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.

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.

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.

Finnish forests: a two billion ton CO2 case-study?

Can forestry remove CO2 from the atmosphere at multi-GTpa scale? This 19-page note is a case study from Finland, where detailed data goes back a century. 70% of the country is forest. It is managed sustainably, equitably, economically. And forests have sequestered 2GT of CO2 in the past century, offsetting two-thirds of the country’s fossil emissions.

Nature-based carbon removals underpin 25% of all the decarbonization in our roadmap to net zero. The key debate is whether they can scale to this level, measurably, reliably, as covered on pages 2-3.

Finland makes for an excellent case study. An overview of the country, its forests and its forest-centric culture is set out on pages 4-6.

The structure of Finnish forestry is broken down on pages 7-10. Our data are aggregated from Natural Resources Institute Finland, and offer the best, most comprehensive breakdown we have ever encountered on the costs of forest management (across 20 line items), harvesting practices and realized pricing for different categories of wood.

Carbon credentials are calculated on pages 11-12, explaining the maths above: 2GT of CO2 sequestered in the past century, versus 3GT of nationwide fossil emissions.

Productivity data are also excellent, improving at 1% per year over the past century, with biomass yields per hectare almost doubling since the first half of the 20th century. This is mainly through improved forestry practices (pages 13-16).

Conclusions are spelled out on pages 17-19. 110 countries, with 5bn acres of land, have a 1-5x better environment for growing forests than icy Finland. For Brazil, for example, to get repeatedly ‘trounced’ by Finland should be as surprising in forestry as it would be in soccer.

Nickel solutions: unblocking a battery bottleneck?

The global nickel market will grow from $30bn pa to $300bn pa as part of the energy transition, including a 5x increase in volumes and 2x increase in prices. This 15-page note evaluates the nickel supply chain for electric vehicle battery cathodes. Deficits are looming, plus inflationary feedback loops, hence we end by screening nickel names.

An overview of global nickel demand is set out on pages 2-4. We see stainless demand growing with GDP and EV battery demand rising c30x through 2050.

An overview of global nickel supply is set out on pages 5-9. This is a complex supply chain. Only a subset of processes and nickel grades can satiate demand for EV cathodes. We focus in on a laterite – HPAL – MHP – nickel sulphate pathway in this work.

Nickels and dimes. Economics of producing battery grade nickel (in $/ton) are captured on page 10, as a function of a dozen input variables, which can be stress-tested. Our marginal cost estimate is around $11,500/ton with a CO2 intensity of 15 tons/ton.

Nickel bars. There are three bottlenecks to ramping up battery grade nickel production, outlined on pages 11-12. We argue these may settle long-term future prices closer to $20,000/ton.

Upside for nickel in the energy transition is compared with other materials that have crossed our screens on page 13. It is one of the toppier examples.

A screen of nickel companies is presented on page 14-15, covering incumbents, diversified miners, specialists and growth projects.

Copyright: Thunder Said Energy, 2022.