Investing for an Energy Transition

What is the best way for investors to drive decarbonisation? We argue a new ‘venturing’ model is needed, to incubate better technologies. CO2 budgets can also be stretched furthest by re-allocating to gas, lower-carbon oil and lower-carbon industry. But divestment is a grave mistake.

Production profiles: renewables vs oil and gas?

Wind, solar, oil and gas are all capable of supplying comparable energy at comparable prices: 5c/kWh wind and solar is economically competitive with c$50 oil and $6/mcf gas, over a 30-year project-cycle.

But production profiles matter. Oil and gas assets generate 2-3x more energy than renewables in early years; and 50-80% less energy in later years. So dollars invested in oil and gas go 2-3x further in the short-run. To meet the same initial demand from renewables, one must currently spend 2-3x more.

Further renewables deflation of c50-70% is required before the world can truly “re-allocate” capital from fossil fuels to renewables without causing near-term shortages. In the mean time, it is necessary to attract adequate capital for both resource types.

This short data-file underpins the chart and considerations discussed above.

Next-generation nuclear: the cutting edge?

This data-file screens 15 companies at the cutting edge of nuclear technology, to assess whether fission or fusion breakthroughs can realistically be factored into long-run forecasts of energy markets or the energy transition.

Our conclusion is “not yet”. Despite many signs of exciting progress, the average technical readiness in our sample is TRL 4 (testing components). Four companies are working to lab-scale prototypes. Energy gains and system stability remain key challenges.

The database summarises each company, including its technology, location, employee count, notable backers and technical technical readiness. Our notes also cover expected costs or timings, where disclosed.

CO2 Separation: an overview, a breakthrough?

This data-file summarises six leading CO2-separation technologies. For each one, we outline the process, its technical maturity, costs, CO2-selectivity, energy-intensity and drawbacks. Our notes and workings are also included in subsequent tabs.

A $50/ton carbon price would be needed to incentivise more CCS, using today’s conventional, technically mature methods. The problem remains, that these means suffer from energy penalties of 15-30%.

Metal Organic Frameworks could be a material breakthrough, with c60-80% lower costs and energy penalties. These remarkable materials can contain 10,000m2 of surface area in a single gram, with impressive tuning to adsorb specific gases. Our file contains new notes on MOFs, including the technology leaders: 4 listed companies, 5 start-ups and 225 patents from 2018-19.

Ventures for an Energy Transition?

This database tabulates c200 venture investments made by 8 of the leading Oil Majors, as the energy industry advances and transitions.

The largest portion of activity is still aimed at incubating Upstream technologies (c40% of the investments), as might be expected.

But leading Majors are also building rapid capabilities in new energies (38%) and digital (36%), as the energy system evolves. We are impressed by the opportunities. Venturing is likely the right model to create most value.

The full database shows which topic areas are most actively targeted by venturing; including by company. We also chart which companies have gained stakes in the most interesting start-ups.

CO2-EOR in Shale: the economics

We have modelled the economics of CO2-EOR in shale, after interest in this topic spiked 2.3x YoY in the 2019 technical literature. Our deep-dive research into the topic is linked here.

The economics appear very positive, with a 15% IRR under our base case assumptions, and very plausible upside to 25-30%.

The model also allows you to stress-test your own assumptions such as: oil prices, gas prices, CO2 prices, CO2 tax-credits, compressor costs and productivity uplift. The impacts on IRR, NPV and FCF are visible.

US Offshore Wind Economics?

This model outlines the economics of an offshore wind project, based on guidance for Equinor’s flagship, 816MW “Empire Wind”: an exciting development off New York, constructing c80 x c10 MW wind turbines, each as tall as the Chrysler building.

Base case IRRs are c5%, at current wholesale power prices of 5.6c/kWh, although this is a punitive scenario ignoring optionalities and externalities.

IRRs could be uplifted to 10%, through a combination of power marketing, continued cost-deflation, levering the project, carbon prices and feed-in tariffs.

Download the model to flex each of these variables and test the resulting economic sensitivity.

 

Power Trains? Electric, diesel or hydrogen

This data-file compares diesel trains, electric trains and hydrogen trains, according to their energy consumption, carbon emissions and fuel costs. The data are presented apples-to-apples, per passenger mile, based on worked examples. Seven train routes are compared on 20 metrics overall.

Travelling by train should be 2-15x more fuel-efficient, and 3-20x less carbon intensive than travelling by car.

Electric trains are most efficient and cost-effective. The drawback is that electrifying tracks can cost c$1.4M/km. Nevertheless, we are most positive on the electrification opportunity around railways, particularly using next-generation combustion technologies.

The world’s first hydrogen trains launched in Germany in September-2018. To be cost-competitive with entry-level diesel trains requires c$12/kg hydrogen, $6/gallon diesel and a $50/ton carbon price.

Relative costs and economics can be compared by varying inputs in the file.

 

Electric cars slow the energy transition?

Electric Cars are being overtaken by new electric vehicles, which achieve c3x greater decarbonisation per unit of battery material. This metric matters if one believes that battery materials are a limiting factor in the energy transition. To illustrate our case, our new Excel-file models two scenarios…

In the first scenario, 400kg of battery materials can be used to produce 1 electric vehicle, which displaces 1 gasoline taxi. The calculations show that 28 bbls of oil-equivalent energy and 12T of CO2 emissions are avoided each year.

In the second scenario, 400kg of battery materials can be used to produce 120 electric scooters, which displace 2.5 gasoline taxis. The calculations show that 96bbls of oil-equivalent energy and 37T of CO2 emissions are avoided. I.e., the scooters achieve 3x more decarbonisation than the electric car.

Moreover,  our numbers above only assume that one-in-three scooter trips displaces a car-trip, while the other two-in-three are deemed to be “new demand”. Per mile travelled, the scooters achieve 9x more decarbonisation than putting the same 400kg of battery materials into the electric car.

Please download the data-file to interrogate our assumptions and stress-test your own scenarios. We argue the “electric revolution” goes beyond replacing today’s ground cars with electric ground cars. The opportunities are in new vehicle types.

Energy Economics of e-Scooters

This data-file contains all our data on the energy economics of e-scooters, a transformational technology for urban mobility, where demand has exploded in 2018 and 2019. And for good reason. The data-file includes:

  • Our projections of the oil demand destroyed by scooters
  • Our projections of the electricity demand created by scooters
  • Number of US travel-trips using shared bikes and scooters from 2010-18
  • Scooter costs versus car and taxi costs per mile
  • Average ranges and battery sizes of incumbent scooter models
  • Relative energy economics of scooters versus gasoline cars and EVs
  • Relative time taken to charge scooters versus EVs using solar panels
  • The proportion of scooter trips that replace gasoline car trips in eight cities
  • Profiles of the top 4 e-scooter companies
  • A timeline of shared mobility from 1965 to 2018.

The download will also enable you to adjust the input assumptions, to test different scenarios.