Electric motors: variable star?

Variable frequency drives precisely control motors. Amazingly they could reduce global electricity demand by c10%. We expect a sharp acceleration due to sustained energy shortages, increasingly renewable-heavy grids and excellent 20-50% IRRs. Hence this 14-page note reviews the opportunity and who benefits.

There are 50bn electric motors in the world consuming half of all global electricity. They are inefficient. Because their speed is determined principally by the frequency of the AC power grid. The physics and electronics of this inefficiency are outlined on pages 2-4.

Variable frequency drives use similar power-electronics technology as the renewables revolution, to precisely control electric motors, ensuring they do not run faster than is needed. We outline how they work and case studies of their energy savings on pages 5-7.

Excellent economics are laid out on pages 8-10. We see IRRs in the range of 20-50% and payback periods in the range of 1-5 years, depending on power prices and CO2 prices.

Improved resiliency in renewable-heavy grids is a further advantage, protecting against voltage sags, lack of inertia, trips and motor degradation. These issues are explored on pages 11-12.

Leading companies are described on pages 13-14, including their market shares, proportionate concentration to the theme and product offerings.

Carbon capture: how big is the opportunity?

This 13-page note aims to quantify the upside case for CCS in the United States, using economics, top-down and bottom-up calculations. Our conclusion is that a clear, $100/ton incentive could help CCS scale by c25x, accelerating over 500MTpa of projects in the next decade, which could prevent almost 10% of the US’s current CO2 emissions. Our numbers include blue hydrogen and next-gen CCS.

Current CCS incentives are not sufficient for hard-to-abate sectors in the US, within the <$50/ton confines of the 45Q tax credit (page 2).

Although CCS technology is mature, c$100/ton incentives are needed to kick-start the industry. The economics are built-up on pages 3-7.

Top-down market-sizing is based on the oil and gas industry, which has extracted 900MTpa of hydrocarbons from sub-surface reservoirs, on average in the past 40-years. We discuss possible future CCS volumes relative to this baseline on page 8.

Bottom-up market sizing looks industry-by-industry, to break down possible capture volumes. We discuss each industry in turn – coal power, gas power, ethanol, steel, cement, et al., – on pages 9-12.

Blue hydrogen remains particularly exciting, for the decarbonization of smaller industrial facilities that may need to share infrastructure (page 13).

Insulating materials: deliver us from gas shortages?

Insulating materials can slow the loss of heat from a warm house by a factor of 30-100x. This matters as 60-90% of today’s global housing stock is 30-70% under-insulated. And the world is now grappling with gas shortages, which may encourage policymakers to re-prioritize nearer-term energy savings. We think renovation rates could treble. This 12-page note screens who might benefit.

Shortfalls in the European gas market are discussed on page 2. A 20% improvement in home insulation could free up the equivalent of all pipelines imports from Algeria.

The thermodynamics of home insulation are laid out on pages 3-4, explaining the W/m.K metric, why it matters, and scoring different materials.

The scale of the opportunity is larger than we thought, based on a dozen technical papers, reviewed and summarized on pages 5-6, in order to quantify potential energy and CO2 savings.

CO2 abatement costs will generally be below $100/ton, we calculate, especially amidst energy shortages. Economic assumptions and calculations are on pages 7-9.

Leading companies that produce insulating materials are screened on pages 10-11, in order to identify who might help supply a potential trebling of materials demand.

An interesting nuance, discussed on page 12, is how better insulation would re-shape the cost curve for decarbonizing home heat, in favor of nature-based solutions, gas and hydrogen; but potentially away from heat pumps and other electrification technologies.

Carbon capture on ships: raising a sail?

CCS is adapting to ‘go to sea’. 80% of some ships’ CO2 emissions could be captured for a cost of c$100/ton and an energy penalty of just 5%, albeit this is the best case within a broad range. This 15-page note explores the opportunity, challenges, progress and who might benefit.

Different options to decarbonize the shipping industry are compared and contrasted on pages 2-4, including the abatement costs of different blue and green fuels.

But what about CCS? The technology is mature. However, CCS on a ship would have different parameters from onshore. We discuss three key considerations on pages 5-7.

Will it actually work? The question is whether you can put an amine plant on a floating structure, store the CO2 as a liquid, and expect the entire system to function. We believe the answer is yes, based on reviewing technical papers, as summarized on 8-10.

$100/ton economics are possible. We use our models to outline what you need to believe to reach these numbers, including sensitivities, and applicability to different shipping types and routes (pages 11-12).

Which companies benefit? We explore implications for leading capital goods companies, chemicals companies and small-scale LNG on page 13.

A new infrastructure industry would also be required, to handle CO2 in ports, move it to disposal sites, or integrate with CO2-EOR. We discuss this theme on pages 14-15.

Carbon neutral investing: hedge funds, forest funds?

This 11-page note considers a new model of ‘carbon neutral’ investing. Look-through emissions of a portfolio are quantified (Scope 1 & 2 basis). Then accordingly, an allocation is made to high-quality, nature-based CO2 removals. This allows portfolio managers to maximize returns, investing across any sector, while also neutralizing the environmental impacts.

Is continued capital allocation needed, for energy-intensive sectors, even amidst the energy transition? We outline the arguments on pages 2-4, finding stark differences between other sectors where ‘divestment’ has been effective.

A new model is proposed on pages 5-6. The look-through CO2 intensity of a portfolio is calculated, then all emissions are offset using high-quality nature based allocations.

Advantages of the model are described on page 7, including the commercial opportunity for fund managers, cash coverage ratios and second order consequences.

More detailed challenges are then covered on pages 8-11, looking issue by issue, for implementing this model in practice, and where we hope we can help.

End game: options to cure energy shortages?

This 13-page note considers five options to cure emerging energy shortages in the gas and power sectors of countries working hard to decarbonize. Unfortunately, the options are mostly absurd. They point to inflation, industrial leakage and slipping global climate goals. But there may be a few glimmers of opportunity in LNG, nuclear and efficiency technologies.

How did we get here? Our latest models for gas, LNG and power shortages in Europe are laid out on pages 2-4, to illustrate the scale of looming under-supply.

The first option to cure long-term under-supply is to incentivize more gas projects. Unfortunately, energy transition has become irrational and adversarial. Hence we worry hurdle rates for these big, capital intensive projects are around 15-20% and this could make the marginal cost of LNG around $12-16/mcf (pages 5-7).

The second option is to use more coal and fuel oil to lower the need for gas, especially in the most price-sensitive emerging market geographies. But this is not good for decarbonization. “Switching economics” are laid out on pages 8-11.

The third option is to ‘leak’ industrial activity away from the West, so our energy demand decreases. We model what a long-term doubling of gas and power would do to the cost curves of ten major industries, finding inflation of c30% on average (page 12).

The fourth option is to step up efficiency gains: a very broad area. This would include cancelling nuclear scale-backs, backtracking on ridiculous green hydrogen, and an accelerated cycle of capital investments to promote more efficient energy use. This is the best option. But it only has a limited impact. And we only scratch the surface on page 13.

The fifth option is a 100% renewable powered energy system, which avoids any need for gas in the mix, by 2025-30. Unfortunately, this is a fantasy, for practical, economical and timeframe reasons. We have not re-hashed all of our prior analysis in this note, but for further details, please see here, here, here, here, here, here, here and here.

Power grids: tenet?

How do power grids work? How will they be re-shaped by renewables? This 20-page note outlines the underpinnings of electricity markets, from theoretical physics through to looming shortages of ‘inertia’ and ‘reactive power’. Some commentators may not have fully grasped the challenges of back-stopping renewables and opportunities thus created.

The purpose of this note is to outline how power grids actually work. Amazon.com sells two introductory electronics textbooks. But they weigh in at 544-pages and 1,056-pages, respectively. We are going to try to run through the important ideas in about twenty, for the reasons outlined on page 2.

The fundamentals of electromagnetism are covered on page 3, and important concepts are explained from first principles, as clearly as possible.

The fundamental of electrical power, including key units of measurement, are covered on pages 4-5, again introducing the key concepts from first principles.

Conventional power turbines are described on pages 6-7, including how they synchronize and supply crucial inertia and reactive power.

Solar generation is described on pages 8-9, including the physics of bandgaps, and the electronics of MPPTs and inverters.

Wind generation is described on pages 10-11, including the physics of swept areas, and the electronics of DFIGs and AC-DC-AC converters.

Power distribution and transformers are described on pages 12-14, covering the growing trend towards smaller and more fragmented power distribution.

Power consuming technologies are described on pages 15-17, explaining how induction motors, resistive heaters, lighting and electro-chemical cells regulate their power consumption.

The crucial debate is over the optimal share of renewables. Our most noteworthy data-points and conclusions are spelled out on pages 18-21.

Overall, the power grid is somewhat reminiscent of Christopher Nolan’s 2020 science fiction thriller, Tenet. Nobody understands it. Tracing a causal chain of events requires looking forwards and backwards in time simultaneously. Someone is hiding in a wind turbine. And the protagonists insist they are working to avert the end of the world.

Nature based CO2 removals: theory of evolution?

Learning curves and cost deflation are widely assumed in new energies but overlooked for nature-based CO2 removals. This 15-page note finds the CO2 uptake of reforestation projects could double again from here. Support for NBS has already stepped up sharply in 2021. Beneficiaries include the supply chain and leading projects.

Nature based carbon removals are re-capped on page 2, covering their important, their costs and how they are re-shaping the energy transition.

But policy support is growing faster than expected, as outlined on pages 3-5. Now that nature-based CO2 removals are on the map, they are in competition with other new energies. Hence which technologies will ‘improve fastest’?

The historical precedent from agriculture is that yields have improved 4-7x over 50-100 years, due to learning curve effects. So will forestry practices be similar? (pages 6-7).

Thirty variables can be optimized when re-foresting a degraded eco-system. We run through the most important examples on pages 8-13.

But is optimizing nature ‘natural’? This is a philosophical question. Our own perspectives and conclusions are offered on page 14-15.

Integrated energy: a new model?

This 14-page note lays out a new model to supply fully carbon-neutral energy to a cluster of commercial and industrial consumers, via an integrated package of renewables, low-carbon gas back-ups and nature based carbon removals. This is remarkable for three reasons: low cost, high stability, and full technical readiness. The prize may be very large.

Four building blocks for a zero-carbon energy mix are outlined on pages 2-5. They include wind, solar, gas-fired CHPs and gas-fired CCGTs. Costs, CO2 intensities and key debates are reviewed for each technology.

Taking out the CO2 requires high-quality nature based carbon removals, for any truly ‘carbon neutral’ energy mix. Meeting this challenge is described on pages 5-7. There will be nay-sayers who do not like this model. To them, we ask, why do you hate nature so much?

Finding a fit requires combining the different building blocks above into an integrated energy system. We find the optimal fit is for renewables capacity to cover 110% of average grid demand. The balancing act is outlined on pages 8-10.

The gas supply chain that backs up the renewables must minimize methane leaks and use the gas as efficiently as possible. Our suggestions are laid out on pages 11-12.

The commercial benefits of this integrated model are described on pages 13-14. We think this is an excellent opportunity to provide fully carbon-neutral energy, using fully mature technologies, at costs well below 10c/kWh and highly bankable price-stability.

Heat pumps: hot and cold?

Some policymakers now aspire to ban gas boilers and ramp heat pumps 10x by 2050. In theory, the heat pump technology is superior. But in practice, there are ten challenges. Outright gas boiler bans could become a political disaster. The most likely outcome is a 0-2% pullback in European gas by 2030. We have also screened leading heat pump manufacturers in this 18-page note.

The opportunity for heat pumps in the energy transition is laid out on pages 2-3, as the IEA now advises that “bans on new fossil fuel boilers need to start being introduced globally in 2025, driving up sales of electric heat pumps”.

But are they ready for prime time? We have reviewed technical specifications, costs and consumer feedback on pages 4-13. The work suggests large heat pumps may not feasibly substitute for gas boilers in every context. There are ten crucial challenges for the industry to overcome.

Gas market impacts are quantified on pages 14-17. Our base case is that trebling heat pump capacity in Europe by 2030 will erode 2% of total gas demand. But rebound effects and under-performance could cut the net benefits to nil.

The best placed companies are explored in our detailed screening work (which we have used to select a heat pump provider for our own GSHP project in Europe). One company stands out in particular, having built-up an industry leading portfolio through acquisitions.