instead of gas for new apartment buildings. One highlight in this area is the recent milestone of one million homes now being supplied with biomethane.

The overall change in 30 years has been one of continually falling greenhouse gas emissions, with much of the gain coming from natural gas replacing coal and a fall in industrial energy use. While the impetus for change over the last 30 years was perhaps not as great as it is now, the overall shift is symptomatic of typical energy system dynamics; rapid adjustment has never been a feature, primarily due to the large capital stock involved. Outside the energy sector change over the same period has been dramatic. In 1989 there was no internet, no social media, hardly a mobile phone to be seen and televisions were defined more by their depth than their width. So can the UK reach these sorts of transition rates and achieve the goal of net-zero emissions by 2050?

In the power generation sector, zero emissions should be entirely achievable in that time frame. Renewables are surging and new nuclear capacity is now under construction (although even getting that started took a decade). Similarly, with the models on offer or on their way, passenger vehicles could be entirely electric and various cities across the UK have demonstrated that electric buses are now a viable option. But there is no real sign of change for heavy goods vehicles, shipping or aviation. Perhaps the biggest challenge sits with the use of natural gas in homes and industry. It is easy to use, clean, provides a very high heat load and is backed by extensive infrastructure. Hydrogen and electrification are potential pathways forward, but as noted the electrification rate of change has to shift by nearly an order of magnitude. For hydrogen there are promising signs of change with the government now funding a major programme on supply and conversion of existing facilities away from natural gas.

Finally, there is carbon capture and storage (CCS), which may be a simpler solution in many applications than attempting to dislodge natural gas. CCS in combination with direct air capture (still a nascent technology) may also be needed to balance out emissions in sectors such as aviation. Even the production of hydrogen may be easiest at scale from natural gas, which would then also require CCS. The UK has tried and tried again with CCS, but there is still no operational facility to show for all the efforts made. Yet the UK is both pipeline dense and geologically gifted in terms of storage potential, so deployment could proceed given the right incentives to begin.

The Climate Change Committee have put forward a bold recommendation, but it is not without immense challenge. It ought to be possible to achieve the 2050 goal of net-zero emissions, but it won’t happen without some significant nudging by the government in a number of key areas. Policy decisions over the coming five years may well set the scene for the next twenty, so there is everything to play for.

The potential for rapid energy transition in North America

March 5, 2019

Over recent weeks and months there has been considerable discussion in the USA and Canada on clean energy transition pathways, carbon pricing and the Paris Agreement. This has been catalysed by the IPCC 1.5° report, the arrival of new political figures on the scene and the prospect of elections in 2019 and beyond. As I discussed in my recent post on a new report that outlines a pathway for global transition consistent with 1.5°C, very steep emission reductions are called for in North America over the coming decade, as shown in the chart below. For the 1.5° case, a reduction of about 80% is proposed from 2015 to 2030.

North American Emissions in Paris Report
Source: Achieving the Paris Climate Agreement Goals – Sven Teske (Editor)

But is such a rapid transition possible for an energy system as large as that found in the USA? This is similar to a pathway that has been proposed by those calling for a Green New Deal in the USA. But it is very different to that proposed by the Sky Scenario, released by Shell in 2018.

In Sky, to reach the goals of the Paris Agreement, global emissions need to peak in the 2020s and be falling by 2030, which happens in large part through an initial mobilization of effort throughout the 2020s. But emissions in the USA don’t get even close to an 80+% reduction in that time. North American emissions peaked around 2005 and are slowly falling, but in Sky the pace of change triples in the 2020s with a significant boost in effort, led by government policies such as carbon pricing and electric vehicle mandates and incentives. But by 2030, emissions have fallen by only 23% compared with 2015.

Sky - North America Emissions to 2070

This would constitute a major shift in direction for the US economy. Five significant changes in the energy system in the decade to 2030 in Sky for North America are;

  • Doubling of wind generation. This should be a relatively easy goal, but on the basis of current build rates it would not be met. Current US capacity is around 90 GW with a recent quarter seeing 0.6 GW added.
  • A six-fold increase in solar generation. Current build rates would deliver about a third of the required capacity by 2030.
  • Coal use down by a third.
  • Natural gas demand plateaus and is the same in 2030 as it is in 2020.
  • Electric vehicle (EV) sales boom and by 2030, 20% of all vehicle miles traveled are in electric vehicles.

To imagine even more than this is quite challenging. In the EV sector, sales in the USA in 2018 grew rapidly, but still only amounted to 2.1% of the total (Source: EVVolumes.com). A looming issue is the lack of EV models in the SUV / light truck category, although this should start to correct in 2020 with several expected. Nevertheless, this category size makes up a large portion of the US market and it may take some time for consumers to adopt electric versions of their favourite model. While an all EV sales line up might be possible by 2030, an all EV fleet isn’t. For a 100% EV fleet to occur in 2030, all new passenger vehicle sales need to be electric in the next year or two.

In the power generation sector, the multipliers given for wind and solar above, together with an unchanged role for nuclear, results in over half the power generation coming from non-fossil sources by 2030. In Sky, it isn’t until after 2040 before coal is phased out, but natural gas persists in the power mix until the 2060s. A faster transition would require not only a further acceleration in solar and wind deployment, but also the development of major grid storage capacity to replace natural gas. Although there is some grid battery storage today, it amounts to some 2 GWh (Source: PV Magazine), a tiny fraction of the amount that might be needed for a 100% renewable energy system. Further technical developments will be required, or perhaps storage will be combined with ultra-high voltage long distance transmission.

But the most static sector over a ten year period may well be heavy industry; sub-sectors such as cement, iron ore smelting and petrochemicals. While Sky sees some shift towards electricity, the change from 2020 to 2030 is modest. Carbon dioxide emissions remain unchanged at 400 million tonnes per annum over this period. Change is measured in decades rather than years. This is because of the time it takes to develop new industrial processes that don’t use fossil fuels for energy (e.g. hydrogen based iron ore smelting), retrofit exiting capacity and build the necessary infrastructure to support such change (e.g. hydrogen generation).

The next ten years is critical for a transition that meets the goals of the Paris Agreement and this was a feature of the House Resolution for a Green New Deal. Significant changes must be achieved to set the scene for net-zero emissions in the decades following. But to imagine wholesale energy system change in s decade is not realistic. There may well be narrow pockets of very deep change found in parts of the system, but complete change remains a fifty year project.

Note: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in http://www.shell.com/skyscenario.