We sometimes indulge our more geeky side and cover topics that, while metals related, are never going to significantly move the needle on metals consumption, pricing or supply and demand. We reserve the right to be geeky.
While a recent development recently discussed by Mark Shackleton, Professor of Finance and Associate Dean Postgraduate Studies at Lancaster University definitely falls under the “geeky” heading, it could, one day, potentially move the needle for tin demand if the economics permit.
Carbon Capture and Carbon Taxes
One of the biggest dynamics in the next 10 years will be how legislators approach carbon emissions. If they seek to control emissions by putting a significant price on carbon, it will have profound implications for the metals industry, along with just about every energy-consuming activity out there.
A new report released by the Solar Energy Industries Association and produced by GTM Research forecasts that US Solar installations will more than double next year, reaching 15.4 gigawatts of solar power installed in 2016.
Worldwide, growth in solar installations is expected to rival the boom occurring in the US. Berlin-based research firm Apricum forecasts that 54 GW will be installed worldwide in 2015, with new capacity additions reaching 92 GW by 2020. The largest market for the most common type of panels, solar silicon photovoltaics will be China, with 180 GW of total capacity installed by the end of 2020, followed by the US (83 GW) and Japan (57 GW).
Photovoltaic solar array at the National Renewal Energy Laboratory.
As 2015 ends this week, US installed capacity of photovoltaics stands at 7.4 GW, an improvement over 6.3 GW last year.
Part of the reason for the surge was purchases made by individuals and utilities to beat the scheduled expiration of the federal investment tax credit at the end of the year. That all changed when congress passed a long-term extension of the wind and solar tax credit as part of its omnibus spending deal earlier this month.
Established by the Energy Policy Act of 2005, the wind/solar investment tax credit provides a tax credit of 30% of the value of solar projects. Annual solar installations have grown by at a compound rate of 76% since the act was implemented in 2006. Under the new scheme, the 30% solar tax credit will extend through 2019 and then decline gradually to 10% in 2022. After 2022 the credit will be eliminated for residential solar installations and will continue at 10% for commercial ones. Bloomberg New Energy Finance predicts that the move by congress will add an extra 20 gigawatts of solar power over the next five years.
Solar silicon prices have remained stubbornly low and, while this extension won’t necessarily help them rise, it will spur utilities and homeowners to adopt them for electricity generation. The low prices, in this way, are a feature of expanded adoption and a not a bug as the generous discounts, on top of low prices, will make solar a cheaper alternative to other low-price power supply technologies such as natural gas.
The extension of the tax credit through 2019 is a boon to photovoltaic manufacturers and wind/solar energy suppliers who were quick to celebrate the long-term extension as an important step toward their goal of developing clean energy at an affordable cost through the development of solar projects.
“This is a game changer for our company and will finally allow us to plan with certainty our growth and expansion over the next several years,” said John Billingsley, Chairman and CEO at Dallas-based Tri Global Energy. “Tri Global Energy plans aggressive expansion of both our wind and solar divisions into diversified geographical areas across the US.”
Jeff Yoders: Your chapter on the ways that mining companies receive funding was very eye-opening. Is it happening that mining executives are making more money off of investment than they are off of mining?
David Abraham: I think you can go around at conferences and ask people have they ever produced a salable material and you would find that, much of the time, the answer is no. That’s certainly understandable because a lot of these mines take a long time to develop. You have to do your own due diligence, as an investor, and dig into a company’s financial reports, and make your own judgements, to find out how much someone deserves to be paid.
That’s something that the board of directors should be doing. Some of the time, though, it does seem a little out of line to see what these executives are being paid and judging what they are paid in comparison to other industries. I tried to allude to that.
Lighting technology marches on from candles to tungsten to fluorescent to LEDs. Source: Adobe Stock/vladimirfloyd.
JY: It can be a very risky investment to be involved in without, so to speak, your head up.
DA: It is a big risk and, financially, a challenging investment to get involved in. As much as you want people investing in the space, because these materials are critical, the challenge is you don’t know what demand is going to be, exactly, in the future. The prices are so volatile that you it’s hard to make projections. You can see a trend line, sure, but you could be investing in the wrong trend. If you made a decision to invest in, say, rare earths specifically because you thought demand for compact fluorescent lighting would take off, well, LEDs came about, and you would have gotten stung.
JY: What’s interesting is a lot of these technologies are not new at all and take off due to availability of materials or recent research. Light-Emitting Diodes (LEDs) are a semiconductor technology that, as consumer lighting, has been around since the ’60s. The road to mass adoption for much of these rare metal products can be a long road.
DA: There is a challenge of knowing what material is going to be needed because of changing of technology. My hope is that if we start clarifying some of the supply chains as best we can and start investing in some of these materials that they will be commodities, in terms of price and availability, and they will be more adaptable for use in consumer technology. We won’t try to NOT be using these materials, and many companies have shied away from rare earths, we’d try to use them more.
Indeed many technologies like LEDs have been around for many years, but the commercialization can happen very quickly. The adoption of LEDs surprised many who thought that rare earths in phosphors would be a growing market because rare earths are used heavily in compact fluorescent lighting —only a fraction of them are used in LEDs. But LEDs quickly won out.
Trying to predict new technologies and, therefore, the elements necessary to make them is fraught with risk. Just before the iPhone came out, Microsoft’s Steve Ballmer said there was no chance it would take market share. Those who are most in the know often have no clue. So predicting the resources that future tech will use is impossible.
But, with the rapid adoption of technology globally — the smartphone and tablet spread around the world faster than any other technology ever — and a middle class set to grow by 2 billion over the next 15 years, we are sure to use a lot more of these specialty resources, even if some technologies become more efficient in their use of rare metals.
JY: Were you surprised when Molycorp, Inc. declared bankruptcy earlier this year? I don’t think many of us were.
DA: It goes back to the first thing we talked about. They faced real challenges: the amount debt they had to cover, the competition they were up against, and the processing facility they developed, which wasn’t efficient and took longer to set up than expected, indicated that profitability would be an obstacle. Now, Molycorp was not the only one with those challenges. Lynas Corp.has faced those same challenges, and although Lynas has been able to, apparently, last a little bit longer, Lynas also has the good fortune of having forgiving backers in the Japanese government.
I wrote the book, really, to give perspective to a lay audience about where this stuff comes from and the implications when they make decisions to buy computersand iPhones. I wanted to let consumers know that there’s this whole other world of rare metals under their fingertips.
The renewables MMI fell 1.9% to yet another all-time low of 52 this month. The index has fallen in price steadily with very few exceptions since we started charting renewables prices in 2012.
The bearish commodity environment is certainly one part of the story but, as we’ve written before, the market performance of renewable metal inputs such as neodymium and grain-oriented electrical steel (GOES) are only part of the story for the market since, in a commodity sense, it’s still in its infancy.
Strong Investor Interest
While prices fell this month we noted some interesting acquisitions such as Chinese venture capitalist Sonny Wu purchasing 80% of Philips’ LumiLEDs business. LumiLEDs is one of the largest producers of light-emitting diode (LED) commercial lighting, a semiconductor technology that uses rare earth phosphors and other renewables to light your home for less energy.
Investment in renewables is strong according to the UNEP Global Trends in Renewable Energy Investment 2015 report. China saw, by far, the biggest renewable energy investments in 2014 — a record $83.3 billion, up 39% from 2013. The US was second at $38.3 billion, up 7% on the year but well below its all-time high reached in 2011. Third came Japan, at $35.7 billion, 10% higher than in 2013 and its biggest total ever.
The numbers for 2015 will be out soon and most are predicting gains over last year as companies such as Tesla and SolarCitystarted construction of factories estimated to cost more than $1 billion — Tesla’s is actually estimated to cost $5 billion — this year.
Investors are clearly in the renewables game for the long run, as many expect a switch from coal-fired electricity production in China and the US to take off in the next 10 years. Liquid natural gas has already begun to replace it — according to my colleague, Stuart Burns the UK is even more rapidly phasing out coal in favor of LNG —and technology improvements in solar and wind are expected to make them competitive with LNG in the near future.
Can these investments speed up adoption and increase the price of parts such as motors made of neodymium magnets? It really depends on how quickly consumers accept SolarCity and Tesla’s products. Tesla’s already selling its Powerwall lithium ion batteries for home solar energy storage.
Alternative applications of solar silicon are also popping up seemingly every day, at least in the warmer parts of the US. As gadgets such as cell phones and tablets take over more and more of our work and home lives, its hard to imagine their thirst for power being slaked entirely by wall-mounted plugs fed by coal or LNG-burning plants.
We wrote recently about the probability that coal assets would become increasingly uneconomic if climate change related legislation such as emission caps and carbon taxes heaped costs on the industry that have, so far, been avoided.
Well, an article in the Financial Times gives a glimpse of the future as envisaged by Amber Rudd, the UK government’s energy secretary. Speaking to the BBC hours before a speech on UK energy policy, Ms. Rudd announced a major review of the subsidies the UK pays for electricity produced from natural gas in an effort to encourage the replacement of the UK’s coal-fired power stations with combined-cycle, gas-powered technology ostensibly with a view to reduce carbon emissions
Coal vs. Natural Gas
Rudd would say later in her speech that she wants all coal power stations to shut down by 2025. The UK currently produces 21% of its electricity from coal-burning power stations, but those stations produce some 75% of the electricity industry’s CO2 emissions. However, a third of these power stations are expected to close by 2016, so that they meet EU air quality legislation.
Coal cars may be a thing of the past in the UK soon. Source: Adobe Stock/Carolyn Franks.
Coal creates roughly twice as much carbon dioxide as gas when it is burned for power. According to another FT article this week, research presented by the American Petroleum Institute shows that in the 25 US states with the highest rate of carbon dioxide emissions from their power generation, switching completely out of coal-fired generation and into gas would more than meet their targets for reductions set under the EPA Clean Power Plan.
For once, where the UK leads the US may follow if the current administration can build a head of steam behind emission reductions following next month’s summit in Paris. We say “may” with caution though. The US coal lobby is infinitely more powerful than the UK coal mining industry and, with an export market dwindling fast, can expect to put up a fierce resistance to the suggestion coal-fired power generation should be abandoned en masse.
Auctions and Emissions
In the UK, Rudd at least recognizes it is not sufficient to heap emission limits on power generation and expect the industry to sort itself out, switching from coal to other options. A recent auction for peak power provision ended up set to hand hundreds of millions of pounds in subsidies to highly polluting diesel generators, which are cheap to build and can undercut the prices offered even by gas plants.
The auction process could be rebalanced to take emissions into account, but that would not, in itself, encourage the industry to invest in new gas plants. For that, the market needs a guaranteed price which only the government can provide, much as it did for a recent new nuclear power plant project. Investors just aren’t willing to make 25-30 year commitments in such a volatile wholesale electricity market as the UK.
No guesses who will end up paying the price of the governments drive to be the “greenest government” ever, as usually consumers will foot the bill for subsidies, but at least with natural gas they have plants capable of meeting base and intermittent peak load in a relatively less polluting manner and, unlike renewables, with total reliability of supply.
As the US Green Building Council finished its annual Greenbuild Conference in Washington, DC, last week, one somewhat unlikely organization came away touting better opportunities for its green and sustainable products: The Steel Market Development Institute.
Steel, you say? Doesn’t it burn a lot of fossil fuels just to get the iron ore out of the ground? Isn’t the process to turn it into structural beams and bars energy-intensive and dirty, as well? Perhaps, if you’re looking at mined and milled steel only, but if you look at less-obvious concepts like reusability, material reduction through smart design, recyclability, decreased maintenance cost and empowerment of adaptive reuse, steel and, even some other metals, are ahead of the game when it comes to construction specification.
All of these green and sustainable steel-framed buildings might get a boost from new LEED standards. Source: Dmitry Ersler/Adobe Stock
The USGBC introduced will put its latest sustainable building certification, Leadership in Energy and Environmental Design version 4 (LEEDv4), into effect early next year. It approaches building materials content credits in a completely different way than previous editions of LEED.
“The new version of LEED, the primary changes are in the materials section and those changes are mostly around things like lifecycle assessment, environmental product declarations, transparency really,” said Mark Thimons, vice president sustainability at the SMDI. “What’s it take to make this product? What’s in it?” Read more
In the run up to the Paris Climate Change summit next month, there has been talk of stranded assets among fossil fuel producers. Coal, of course, is the front runner for a number of reasons, but principally because it is the most polluting major fuel under currently usable technology and, as such, the most “at risk” against carbon taxes or tougher environmental emissions legislation
A recent IMF report states that the fossil fuel industry has been and continues to be subsidized to such a degree that simply ending what it estimates to be the industry’s current subsidies would cut carbon emissions by 20%. The IMF isn’t some academic institution whose conclusions can be easily dismissed, governments and the media listen to what the fund says and its policies touch us all in different ways, so when it speaks so clearly — particularly when it puts it’s weight behind a movement that is gaining momentum in the run up to December’s summit — it has an impact.
IMF Reports Costs of Coal Subsidies
The IMF claims the subsidies are largely made up of polluters not paying the costs imposed on governments by the burning of coal, oil and natural gas, according to an article covering the topic in the Guardian newspaper.
These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change. Leaving aside the global effects on weather, which are contentious both in their extent and effect, ending the subsidies (and therefore cutting consumption) would slash the number of premature deaths from outdoor air pollution by 50% — about 1.6 million lives a year — the report claims.
Of course it’s not as simple as that, such a massive swing from using coal for power generation and alternatives to oil for transport could not be achieved reliably in the short- or even medium-term, renewables are so variable in delivery and most power grids so inflexible they could not cope with a rapid switch but that would not stop the process, merely slow its roll out.
A High Cost
The IMF report estimates the subsidy at $5.3 trillion for 2015, making it greater than the total health spending of all the world’s governments, or put another way the subsidies represent 6.5% of global GDP.
Just over half this figure is the money governments are forced to spend treating the victims of air pollution and the income lost because of ill health and premature deaths. The article not surprisingly sights coal as the dirtiest fuel in terms of both local air pollution and climate-warming carbon emissions and says it is therefore the greatest beneficiary of the subsidies, with just over half the total. Oil, heavily used in transport, gets about a third of the subsidy and natural gas the rest.
Source: The Guardian Newspaper
Not surprisingly, a large part of this is in Asia with the biggest single source of air pollution as coal-fired power stations and China, with its large population and heavy reliance on coal power, providing $2.3 trillion of the annual subsidies, the paper reports. Read more
Whatever one may feel about climate change, and few things can separate friends, family and colleagues more passionately, the fact is the powers that be will be gathering in Paris next month to hammer out deals about reducing carbon emissions.
Those deals will impact every one of us and not just to the extent that they do or do not have any effect on global temperatures. After initially being a rather reluctant participant in the whole emissions control lobby, at least from the climate change perspective, the US has in recent years taken a leading role in garnering collective action.
Regulations as Local Economy Hurdles
It has avoided the punitive actions taken by some European governments that have disadvantaged their own industries with high power costs in an effort to appear better than the rest in terms of lowering overall carbon emissions. In an article printed in the Financial Times the US is credited with helping to define a nationally determined approach to greenhouse gas reduction targets to which 150 countries representing 85% of the world’s total emissions have submitted proposals, so expect the US to take a very active part in the Paris deal, potentially with ramifications for US industry and consumers.
Some nations in Europe have already made substantial strides to reduce their total emissions although in the process some, like the UK, have left themselves perilously exposed to blackouts after the closure of coal-fired, base-load power generators and hamstrung their energy consuming industries like steel with unsustainably high costs, not to mention residential consumers who pay some of the highest tariffs in Europe. Reductions in carbon emissions have come at a substantial cost.
The China Question
Others, such as China, continue to build coal-fired power stations while at the same time adding nearly as much wind-power generation as the rest of the world put together last year according to Reuters.
Asia, in general, continues to embrace coal for power generation even though natural gas prices have fallen, preferring plentiful and often domestic coal to imported liquid natural gas. Reuters reports that in Asia, alone, this year power companies are building more than 500 coal-fired plants, with at least a thousand more in planning.
“Electricity is increasing its share in total energy consumption (in emerging markets) and coal is increasing its share of power generation,” said Laszlo Varro, head of the gas, coal and power markets division for the International Energy Agency (IEA).
Local Actions Require Global Support
How Asia can possibly achieve a reduction in carbon emissions is not even a question on the agenda, it’s whether the growth in emission can possibly be slowed that is consuming analysts. 40% of the 400 gigawatts in generation capacity to be added in Southeast Asia by 2040 will be coal-fired, the IEA is reported as saying.
That will raise coal’s share of the Southeast Asian power market to 50% from 32%, while natural gas declines to 26% from 44% now. And growth in coal is not only seen in developing economies. Coal’s share of the energy mix in Japan, top importer of LNG, will rise to 30% by 2030, up from 22% in 2010 – without it’s nuclear plants, Japan’s carbon footprint has risen significantly.
Meanwhile India, the world’s fourth-largest emitter is increasing emissions at 8.2% per year – the highest of any major economy in the world and while its carbon intensity, a measure of its emissions relative to its GDP, is half that of China’s, its emission reduction targets are, like many government set targets in India, unlikely to be met.
The announcement this month that China’s coal consumption, and hence carbon emissions, have been under-reported has heaped further pressure on Paris to achieve meaningful change. Statistics in China have always been a haphazard affair and while no wrongdoing is suggested the revelation by the National Bureau of Statistics reported in AsiaOne raised the figures for coal consumption in previous years by as much as 17%.
For 2012 alone, the increase was 600 million tons, — over 70% of the United States’ annual coal consumption — implying that China’s annual emissions of carbon dioxide had been underestimated by more than Germany’s total yearly output.
This underlines how futile, from a total emissions perspective, efforts by small mature markets in Europe are to the overall position. Sure, they give the country the moral high ground to lecture the rest, but, in reality, global action is needed, unilateral action simply damage the domestic economy and materially achieves little.
So, remote and unimportant as it may seem, the meeting in Paris next month could have a significant impact on us at home. Keep a close eye on what your politicians sign up to and whether they manage to get the big polluters to play the same game.
As we cautioned last month, renewables look like they have farther to fall. The low-price range they have been trading in for the past six months is, itself, a downward departure from its previous range, in the 60s, where it had been since January 2013.
Why Renewables Prices Stay Low
The bearish commodity picture is certainly a part of the problem for renewables but the sector looks increasingly price-challenged as most of the metals trading in this range, such as steel, had sharp losses and selloffs in the last year whereas renewables have lost comparatively little of their value in 2014 and 2015.
Steel plate, itself, has been a big part of renewables’ falling price range this year. Used in the construction of wind turbines and some certified sustainable construction projects, steel plate prices have dipped under pressure from cheaper overseas imports and a strong dollar.
Silicon and cobalt have fallen, as well, despite strong demand for photovoltaic solar panels. Both wind and solar have proven themselves as power generating technologies, so much so that this week, unlikely advocate BP said the cost of producing energy from renewable sources will fall sharply over the next 35 years. BP’s statement went on to say without a system in place that levies a charge for carbon emitted into the atmosphere, natural gas and coal will remain the cheapest source of supply to 2050.
We’re BP and We’re Here to Help
Hard to believe that BP is truly on the cap and trade bandwagon but, as an entity, it would know energy markets better than most.
BP’s report analyzed the impact of technology on energy production and consumption in coming decades. The oil giant said that a carbon price of $40 a metric ton would make gas a more economical power source then coal—a more carbon-intensive fuel—but a higher carbon price will be needed to make wind and solar more competitive.
“Without a price on carbon, fossil fuels are fiercely competitive,” said David Eyton, BP’s technology chief.
The oil giant’s long-term forecasts project that coal will remain the dominant fuel in power generation by 2035, but will lose market share to natural gas and renewables. In transportation, liquid fuels are expected to continue to dominate in coming decades.
BP and other large oil companies are producing an increasing volume of natural gas, with BP expecting it to comprise 60% of its production by the end of the decade.
The coal industry has defended its role in the energy mix, highlighting that advanced technologies can sharply reduce carbon emissions and that coal remains a critical fuel, particularly in fast industrializing emerging markets. Mass market adoption will be needed for solar, particularly, to be anything but a power generation pawn in the war between coal and natural gas.
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The battle lines are being drawn. On one side are ranged automotive giants Toyota, Honda and Hyundai pouring billions into hydrogen fuel cells (FCEV), on the other are new upstarts like Tesla and established automotive firms like Nissan committed to the Electric Vehicle (EV) market.
A bit like the Sony Betamax versus the JVC VHS video cassette recording formats in the ’70s — or Sony and Blu-Ray vs. Toshiba and HD-DVD more recently — the outcome of this monumental tussle will have far reaching ramifications for the industry and the competition will drive innovation and automotive advancement to the benefit of us all.
Unlike Beta/VHS where competing technologies hit the market at more or less the same time, EV has a clear head start on FCEV but like the video cassette market it may be the eventual winner if it is due to the quality of the product as much as the longevity of the experience. With video cassettes, Beta was generally reckoned to offer a better picture quality, in part because it recorded at a higher tape speed, yet its eventual failure had more to do with the fact Beta 1 only lasted 60 minutes compared to VHS’s 120 minutes. That’s the reason Beta is still used today in television production long after it ceded the home video market to VHS. Read more