Glass fiber: what upside in the energy transition?

Glass fiber makes up 50% of a wind turbine blade, lightens vehicles and insulates homes for 30-70% energy savings. Hence we see demand rising 3.5x in the energy transition. To appraise the opportunity, this 13-page note assesses the market, costs, CO2 intensity and leading companies.

6% of the global glass market is sold in the form of fibers, a mesh of 4-40μm thick filaments. They can be used directly as an insulation material, or woven into a fabric and embedded in a polymer resin matrix, yielding ‘fiberglass’. These production processes are summarized on pages 2-3.

Applications in the energy transition are then quantified on pages 4-7, including for wind turbine blades, insulation of homes, light-weighting vehicles and substituting for higher-cost and higher-carbon alternative materials. This underpins our forecast for 3.75x market growth.

The energy economics are modelled on pages 8-10, in order to quantify the marginal cost, cost breakdown, energy intensity and CO2 emissions of carbon fiber product.

The biggest challenge for the industry is industrial leakage, as we find that some product made in the emerging world can undercut the West by c50% on price, despite having 2x higher CO2 intensity (page 11).

The company landscape is summarized on pages 12-13. There are four main listed companies (2 in China, 2 in the West). Interestingly, private equity firms have recently been buying up European pure-plays.

Renewables: can they ramp up faster?

How fast can wind and solar accelerate, especially if energy shortages persist? This 11-page note reviews the top ten bottlenecks that set the ‘upper limit’ on renewables’ capacity additions. Seven value chains will tighten enormously in the coming years. Paradoxically, however, ramping renewables could exacerbate near-term energy shortages.

Our growing fear for 2022 is that a full-blown energy crisis may be brewing. The most ‘obvious’ solution is going to be to accelerate renewables. Hence this note models out a hypothetical scenario where the world tried to scale up renewables about 5x faster, adding 1TW pa of new wind and solar capacity each year (page 2).

Capex is the first bottleneck, as our scenario would require almost $2trn of spending on wind and solar, which is 3x total global energy investment from the past half-decade. This is a lot of capital, but not a show-stopper in our assessment (page 3).

Materials are more challenging, and we map out the total demand pull on global steel, copper, silicon, fiberglass and carbon fiber; and we also discuss the CO2 and energy intensity of each of these materials in turn (pages 4-7).

Specialized supply chains tighten most. We identify three specific industries which would effectively see unlimited pricing power in our scenario (pages 7-8).

Energy paybacks present the biggest paradox. It takes 2-years for the average wind and solar asset to repay the energy costs of manufacturing and installing it. Hence in the near-term, a very rapid ramp-up of renewables would tend to exacerbate energy shortages (page 9).

Land and labor are often cited as bottlenecks on ramping up renewables, but we do not think these are material barriers, by contrast to the others (pages 10-11).

Our conclusion is that appetite to scale renewables will rise sharply in 2022. It will
not resolve near-term energy shortages. But inflation will accelerate in ‘bottlenecked’
parts of the supply chain. Investors can help by debottlenecking those bottlenecks.

Green steel: circular reference?

Steel explains almost c10% of global CO2. Hence 2021 has seen the world’s first ‘green steel’ made using green hydrogen. Yet inflation worries us. At $7.5/kg H2, green steel would cost 2x conventional steel. In turn, doubling the global steel price would re-inflate green H2 costs by $0.5/kg. This 16-page note explores inflationary feedback loops and other options for steel-makers.

Global steel production runs at 2GTpa, comprising one of the ‘top ten’ materials made by mankind. 70% of production is from blast furnaces and basic oxygen furnaces emitting 2.4 tons of CO2 per ton of steel output. Pages 2-4 provide an overview of the industry, its production processes and their CO2 emissions.

Green hydrogen is generating excitement as an abatement option. We review pilot projects and optimistic projections from technical papers on pages 5-6.

What about the costs? We have modeled the economics of a full-scale switch to green hydrogen in a Direct Reduced Iron + Electric Arc Furnace plant configuration. We would see costs doubling, but c85-90% of the CO2 can be removed (page 7).

Inflationary feedback loops have been a recurring topic in our recent research, and steel makes an interesting case study. Steel is used in wind, solar, power distribution, batteries, hydrogen electrolysers and hydrogen storage infrastructure. So what happens to the price of green hydrogen if all of these value chain components switch to 2x more expensive green steel? We run through the results on pages 8-11, then discuss how these inflationary feedback loops might actually play on pages 12-13.

Technical challenges for the adoption of green hydrogen in the steel industry are discussed on page 14. We are skeptical of the cost-deflation promised in other studies.

Our conclusions are that there may be some niche uses for green steel, but we prefer other options for mass-scale decarbonization of the steel industry, on pages 15-16.

Carbon negative construction: the case for mass timber?

The construction industry accounts for 10% of global CO2, mainly due to cement and steel. But mass timber could become a dominant new material for the 21st century, lowering emissions 15-80% at no incremental costs. Debatably mass timber is carbon negative if combined with sustainable forestry. This could disrupt global construction. This 17-page note outlines the opportunity and who benefits.

CO2 emissions of the construction industry are disaggregated on pages 2-3. Some options have been proposed to lower CO2 intensity, but most are costly.

Sustainable forestry also needs an outlet, as argued on pages 4-7. Younger forests grow more quickly, whereas mature forests re-release more CO2 back into the atmosphere.

The case for cross-laminated timber (CLT) is outlined on pages 9-11, describing the material, how it is made, its benefits, its drawbacks, and its CO2 credentials.

CLT removes CO2 at no incremental cost, illustrated with specific case studies and cost-breakdowns on pages 12-13.

CLT economics are attractive. We estimate 20% IRRs are achievable for new CLT production facilities on page 14.

Leading companies are described on pages 15-16, including large listed companies, through to private-equity backed firms and growth stage firms.

Our conclusion is that CLT could disrupt concrete and steel in construction, helping to eliminate 1-5GTpa of CO2 emissions by mid-century.