Renewables take a bashing, but their application will grow in the longer term

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Renewables are not normally a core topic of ours. In recognition of the growing importance of the sector and the legal and incentive landscape that is encouraging investment in such technologies, MetalMiner does produce a Renewables Monthly Metals Index (MMI) that tracks metal input costs to the sector.

But, as a rule, we tend not to cover the sector directly, so see this as a stroll off the reservation today as two posts this week in the Financial Times present both short-term negative issues and longer-term positive issues that some readers may find of interest.

The short-term angle is from a post this week based on the latest International Energy Agency (IEA) report exploring a collapse in investment across energy sectors (particularly in oil, gas and coal).

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The pandemic is expected to slash energy sector investment by about $400 billion this year, the largest ever fall, turning on its head an expectation at the beginning of the year for 2% growth (now expected to be more like a 20% fall from 2019 levels). Unfortunately, money scheduled for critical areas like energy efficiency will also be hit, falling by an estimated 12% the IEA is quoted as saying.

Market forces, specifically lower coal costs, are actually working against renewables. Approvals of new coal plants in the first quarter of 2020, mainly in China, are running at twice the rate observed over 2019 as a whole.

Looking further ahead into the next decade, a separate Financial Times post reports on a consortium of six of Denmark’s biggest companies teaming up to launch one of the world’s largest green hydrogen projects. The project aims to create emission-free fuels suitable for ships, trucks, aircraft and heavy industry such as steel and cement. Those industries are notoriously heavy power consumers and, in recognition of that, are recipients of all kinds of carbon credits to allow them to pollute but continue to operate.

Container shipping group AP Moller-Maersk, airline SAS, logistics group DSV Panalpina, ferry line DFDS, Copenhagen Airports and the world’s largest wind farm developer Orsted are aiming to open their first hydrogen facility powered by offshore wind by 2023 and reach full capacity by 2030 as they try to help Denmark achieve carbon neutrality by 2050.

As the membership of the consortium suggests, shipping, haulage and aviation are the main target. However, if successful lessons learned will need to be applied to heavy industry if Denmark, and in time other European countries, are to reach their carbon-neutral targets by 2050.

The Financial Times reports the project would use renewable energy to produce hydrogen — instead of the current way of using natural gas — before using it to make methanol that could be used as an alternative fuel in ships and aircraft as soon as 2027. The plan calls a 1.3 GW electrolyzer to make hydrogen from water, saving 850,000 tons of carbon emissions annually. The electrolyzer, however, would need a 3 GW offshore wind farm, one of the world’s largest, to power it.

Oil major Royal Dutch Shell is said to be considering an even more audacious project in the Netherlands that could increase to 10 GW of offshore wind power by 2040 to help provide green hydrogen for heavy industry. The first use of hydrogen in place of liquefied natural gas (LNG) to heat steel in a hot mill was reported last month at Swedish steelmaker Ovako at its Hofors steel mill.

Economics aside, the trial was a complete success but rollout, both at Ovako and other steel producers that have voiced an interest, will be dependent on securing hydrogen at a sufficiently attractive price after carbon penalties and incentives are accounted for to make it viable. Like wind power, solar power and electric vehicles, governments will play a crucial role.

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Corporations like Royal Dutch Shell can organize and lead the creation of massive wind farms and electrolyze seawater on an industrial scale but the economics will need the carrot of incentives and the stick of carbon penalties if hard dollars (or euros) are to be spent.

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