Capacitor banks: raising power factors?

Power factor corrections could save 0.5% of global electricity, with $20/ton CO2 abatement costs at typical facilities in normal times, and 30% pure IRRs during energy shortages. They will also be needed to integrate more new energies into power grids. This 17-page note outlines the opportunity in capacitor banks, their economics and leading companies.


Reactive power is needed to create magnetic fields within ‘inductive loads’ like motors, electric heat, IT hardware and LEDs. But it is wasteful. 0.8-0.9 x power factors mean that 10-20% of the flowing current is not doing any useful work; it is simply amplifying I2R resistive losses; and if it is not compensated, then voltage drops can de-stabilize the grid.

All of these statements might seem a little bit confusing. Hence, after reading hundreds of pages into this topic, our ‘best explanation’ of the physics, the problem and the solution are set out on pages 2-6 of the report.

Power factor correction technologies are seen accelerating for three reasons. Saving electricity is increasingly economic amidst energy shortages (pages 7-8).

Second, they will enable greater electrification for around 30% less capex (pages 9-11).

Third, the rise of renewables will see large rotating turbines (especially coal) replaced with distributed generators that inherently offer no reactive power (wind and solar). This is not a “problem”. It simply requires conscious power factor correction (pages 12-14).

What challenges? Capacitor banks are likely to be the lowest cost solution for power factor correction, but they are also competing with other technologies, as reviewed on page 15.

What opportunities? Leading companies are profiled on pages 16-17, based on reviewing patents, and include the usual suspects in power-electronic capital goods.

Biofuels: the best of times, the worst of times?

How will food and energy shortages re-shape liquid biofuels? This 11-page note explores four questions. Could the US re-consider its ethanol blending to help world food security? Could rising cash costs of bio-diesel inflate global diesel prices to $6-8/gal? Will renewable diesel expansion ambitions be dialed back? What outlook for each liquid biofuel in the energy transition?


In principle, price spikes for conventional energy should be ‘the best of times’ for diversified energy sources, such as liquid biofuels. But in practice, there is also a possibility of food shortages in 2022. Biofuels are made from agricultural products that are usually in some way fungible with food supplies. And thus could this turn into ‘the worst of times’ for corn ethanol, bio-diesel and renewable diesel? The outcome depends on the numbers, which are explored in this report.

Our outlook for US corn ethanol is laid out on pages 4-5, including typical costs, CO2 intensity, feedstock inflation and possible impacts on the gasoline market. We wonder whether world events, especially 2022-3 food shortages, might motivate the US to re-visit diverting 40% of its corn crop into producing a biofuel, in the name of humanitarian aid?

Out outlook for bio-diesel is laid out on pages 6-7, including typical costs, CO2 intensity, feedstock inflation, and possible impacts on the diesel market. We wonder whether 0.8Mbpd of bio-diesel is now effectively the ‘marginal supply source’ for diesel markets, and if in turn, vegetable oil shortages could push world diesel prices up to $6-8/gallon?

Our outlook for renewable diesel is laid out on pages 8-9, including typical costs, CO2 intensity and the importance of used cooking oil as a feedstock. We wonder whether it is realistic for the US to scale its renewable diesel capacity by 7x, without relying on vast imports of agricultural oils, even palm oil, and whether the expansion will be softened?

Conclusions and some speculations are given on pages 10-11. We think biofuels may have a role in the energy transition, but the best pathway is bio-diesel from used cooking oil, while abatement costs of other options are on the higher side.

All the coal in China: our top ten charts?

Chinese coal provides 15% of the world’s energy, equivalent to 4 Saudi Arabia’s worth of oil. Global energy markets may become 10% under-supplied if this output plateaus per our ‘net zero’ scenario. Alternatively, might China ramp its coal to cure energy shortages, especially as Europe bids harder for renewables and LNG post-Russia? Today’s note presents our ‘top ten’ charts on China’s opaque coal industry.


China’s coal industry provides 15% of the world’s energy and c22% of its CO2 emissions. These numbers are placed in context on page 2.

China’s coal production policies will sway global energy balances. Key numbers, and their impacts on global energy supply-demand, are laid out on page 3.

China’s coal mines are constellation of c4,000 assets. Some useful rules of thumb are given on the breakdown on page 4.

China’s coal demand is bridged on page 5, including the share of demands for power, industrial heat, residential/commercial heat and coking.

Coal prices are contextualized on page 6-7, comparing Chinese coal with gas, renewables, hydro and nuclear in c/kWh terms.

Coal costs are calculated on page 6-8. We model what price is needed for China to maintain flat-slightly growing output, while earning double-digit returns on investment.

Accelerating Chinese coal depends on policies, however, especially around a tail of smaller and higher cost mines. The skew and implications are explored on page 7-8.

China’s decarbonization is clearly linked to its coal output. We see decarbonization ambitions being thwarted in the 2020s, per page 8.

Methane leaks from China’s coal industry may actually be higher than methane leaks from the West’s gas industry (page 9).

Chinese coal companies are profiled, and compared with Western companies, on pages 10-11.

East to West: re-shoring the energy transition?

China is 18% of the world’s people and GDP. But it makes c50% of the world’s metals, 60% of its wind turbines, 70% of its solar panels and 80% of its lithium ion batteries. Re-shoring is likely to be a growing motivation after events of 2022. This 14-page note explores resultant opportunities.


World events in 2022 have created a new appetite for self-reliance; avoiding excessive dependence upon particular suppliers, in case that relationship should sour in the future. China’s exports are 5x Russia’s. And it dominates supply chains that matter for the energy transition. The trends and market shares are quantified on pages 2-4.

There are five challenges that must be overcome, in order to re-shore value chains from China to the West: input materials, energy costs, 2-3 re-inflation risks, dumping and general Western NIMBY-ism. We outline each challenge on pages 5-6.

The best re-shoring opportunities are summarized, looking across all of our research, for metals and materials (page 7), wind (page 8), solar (page 9) and batteries (pages 10-11). In each case, where would be the most logical to site the infrastructure, and which companies are involved?

An unexpected implication of re-shoring these value chains is that their underlying energy demand would be re-shored too. Our current base case is that Western energy demand per capita has peaked and Western oil demand is in absolute decline. These markets may be re-shaped, with resultant opportunities for infrastructure investors (pages 12-14).

Power transmission: raising electrical potential?

Electricity transmission matters in the energy transition, integrating dispersed renewables over long distances to reach growing demand centers. This 15-page note argues future transmission needs will favor large HVDCs, costing 2-3c/kWh per 1,000km, which are materially lower-cost and more efficient than other alternatives. What opportunities follow?


Long distance power transmission is likely to grow more important in the energy transition. There are six reasons for this claim, especially linked to wind and solar, which are laid out on pages 2-4.

The simple physics of power transmission are laid out on pages 5-7, with worked examples showing how the existing grid transmits relatively small power quantities over relatively low distances, but resistive power losses ‘blow up’ if we try to expand AC power lines.

Overcoming these challenges via higher voltages and thicker power cables is not really feasible, especially as reactive power consumption becomes the limiting factor on AC lines. Again, the techno-economic theory behind these claims is laid out on pages 8-11.

HVDC lines melt away many of the problems noted above. We outline the reasons on page 12, along with real-world data from world-leading HVDC projects that have been constructed in China since 2010.

Economics. We think HVDCs can deliver multi-GW power, over distances around 3,000km, for total transmission spreads of 5-10c/kWh. Underlying assumptions, and comparisons with other technologies — batteries, hydrogen — are given on page 13.

Who benefits? Some of the leading companies in HVDC, and interesting new project proposals are discussed on page 14.

Battle of the batteries: EVs vs grid storage?

Who will ‘win’ the intensifying competition for finite lithium ion batteries, in a world that is hindered by shortages of lithium, graphite, nickel and cobalt in 2022-25?

Today’s note argues EVs should outcompete grid storage, as the 65kWh battery in a typical EV saves 2-4x more energy and 25-150% more CO2 each year than a comparably sized grid battery.


Competitor #1: Electrification of Transport?

The energy credentials of electric vehicles are laid out in the data-files below. A key finding is their higher efficiency, at 70-80% wagon-to-wheel, where an ICE might only achieve 15-20%. Therefore, energy is saved when an ICE is replaced by an EV. And CO2 is saved by extension, although the precise amount depends on the ‘power source’ for the EV.

When we interrogate our models, the single best use we can find for a 65kWh lithium ion battery is to electrify a taxi that drives 20,000-70,000 miles per year. This is a direct linear pass-through of these vehicles’ high annual mileage, with taxis in New York apparently reaching the upper end of this range. Thus the higher efficiency of EVs (vs ICEs) saves 20-75MWH of energy and 7-25 tons of CO2 pa.

More broadly, there are 1.2bn cars to ‘electrify’ in the world, where the energy and CO2 savings are also a linear function of miles driven, but because ordinary people have their cars parked around 97% of the time, the savings will usually be 10-20MWH per vehicle pa.

(Relatedly, an interesting debate is whether buying a ‘second car’ that is electric is unintentionally hindering energy transition, if that car actually ends up under-utilized while consuming scarce LIBs, which could be put to better use elsewhere. As always, context matters).

Competitor #2: Grid-Scale Batteries?

The other main use case for lithium ion batteries is grid-scale storage, where the energy-saving prize is preventing the curtailment of intermittent wind and solar resources. As an example, curtailment rates ran at c5% in California in 2021 (data below).

The curtailment point is crucial. There might be economic or geopolitical reasons for storing renewables at midday and re-releasing the energy at 7pm in the evening, as explored in the note below. But if routing X renewable MWH into batteries at midday (and thus away from the grid) simply results in X MWH more fossil energy generation at midday instead of X MWH of fossil energy generation at 7pm, then no fossil energy reductions have actually been achieved. In order for batteries reduce fossil energy generation, they must result in more overall renewable dispatch, or in other words, they must prevent curtailment.

There are all kinds of complexities in modelling the ‘energy savings’ here. How often does a battery charge-discharge? What percent of these charge-discharge cycles genuinely prevent curtailment? What proportion of curtailment can actually be avoided in practice with batteries? What round-trip efficiency on the battery?

To spell this out, imagine a perfect, Utopian energy system, where every day, the sun shone evenly, and grid demand was exactly the same. Every day from 10am to 2pm, the grid is over-saturated with solar energy, and it is necessary to curtail the exact same amount of renewables. In this perfect Utopian world, you could install a battery, to store the excess solar instead of curtailing it. Then you could re-release the energy from the battery just after sunset. All good. But the real world is not like this. There is enormous second-by-second, minute-by-minute, hour-by-hour, day-by-day volatility (data below).

Thus look back at the curtailment chart below. If you built a battery that could absorb 0.3% of the grid’s entire installed renewable generation capacity throughout the day, then yes, you would get to charge and discharge it every day to prevent curtailment. But you would only be avoiding about 10% of the total curtailment in the system.

Conversely, if you built a battery that could absorb 30% of the installed renewable generation capacity throughout the day, you could prevent about 99% of the curtailment, but you would only get to use this battery fully to prevent curtailment on about 5 days per year. This latter scenario would absorb a lot of LIBs, without unleashing materially more energy or displacing very much fossil fuel at all.

This is all explored in more detail in our detailed modelling work (data file here, notes below). But we think an “energy optimized” middle ground might be to built 1MW of battery storage for every 100MW of renewables capacity. For the remainder, we would prefer other solutions such as demand-shifting and long-distance transmission networks.

Thus, as a base case, we think a 16kW battery (about the same size as in an EV) at a 1.6MW solar project might save 5MWH of energy that would otherwise have been curtailed, abating 2T of CO2e. So generally, we think a typical EV is going save about 2-4x more energy per than a similarly-sized grid-battery.

Another nice case study on solar-battery integration is given here, for anyone who wants to go into the numbers. In this example, the battery is quite heavily over-sized.

Other considerations: substitution and economics?

Substitution potential? Another consideration is that an EV battery with the right power electronics can double as a grid-scale storage device (note below), absorbing excess renewables to prevent curtailment. But batteries affixed to a wall or on a concrete pad cannot usually double as a battery for a mobile vehicle, for obvious reasons.

Economic potential? We think OEMs producing c$70-100k electric vehicles will resist shutting entire production lines if their lithium input costs rise from $600 to $3k per vehicle. They will simply pass it on to the consumer. We are already seeing vehicle costs inflating for this reason, while consumers of ‘luxury products’ may not be overly price sensitive. By contrast, utility-scale customers are more likely to push back grid scale storage projects, as this is less mission critical, and likely to be more price-sensitive.

Overall, we think the competition for scarce materials is set to intensify as the world is going to be ‘short’ of lithium, graphite, nickel in 2022-25 (notes below). This is going to create an explosive competition for scarce resources. The entire contracting strategies of resource-consuming companies could change as a consequence…

Wood use: what CO2 credentials?

The carbon credentials of wood are not black-and-white. They depend on context. So this 13-page note draws out the numbers and five key conclusions. They highlight climate negatives for deforestation, climate positives for using waste wood and wood materials (with some debate around paper), and very strong climate positives for natural gas.


The CO2 accumulation profile of a forest is set out on pages 2-3. For example, a mature forest absorbs 90% less net CO2 each year than a young forest. This is our baseline for assessing carbon counterfactuals, and numbers can be flexed in our underlying data-file.

Deforestation has net climate negatives across the board. It even emits 35% less CO2 to burn coal (i.e., forests that have been dead for 100M years) than to cut down and burn living forests (page 4).

Conversely, gathering waste wood that has fallen to the forest floor and would otherwise decompose is ‘climate positive’ across every category that we assessed, with other hidden climate benefits (page 5).

Wood materials are the best use of wood, as each ton of sustainably harvested timber avoids 0.5 – 1.2 tons of net CO2 versus using other industrial materials. The note explores how wood product and chemicals companies might benefit from this theme, although paper is an exception and much more debatable (page 6-8).

Wood fuels are still used remarkably widely. But the carbon in lignin and cellulose is already part oxidized, so there is less energy “left to release” as it is converted to CO2. Whereas natural gas derives c54% of its energy release from hydrogen atoms converting to innocuous water vapor. This means each MTpa of LNG can displace an astonishing 10MTpa of CO2 where it prevents the burning of wood from deforestation (pages 9-11).

Biomass power can make sense in some contexts, but only when the wood is sustainably sourced, clearly substitutes coal and helps diversify energy sources/security (page 12).

Our key conclusions and implications for decision-makers are provided on page 13.

Direct lithium extraction: ten grains of salt?

Direct Lithium Extraction from brines could help lithium scale 30x in the Energy Transition; with costs and CO2 intensities 30-70% below mined lithium; while avoiding the 1-2 year time-lags of evaporative salars. This 15-page note reviews the top ten challenges that decision-makers need to de-risk, in order to get excited within the fast-evolving DLE landscape.


The need to ramp lithium 30x in the energy transition is re-capped on pages 2-3, including why this is one of the most explosive trajectories of any material we have tracked, and becoming a painful bottleneck in 2022-23.

Today’s production is dominated by mining (page 4) and evaporative salars (pages 5-6). Each of these has drawbacks, which are covered in the note.

Direct lithium extraction is a kind of holy grail for the lithium industry, a magic process that can separate all and only the lithium ions from the complex ionic soup, even at challenging geothermal brines (example charted above). However, there are ten challenges that need to be overcome before a DLE technology gets truly exciting. They are laid out on pages 8-12.

The extent of these challenges may benefit incumbents in the lithium industry (shown on page 13), as their era of excess returns persists for longer.

Promising DLE leaders are summarized on pages 14-15, along with each company’s recent progress, and the challenges we would focus upon.

Energy security: the return of long-term contracts?

Spot markets have delivered more and more ‘commodities on demand’ over the past half-century. But is this model fit for the energy transition? Many markets are now desperately short, causing explosive price rises. And sufficient volumes may still not be available at any price. So this 13-page note considers a renaissance for long-term contracts and who might benefit?


Liquid spot markets have long been seen as the apotheosis of commodities. Over time, small and immature markets are supposed to graduate towards ever-greater liquidity. Ultimately, the entire market is to be bought and sold at the prevailing prices on some highly liquid exchange, where any seller in the market can reach any buyer in the market, and vice versa. It is a kind of “commodities on demand” model. The history and evolution of this model is laid out on pages 2-3. But 2022 is showing its limitations.

Challenge #1 for liquid spot markets is that prices can explode in a shortage. We review energy costs, price elasticity factors, and their consequences on pages 4-6.

Challenge #2 for liquid spot markets is that even after prices explode, sufficient supplies may still not be available at any price. We zoom in on LNG as an example on pages 7-8. A country that has 90% of its supplies locked in on contracts is clearly going to fare very differently in 2022-23 than one that had planned to source 90% of its supplies from the spot market.

Challenge #3 is securing future supplies amidst uncertainty. No one wants to finance a 20-year project where prices could collapse, volumes could collapse or the commodity in question could even be banned outright. As an OPEC oil minister recently stated “it isn’t going to work like that”.

Could all of this point to a renaissance for long-term contracts? On pages 11-13, we outline what this might look like, who might benefit, and some possible pushbacks.

Graphite: upgrade to premium?

Global graphite volumes grow 6x in the energy transition, mostly driven by electric vehicles, while marginal pricing also doubles. We see the industry moving away from China’s near-exclusive control. The future favors a handful of Western producers, integrated from mine to anode, with CO2 intensity below 10kg/kg. This 10-page note concisely outlines the opportunity.


What is graphite and why does it matter? We outline some history, some chemistry, some market-sizing and the main sources of industrial demand growth on pages 2-3.

The supply chain is explained on page 4-5. Specifically, how is battery-grade graphite made via mined graphite (natural route) and petcoke/coal (synthetic route), and what are the respective CO2 intensities?

Our base case economic model requires $10/kg for a greenfield production facility to earn a 10% IRR. We outline what drives these numbers on pages 6-7.

Surprise bottlenecks? We cannot help wondering whether there is a surprise bottleneck waiting in battery-grade graphite. The rationale is laid out on page 8.

Western companies are described on pages 9-10, including summary profiles of the four leading listed companies, ramping up Western graphite facilities in 2022-25.

Copyright: Thunder Said Energy, 2022.