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05/12/2024by EOS Intelligence EOS Intelligence No Comments

Japan’s EV Hesitation: The High Cost of Delay to Its Automotive Sector

Japan is the world’s fourth largest automotive manufacturer, behind China, the USA, and India. The country has been long known for its innovation, technology, and efficiency in car manufacturing. Despite being one of the automotive superpowers, Japan has been slowly losing its dominance, struggling to maintain its competitive edge on the global stage. Rising consumer demand for electric vehicles (EVs) and Japan’s slower rate of adopting EV technology have largely contributed to this downfall. In 2022, Japanese brands accounted for less than 5% of global EV sales.

A 2022 report by the Climate Group, an international non-profit organization, warns that if Japan fails to adapt swiftly to global EV trends, the country could witness a 50% reduction in auto exports, impacting over 14% of its GDP by 2040.

Japan prioritizes hybrids and plug-in hybrids over electric vehicles

Japanese automakers are the pioneers of the EV development. Toyota launched Prius, the first mass-produced hybrid vehicle, in 1997, marking a significant development in the global automotive industry. Following Prius, Nissan launched Leaf in 2010, which gained significant attention worldwide as the first mass-produced battery electric vehicle.

Despite being the first to the EV revolution, Japan has failed to make a strong footprint in the global EV race so far. Japanese automakers have been largely skeptical about the EV’s future, profitability, and proposed environmental benefits. This has led them to tread cautiously. Instead, the Japanese government views hybrids (HEVs) and plug-in hybrids (PHEVs) as a strategic priority. It claims these vehicles meet both emissions targets and offer customers electrification features.

However, other major markets, such as the USA, China, the EU, and the UK, are trying to curtail HEVs and internal combustion engine vehicles (ICEVs) sales within the next 10-15 years. For instance, in 2021, the EU Commission announced a ban on ICEVs, including HEVs and PHEVs, starting in 2035. Similarly, the UK government proposed to ban all ICEVs beginning in 2035.

While Japan decided to ban gasoline vehicles by 2030, much of its focus is on promoting HEVs. Japan currently dominates the global gasoline-electric hybrids (HEVs) market and hopes to leverage its massive investment in the technology. Consequently, the country has delayed a significant push for EV adoption. Japan’s strong emphasis on hybrid technology has made other countries, especially China, gain a massive lead in developing and commercializing battery electric vehicles (BEVs).

With the looming bans on ICEVs and the increased consumer preference for BEVs over gasoline-powered engines, the limited number of Japanese BEVs on the market has led to a subsequent loss of market share for Japanese automakers.

Japan’s EV Hesitation The High Cost of Delay to Its Automotive Sector by EOS Intelligence

Traditional auto manufacturing environment makes the EV switch difficult

Japan’s economy is intertwined with its auto industry. Automotive manufacturing accounts for about 2.9% of the country’s GDP and 14% of the manufacturing GDP. The country spent years working on perfecting the ICEV automotive technologies and manufacturing. Japan wishes to retain its advantage from ICEVs for as long as possible. The current prevalence of traditional manufacturing capabilities and well-established supply chains make the country hesitant to switch to EVs.

ICEVs and EVs cannot be manufactured on the same platform. Remodeling existing ICEV facilities into EV facilities is a daunting and cost-intensive task. Moreover, as EVs require fewer parts, Japanese automakers are concerned about the impact on their extensive networks of components and parts suppliers, which could disrupt the entire industry.

Further, the significant costs associated with developing EV production technologies and platforms have led these automakers to question the potential profitability of EVs. Japan’s complacency with ICEVs has resulted in its lagging position in the global EV race.

Japan’s focus on fuel cell vehicles hampers EV development

Japan is a country with the least self-sufficient energy system. The country imports over 90% of its energy, heavily relying on foreign sources. Energy independence has been Japan’s major strategic goal for many years now. The government views hydrogen as a crucial clean energy source since the country can produce it domestically. On the contrary, EVs use electricity and could further increase the country’s energy dependence.

The government invested about US$3 billion between 2012 and 2021 in hydrogen technology. Some 70% of that was dedicated to fuel cell vehicles (FCEVs) and related infrastructure. The country aims to sell 800,000 FCEVs by the end of 2030 and provides massive subsidies and funds to Japanese automakers to research, develop, and commercialize FCEVs.

Thanks to substantial government support, in 2014, Toyota launched Mirai, the first mass-produced fuel cell vehicle. However, high fuel costs and insufficient hydrogen infrastructure have slowed its adoption in the country. As of January 2023, Japan had only built 164 hydrogen stations nationwide, far behind the target of 1,000 stations by 2030.

FCEVs demand and sales have not picked up the pace owing to the limited number of fueling stations and FCEVs’ high running costs. Automakers sold only 8,283 fuel cell vehicles by the end of July 2023. This was far below the sales that could lead to the 800,000-vehicle target set for 2030. Japan’s heavy focus on hydrogen technologies contributes to the slow EV transition, impacting its competitiveness in the global automotive space.

Increased EV competition puts Japan in a tight spot

Due to the surging interest in EVs, automakers from China, South Korea, Germany, and the USA have disrupted Japan’s dominance in the automotive sector over the past few years. This shift is especially evident in emerging markets such as Southeast Asia, with a surging demand for EVs. International automakers, especially the Chinese, have slowly expanded their presence in this region.

For instance, several Chinese automakers have entered Indonesia over recent years, challenging Japan’s long-standing dominance of the Indonesian automotive market. Wuling, a prominent Chinese EV automaker, has gained significant popularity in Indonesia, making it the seventh preferred car brand. In May 2024, BYD, another Chinese automaker, announced its plans to build a US$1 billion EV production facility in West Java, Indonesia. To be completed in 2026, this facility would significantly improve the Chinese market presence in Indonesia, which might further weaken the Japanese market share. Meanwhile, South Korean automakers Hyundai and Kia are also making significant strides in the Indonesian market.

Japanese automakers have also been losing their grip in Thailand as EVs are gaining traction. In 2023, new vehicle sales of Mazda, Mitsubishi, Nissan, Suzuki, and Isuzu fell by 25% in the country, while the market share of Chinese brands increased to 11% from 5% the previous year. As a response to these shifting dynamics, Japanese automakers either choose to close or merge factory operations in Thailand. In June 2024, Suzuki Motor decided to stop making cars in Thailand altogether. China’s BYD and Great Wall Motor are spending US$1.4 billion on new EV production and assembly facilities in Thailand to facilitate domestic production and overseas sales.

Sales of Japanese brands have also plunged in China in recent years. Amid low sales and intense EV competition, in October 2023, Japanese automaker Mitsubishi Motors announced its exit from a joint venture with the Guangzhou Automobile Group, a China-based automotive manufacturer. They shut down all the local manufacturing operations.

With the rising preference for EVs, Japanese automakers will likely face more fierce competition, which could profoundly transform their position in the global automotive landscape.

Toyota and Honda look to strengthen overseas EV manufacturing capabilities

Amidst increasing competition, Japanese automakers have recently started investing in EV technologies and production to catch up with rivals such as China, Europe, and the USA. Large carmakers, such as Honda and Toyota, are looking to develop and commercialize solid-state batteries to enhance the competitiveness of their EV line-up in the global EV market. These batteries are relatively safer than lithium-ion batteries, offering greater energy density and quick charging times. For instance, Toyota claims its first-generation solid-state batteries would cover a range of about 520 miles (about 830 km), with a 10-minute charging capability.

Toyota and Honda want to strengthen their EV supply chain, especially in North America. Toyota plans to launch a three-row electric SUV in the USA in 2025, now postponed to 2026. This SUV will be the company’s first electric car assembled locally. Toyota invested US$8 billion in its Princeton, Indiana facility to support production and added a new battery pack assembly line. The company has also invested considerably in preparing its facility in Kentucky for another three-seater electric SUV manufacturing.

In the European market, Toyota is looking to release six electric models by 2026 amidst the increasing demand. As its sales are shrinking in China, Toyota plans to launch an EV with autonomous driving technology in 2025. In Thailand, Toyota is set to launch an electric pickup truck in 2024.

In January 2024, Honda announced an investment of US$14 billion to build an electric car and battery plant in Ontario, Canada. The carmaker also announced an investment of US$700 million to start EV production in Ohio, USA. Honda said it would invest nearly US$65 billion in EVs till 2030. It plans to sell two million BEVs by 2030 and aims to make 40% of the vehicle sales either EV or FCEV by the same year.

Nissan, another giant Japanese carmaker, plans to achieve 40% of global offerings as EVs by 2026. However, Nissan’s EV strategy is largely unclear compared to Toyota and Honda. As Nissan struggles to counter the EV dominance, the company has increasingly leveraged partnerships with carmakers such as Mitsubishi and Renault to bolster its EV supply chain and production. In March 2024, Nissan and Honda did a joint feasibility study on vehicle electrification. Together, the companies look to develop automotive software platforms, core components related to EVs, and other electrification components.

Suzuki Motor has also announced its plans to invest approximately US$35 billion by 2030 in BEVs. The company plans to introduce BEVs in Europe, Japan, and India over the next few years.

Some smaller automakers, such as Subaru, Mazda, and Mitsubishi Motors, are still unclear about their EV transition and face daunting challenges in rolling out EVs.

EOS Perspective

Japanese automakers are realizing their difficult position and plan to bolster their EV manufacturing and technological capabilities. However, it requires significant efforts, and the road to EV transition will not be easy.

One of the critical factors affecting Japan’s EV adoption is the supply chain constraints. Japan does not possess the minerals necessary to make batteries for EVs. The country primarily depends on its rival, China, for approximately 60% of its rare earth requirements. Globally, China refines 90% of critical minerals, including 60% to 70% of lithium and cobalt, needed to make EV batteries. The Japanese government is looking to diversify its EV manufacturing supplies to reduce its reliance on China. The country has taken significant strides to develop critical mineral resources with other countries such as the USA, Indonesia, and Australia. Inevitably, all these efforts would take a lot of time and money.

Japanese automakers are also less proficient in vehicle software development, an aspect that EVs require to a great extent. To address this challenge, leading Japanese automakers have partnered with other automotive companies to develop software for EVs. In August 2024, Honda, Mitsubishi Motors, and Nissan announced a collaboration to develop software-defined vehicles (SDV), to standardize battery technology, and to reduce EV production costs.

Mass-producing EVs at a competitive price is one of the other significant challenges for Japanese automakers. Currently, China-based BYD and CATL supply 50% of the batteries for EVs globally. These companies spent years perfecting the cost-effective battery technology using lithium iron phosphate (LFP) cathodes. They have strong expertise in efficiently transferring innovations from R&D into large-scale production.

However, unlike China, Japan still depends on lithium-ion batteries using NMC cathodes, which involve lithium, nickel, manganese, and cobalt. These batteries are cost-intensive in comparison to China’s LFP batteries. BYD and CATL produce batteries at lower capital costs (below US$60 million per gigawatt hour). In comparison, Japan’s Panasonic produces batteries at US$103 million per gigawatt hour. It would take years for Japan to perfect the battery technology and mass-produce EVs at affordable prices.

Japan has also not yet established comprehensive policies and strategies to push EV adoption. Stringent regulations have hampered the expansion of EV charging infrastructure in the country. On the other hand, since the 2010s, countries such as the USA, China, and Norway have started implementing measures such as EV purchase subsidies, tax rebates, and procurement contracts to promote EV sales. China invested over US$29 billion between 2009 and 2022 in promoting EVs. If Japan does not take similar measures soon, its ability to foster an EV-friendly environment will be significantly compromised.

02/05/2024by EOS Intelligence EOS Intelligence No Comments

Time Is Ripe for the Adoption of Electric Heavy-Duty Trucks in Europe

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As of 2023, 5,279 electric heavy-duty trucks (HDTs) were on the roads in Europe, representing merely 1.5% of total HDTs in the region. Despite being in its early stages, the adoption of electric HDTs is expected to accelerate due to a combination of factors, including increasing regulatory support and advancements in charging infrastructure. As these factors converge, the electrification of HDTs is set to gain momentum, contributing to the decarbonization of the transportation sector and the achievement of EU climate goals.

Ambitious EU regulations toward a zero-emission future promote electric HDTs adoption

The EU aims to reduce CO2 emissions from heavy-duty vehicles by 45% in 2030, 65% in 2035, and 90% by 2040 compared to 2019 levels. The European Automobile Manufacturers’ Association (ACEA) suggested that more than 400,000 zero-emission trucks will have to be on the roads by 2030 to achieve a 45% CO2 reduction. There is a considerable gap to fill, considering only a few thousand electric HDTs were on the roads in 2023.

Additionally, to combat high pollution levels, specifically in urban areas, several European cities have implemented low-emission zones (LEZs) that restrict the entry of high-emission vehicles such as diesel trucks. As of June 2022, there were over 320 LEZs, about 40% more than in 2019. The number is set to increase to 507 by 2025. Obligations towards these regulations compel the European trucking industry to switch to electric HDTs.

Decreasing the cost gap between diesel and electric HDTs is likely to boost the adoption

The commercial vehicle market is price-sensitive, and hence, economic viability is essential for a smooth transition of HDTs from diesel to electric.

According to a study published in November 2023 by the International Council on Clean Transportation (ICCT), an independent environmental research organization, long-haul HDTs with an average daily travel range of 500 km powered by diesel were found to be cheaper. They had about a 5% lower total cost of ownership (TCO) compared to electric HDTs in 2023. However, the TCO difference between electric and diesel HDTs with an average daily travel range of 1,000 km was 10%. The TCO encompasses direct and indirect expenses, including acquisition, fuel or energy, maintenance and repairs, insurance, depreciation, financing, taxation, and operating costs.

ICCT estimated that for long-haul HDTs (both 500 km and 1,000 km range), electric battery-powered HDTs will reach parity with diesel between 2025 and 2026. Comparable long-term economic performance with diesel HDTs makes a favorable case for switching to electric HDTs.

However, the high retail price of electric HDTs remains a challenge, especially for small and medium fleet operators. ICCT indicated that in 2023, the retail price of a diesel HDT (500 km range) was EUR 152,000, while the cost of an electric HDT was more than double, EUR 354,000. The difference was even higher for HDT (1,000 km range), where the electric model was available for EUR 457,000, about 260% more expensive than the diesel model.

Acknowledging high upfront costs as one of the key barriers to the uptake of electric HDTs, as of 2022, 16 European countries, including the UK, were offering purchase incentives to the buyer to purchase zero-emission trucks such as electric HDTs to cover the price differential. Austria, France, Germany, Spain, Ireland, the Netherlands, Malta, and Denmark offered financial aid bridging 60% to 80% of the retail price gap, making a lucrative proposition for fleet operators to switch to electric HDTs.

In the countries not offering adequate financial support to cover the upfront costs, the adoption is likely to be moderate till the retail price of electric HDTs comes down. According to Goldman Sachs, battery pack prices are expected to fall by an average of 11% per year from 2023 to 2030, and about half of this price decline will be driven by the reduction in lithium, nickel, and cobalt prices. In the wake of rising demand for electric vehicles, the supply of these raw materials has been increasing, pushing the costs down. According to CME Group, a US-based financial services company, cobalt prices have dropped by more than 50%, from US$40 in 2022 to US$16.5 per pound in 2023, while lithium hydroxide prices have dropped nearly 75%, from US$85 to US$23 per kg during the same period.

Time Is Ripe for the Adoption of Electric Heavy-Duty Trucks in Europe by EOS Intelligence

Declining raw material costs will significantly lower production costs for electric HDTs, as battery packs account for a significant portion of the total production cost. As per BCG analysis, battery costs accounted for 64% of the total electric HDT production cost in Europe in 2022. This reduction will enable manufacturers to offer electric HDTs at more competitive prices.

At the same time, experts predict there might be a lithium supply deficit by the 2030s. This is likely to lead to pressure for increased production, as Benchmark Mineral Intelligence estimates a 300,000 tLCE deficit by 2030. Such a deficit can be expected to drive the raw material price up, negatively impacting the lithium-ion battery prices.

Read our related Perspective:
 Lithium Discovery in Iran: A Geopolitical Tool to Enhance Economic Prospects?

Robust charging infrastructure is necessary for the adoption of electric HDTs

The widespread adoption of electric HDTs hinges on the availability of adequate charging infrastructure, and the industry stakeholders have already been investing in this direction.

In July 2022, Daimler Truck, the TRATON Group, and the Volvo Group formed a joint venture company, Milence, with an initial funding of US$542 (EUR 500) million, aiming to set up 1,700 high-performance public charging points in Europe by 2027. At the end of 2023, Milence opened its first charging hub in the Netherlands. In January 2023, the British oil giant BP opened public charging stations for electric HDTs on the 600 km long Rhine-Alpine corridor in Germany, one of the busiest road freight routes in the region. The company installed 300 kW charging stations, enabling electric HDTs to add up to 200 km range in 45 minutes of charging time.

However, establishing a well-planned charging infrastructure and ensuring accessibility across the region requires more coordinated efforts. In 2023, the EU Council and the European Parliament passed a new regulation for deploying alternative fuels infrastructure (AFIR). This regulation mandates the installation of fast charging stations with 350 kW output for heavy-duty vehicles. The stations are required to be installed every 60 km along the Trans-European Transport Network (TEN-T) system of highways. The TEN-T system is the EU’s primary transport corridor, accommodating 88% of long-haul HDT operations, according to 2018 data. The target is to deploy charging infrastructure for heavy-duty vehicles at least 15% of the length of the TEN-T road network by 2025, 50% by 2027, and 100% by 2030.

Foreign players are in good position to enter Europe’s electric HDT market

Non-EU manufacturers offering cheaper trucks, e.g., from the USA and China, are in a good position to address the increasing demand for electric HDTs in the EU. A study published by BCG in September 2023 indicated that the US and Chinese manufacturers could take over 11% of the European electric HDT market by 2035.

EU imposes a 22% import duty on diesel HDTs, while electric HDTs are subject to only 10%. Manufacturers from outside of the EU who are capable of producing battery packs at a lower cost can leverage the cost advantage and find it profitable to export electric HDTs to the EU despite paying import duties.

According to Bloomberg New Energy Finance, China produced heavy-duty vehicle batteries at a 54% lower cost than the rest of the world in 2022. A crucial factor contributing to this cost advantage is China’s significant control over the supply of lithium, a critical component in electric vehicle batteries. Additionally, China has strategically directed investments into cobalt mining ventures, notably in nations such as the Democratic Republic of the Congo. China oversees the processing of approximately 60-70% of both lithium and cobalt globally, underscoring its significant role in the processing of these critical materials by 2023, according to International Energy Agency (IEA) analysis in 2023. By securing access to raw materials such as lithium and cobalt, Chinese battery manufacturers are able to effectively manage costs, mitigate supply chain risks, and ultimately reduce the production cost of their battery packs. Even after adding a 10% import duty, China can potentially offer electric HDTs to the EU market at a more attractive price than EU manufacturers.

Similarly, the USA offers generous tax credits for producing clean energy components through the Advanced Manufacturing Production Credit (AMPC), making battery costs more competitive in the USA than in the EU.

Foreign manufacturers that may not have the cost advantage might potentially look at partnerships and collaborations to grab a piece of Europe’s booming electric HDT market. For instance, in March 2024, Hyundai, a South Korean automotive manufacturer, and Iveco, an Italian transport vehicle manufacturer, signed a Letter of Intent reinforcing their commitment to collaborate on developing and introducing electric HDT solutions for European markets. By partnering with Iveco Group, Hyundai aims to leverage Iveco’s existing market presence, local expertise, and production capabilities to develop and introduce competitive solutions for the European commercial heavy-duty vehicle market.

EOS Perspective

While still at the starting line, the adoption of electric HDTs is expected to sprint off in the EU, given the continuous efforts to achieve climate goals. Regulations pushing for zero-emission transport, increasing investment in charging infrastructure, and the shrinking difference between the TCO of diesel vs. electric HDTs will contribute to the widescale adoption of electric HDTs in the EU.

Amidst all the hype around electric HDT, hydrogen-powered HDT is also gaining some attention as a zero-emission alternative. Hydrogen HDTs have higher load-carrying capacity and can be refueled within minutes adding over 1,000 km range, making them suitable for long-haul transport of heavy loads. Leading truck manufacturers, such as Daimler Truck, Volvo Group, and Iveco, have come together to support a research project called H2Accelerate Trucks, aiming to deploy 150 hydrogen HDTs with a 1,000 km range and carrying capacities of up to 44 tones across the EU. As a part of this project, the first hydrogen HDT is likely to hit the roads in 2029.

However, hydrogen-fuel technology is still developing, and the hydrogen fuel cell HDT is far away from achieving cost parity with its diesel and electric counterparts. ICCT report indicates that hydrogen fuel cell HDT will achieve TCO parity with diesel HDT in 2035, but it is not expected to achieve TCO parity with electric HDT even by 2040. Underdeveloped technology and higher upfront costs associated with hydrogen fuel cell HDTs play a significant role in hindering their journey toward achieving TCO parity with electric counterparts. According to ICCT, hydrogen-powered HDTs are projected to have an average TCO of US$1.23 (EUR 1.14) per kilometer in 2035, compared to just US$0.99 (EUR 0.92) per kilometer for battery-electric HDTs. This disparity persists into 2040, with hydrogen-powered HDTs still trailing behind at US$1.15 (EUR 1.06) per kilometer, while battery-electric HDTs maintain a lower TCO of US$0.98 (EUR 0.91) per kilometer. This discrepancy poses implications for adoption, potentially hindering the widespread uptake of hydrogen-powered vehicles until significant advancements and cost reductions are achieved in the hydrogen sector.

In 2023, the CEO of MAN, Europe’s second-largest truck manufacturer, suggested that hydrogen HDTs will play a small role in the EU’s zero-emission commercial transport future. Considering the economic performance of hydrogen HDT, this opinion is likely to turn out to be correct. This suggests that electric HDT is the way forward.

01/03/2024by EOS Intelligence EOS Intelligence No Comments

Lithium Discovery in Iran: A Geopolitical Tool to Enhance Economic Prospects?

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Iran possesses significant mineral reserves, but its mining industry grapples with issues, including machinery shortages and international sanctions. The recent lithium discovery in Iran holds the potential to boost its mining sector and economy, depending on the viability of lithium extraction and processing, as well as geopolitical factors. It can serve as a bargaining chip to lift sanctions imposed by the Western world. China is poised to benefit the most from Iran’s lithium discovery due to its strategic partnership and expertise in lithium refining and extraction technologies. However, despite Iran’s strong mining potential, high infrastructure costs, technological limitations, and sanctions hinder its mining industry development.

Lithium discovery to help drive mining industry and economic upliftment in Iran

Iran is home to more than 7% of the world’s total mineral reserves and is rich in minerals, including zinc, copper, iron ore, coal, and gypsum. However, Iran’s mining industry is still nascent and barely contributes to economic growth due to a lack of necessary machinery and equipment as well as international sanctions.

In the past, Iran exported various minerals, such as iron ore, zinc, and copper, to Western countries. However, prolonged international sanctions, initially imposed in 2006 to restrain Iran’s nuclear development program, resulted in insufficient investment in the mining sector.

Lithium Discovery in Iran, a Geopolitical Tool to Enhance Economic Prospects by EOS Intelligence

Announced in March 2023, the discovery of lithium deposits holding up to 8.5 million tons of lithium in Iran, if proven accurate, is expected to strengthen the country’s mining sector and overall economic growth. Iran is the first country in the Middle East to discover lithium deposits.

Lithium is a crucial component of lithium-ion batteries used in smartphones and electric vehicles. The increasing adoption of electric vehicles is fueling the demand for lithium at a significant rate globally. There is a great need to scale up lithium mining and processing to meet the demand, particularly for the manufacturing of electric vehicles.

International Energy Agency (IEA), in its global EV outlook for 2022, indicated that about 50 new average-sized mines need to be built to fulfill the rising lithium demand for electric vehicles and meet international carbon emission goals. There are already signs of lithium shortage as demand for lithium increases globally. The lithium reserve found in Iran holds the potential to reverse the lithium supply shortage into surplus in the coming years.

Read our related Perspective:
Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage

Hope for the lifting of sanctions and reestablishment of diplomatic relations

The lithium discovery in Iran is expected to redirect focus toward mining activities in the Middle East. Iran can leverage this discovery to persuade Western nations, such as the USA and the EU countries, to lift sanctions imposed for its nuclear program, support for terrorism, and human rights violations. These sanctions include restrictions on Iran’s access to the global financial system, travel bans on targeted individuals and entities involved in concerning activities, and limitations on trade in certain goods and technologies.

In August 2023, Iran and the USA reached an agreement wherein Iran intended to release detained Americans in exchange for the release of several imprisoned Iranians and access to frozen financial assets. Fulfillment of commitments demonstrates mutual trust among the countries, which could pave the way for improved relations, reduced tensions, and future diplomatic initiatives. The US government also permitted Iran to enrich uranium up to 60%. This can be interpreted as allowing Iran to meet their nuclear aspirations, which could encourage Iran to comply with the agreement signed with the USA. As cooperation and trust between the nations strengthen, this agreement could ease sanctions. Moreover, if relations continue to improve, Iran could potentially seek assistance from the USA for its lithium venture.

Also, in March 2023, Saudi Arabia and Iran, with the help of China, reached an agreement to resume their diplomatic relations, re-open embassies, and implement agreements covering economy, investment, trade, and security. With the reestablishment of cordial relations, Saudi Arabia is likely to engage in joint ventures within Iran’s mining sector, providing mutual benefits for both nations.

It can also be expected that India will seek to strengthen its ties with Iran by building strong collaborations to ensure a regular lithium supply, considering that India is one of the largest importers of lithium-ion batteries. Iran and India share strong and multifaceted relations across various areas, such as trade, energy, connectivity, culture, and strategic cooperation. As India strives to transition to renewable energy sources and reduce its carbon footprint, access to lithium reserves from Iran could facilitate the development and deployment of energy storage solutions, such as grid-scale batteries and off-grid systems.

Potential to disrupt the global lithium race and geopolitical relations

The announcement of lithium deposits in Iran is likely to impact the global competition for lithium resources significantly. It holds the power to disrupt the existing power dynamics in the global lithium race, as it is estimated to be the second-largest lithium reserve in the world after Chile.

Many countries compete to control lithium supply chains due to its strategic importance, particularly in the EV industry. A few countries dominate the global lithium production, including Australia, Chile, and China. The emergence of Iran as a significant lithium producer could diversify the global supply chain. China, the largest importer and processor of lithium and manufacturer of lithium batteries, holds a substantial share of the lithium market. China is particularly reliant on foreign lithium suppliers, including Australia, Brazil, Canada, and Zimbabwe, accounting for around 70% of its total lithium imports.

With China’s well-established economic and political relations with Iran, there is potential for collaborative ventures in the clean energy transition supply chain. In addition, China’s expertise in technological advancements in lithium-related technologies, particularly lithium-ion battery manufacturing, purification and refinement of lithium, battery management systems, and development of battery materials, will likely play a crucial role in gaining access to Iranian lithium. Increased access to lithium will reduce its dependence on the current lithium suppliers and gain dominance in the lithium supply, impacting the trade balance and economic growth of countries supplying lithium to China.

At the same time, Australia, which stands out as China’s current primary source of lithium, exporting around 90% of its lithium to China, might encounter political and economic challenges. Australia, being a close ally of the USA, is likely to face pressure to curb its lithium exports to China, aiming to limit China’s access to sources of lithium. Chile, also being the key supplier of lithium to China, may face similar pressure from the USA. The USA is likely to exert such pressures, as China’s strong position could undermine the USA’s technological competitiveness and leadership in the EV market, accelerating the existing tensions and disrupting power dynamics in the global lithium race.

Major influencing countries such as the USA, Canada, France, Japan, Australia, the UK, and Germany also formed the Sustainable Critical Minerals Alliance in 2022. The alliance aims to secure supply chains of critical minerals, including lithium, nickel, and cobalt, from countries with more robust environmental and labor standards to reduce dependency on China. Such initiatives are expected to impact China’s dominant global lithium supply chain position.

Inevitably, Iran’s lithium discovery and China’s potential involvement in securing access to the resource can influence international relations, particularly between China and the USA, and China and Australia.

China to deepen ties with Iran

China and Iran have established an extensive partnership focused on China’s energy needs and Iran’s abundant resources. China has remained Iran’s primary trading partner for more than a decade. Their relationship grew stronger, specifically after the USA pulled out of the nuclear agreement and reintroduced sanctions on Tehran in 2018. Both China and Iran are confronted with sanctions from the USA, which is expected to strengthen collaboration between the two to mitigate the impact of sanctions and to counterbalance US influence in the Middle East and Asia.

In March 2021, China and Iran signed a 25-year strategic collaborative agreement to reinforce the countries’ economic and political alliance, particularly focusing on investment in Iran’s energy and infrastructure industry and assuring regular oil and gas supply to China. This is expected to further strengthen the relations between Iran and China.

China, the most trusted strategic ally of Iran and a significant lithium producer will likely act as a critical partner in building up Iran’s lithium industry. As the global leader in electric vehicle adoption (in absolute terms), the demand for lithium in China has increased dramatically in recent years. Also, China stands out as the only trade partner capable of accessing and refining lithium on a large scale. This will strengthen the Iran-China relations further.

High infrastructure costs and lack of FDI to challenge the Iranian mining sector

Despite the presence of a vast mining potential in the country, certain factors such as inadequate access to essential machinery and equipment, lack of exploration facilities, lack of sufficient infrastructure and investment, absence of advanced technologies, and shortage of financial resources limit the growth of the mining sector in Iran.

Lack of access to new cutting-edge production technologies, exacerbated by international sanctions, results in inefficient utilization of resources, particularly water, fuel, and electricity in mining operations. In addition, high production costs, mandatory pricing, and lack of skilled labor further pose obstacles in mining operations. This, together with the fact that the lithium extraction process is generally expensive and time-consuming, has led to various small and medium-sized mines opting to cease their operations.

The absence of foreign investment due to international sanctions poses challenges in conducting mining operations in the country. The government seeks to attract foreign investment in the mining sector, a difficult task amid structural challenges, human rights abuse accusations, and international sanctions.

Exploitation of lithium reserves discovered in the country will be difficult due to the lack of advanced technologies required for extraction, processing, and refining. The assessment of lithium grade and its economic feasibility will play a crucial role in determining whether to exploit the reserve.

EOS Perspective

The scale of lithium reserves discovered in Iran is significant, but the exploitation of the mineral is not likely to happen in the near future. Its viability, economic feasibility, actual quantity, and grade are yet to be ascertained. Also, the country does not have access to the necessary technologies required to process and refine lithium, so it has to rely on foreign investors.

Foreign investment in Iran is hindered by the sanctions imposed by the USA and the EU against Iran’s nuclear development program. Back in 2015, Iran agreed to scale down its nuclear program and allow broader access to international inspections to its facilities in return for billions of dollars in sanctions relief. But that ended in 2018 when the USA withdrew from the deal. With the recent agreement signed in 2023, there is hope that it could pave the way for the relaxation of sanctions on Iran.

Additionally, considering lithium’s pivotal role in multiple industries and concerns about China’s dominant power in the lithium supply chain, the US government might consider easing sanctions. EU is not likely to ease or lift sanctions and invest in Iran immediately due to uncertainties about the viability of the reserve, its impact on the environment during extraction, and lack of energy investments in the country. However, the EU may consider easing sanctions in the future if the USA moves in that direction.

Russia and China, having economic and diplomatic ties with Iran, are more likely to show interest in Iran’s lithium discovery. Russia is focusing on expanding its presence in the lithium market to meet the increasing demand for lithium in vehicles and energy storage systems. As a step in this direction, in December 2023, Rosatom, a Russian state corporation, signed a deal to invest US$450 million in Bolivia to construct a pilot lithium plant. Russia is also likely to explore investment opportunities in Iran’s lithium sector.

China is expected to benefit the most from the lithium discovery in Iran, considering its longstanding relations with Iran. At the same time, Iran is also more likely to be eager to collaborate with China, considering China’s strength in the lithium industry and international sanctions.

However, Iran should not solely rely on China, considering China’s track record of engaging in debt-trap diplomacy to exert influence and dependence, particularly over low-income countries. For instance, in 2013, China launched its infamous Belt and Road Initiative (BRI), under which it started funding and executing several infrastructure projects in developing and underdeveloped countries across the globe. However, over the years, the BRI initiative has been criticized for resulting in an increased dependence and trapping of the partner countries in heavy debt through expansive projects, non-payment of which may lead to a significant economic and political burden on them. A collaborative agreement spanning 25 years was also signed by China with Iran, primarily focusing on investing in Iran’s energy and infrastructure sectors, facilitating Iran’s involvement in the BRI. Iran could also fall into a similar debt trap, having no viable alternative partner, a fact that China can take advantage of.

Read our related Perspective:
China’s BRI Hits a Road Bump as Global Economies Partner to Challenge It

Many countries are likely to be interested in investing and building strong collaboration with Iran if the reserves’ viability is confirmed and the grade and quality of lithium are suitable for use. This could change the entire dynamics of the lithium supply chain and also lead to a decrease in lithium prices, which have been skyrocketing due to a significant surge in global lithium demand.

01/02/2024by EOS Intelligence EOS Intelligence No Comments

South Africa: an Arduous but Necessary Journey to Ease the Energy Crisis

South Africa is struggling with an unprecedented energy crisis resulting in daily load shedding for prolonged hours. Corruption, mismanagement of resources, and political conflicts are the root causes of the energy crisis. Lack of investment in energy infrastructure development, regulatory challenges, and outdated integrated resource plans further exacerbate the situation. Load shedding has been hampering business operations across sectors, increasing operational costs and negatively impacting GDP growth. While renewable energy can help combat the energy crisis, political resistance, and insufficient government support hinder the transition from fossil fuels to renewable energy sources. However, recent government initiatives are likely to expedite a shift towards renewable sources.

South Africa’s power supply marred by a range of deep-rooted issues

South Africa has been grappling with a significant energy crisis for the past several years, since 2007, leading to daily load shedding to prevent the collapse of the electric grid. Corruption, inability to cope with growing demand, political infighting, poor maintenance practices, limited investment in the energy sector for developing new infrastructure and maintaining running plants, and inefficient operations at Eskom (government-owned national power utility) have driven the energy crisis in the country.

Corruption is considered the major cause of this energy crisis. It is alleged that Eskom executives, through bribery and theft, made Eskom lose about US$55 million per month for the past several years. Also, the supply of low-grade coal to Eskom by a coalition in control of the coal supply has led to the regular collapse of Eskom’s power plants.

Additionally, the absence of an updated Integrated Resource Plan (IRP) further exacerbates the energy crisis. IRP (first launched in 2011) aims to project and address the electricity demand in the country. The government last updated its IRP in 2019, when it outlined annual auction and decommissioning plans until 2030. IRP must be updated regularly to include new advancements in the development of power generation technologies to align with the most effective scenarios for generating electricity.

Setbacks in renewable energy construction projects due to escalating costs have further spiked the energy crisis in South Africa. Around half of the projects awarded under the re-launch of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in 2021 failed due to increasing energy costs. REIPPPP is a government initiative to increase electricity capacity through private sector investment in renewable energy projects by allowing independent power producers (IPPs) to bid for and develop renewable energy capacity. Some projects have also been sidelined due to a lack of connections to the national grid.

South Africa an Arduous but Necessary Journey to Ease the Energy Crisis by EOS Intelligence

GDP growth and sectors’ outputs affected by the ongoing electricity shortage

Rolling power cuts have negatively impacted the country’s economic growth, businesses, and households. It significantly affected the day-to-day operations across sectors. The economic costs associated with load shedding have negatively impacted the country’s GDP growth since 2007. It decelerated from 4.7% in 2021 to 1.9% in 2022 due to various factors, including power cuts and volatile commodity prices, among others. It further declined to 0.9% in the first half of 2023, mainly due to the energy crisis. Lowering GDP growth is likely to limit tax revenue and, thus, limit government spending.

Energy-intensive industries, particularly mining, have been severely impacted by power outages. Mining production fell by 3.7% in Q4 2022 compared to Q3 2022. Overall, the mining sector contracted by over 7% in 2022, in contrast to 2021. In 2023, mining production contracted by a further 1.5% in Q3 compared to Q2.

Other industries also continue to be affected. Agricultural output declined by 3.3% in Q4 2022 compared to Q3 2022. Manufacturing production fell by 1.2% in Q3 2023 in contrast to Q2 2023. The trade sector saw a decline of 2.1% in trading activities in Q4 2022 compared to Q3 2022. The food and beverage industry has also faced the consequences of power outages. Although the food and beverages industry is less electricity-intensive than other manufacturing industries, daily power outages have still led to increased operational costs and reduced output. Extensive load shedding also caused disruptions across retail operations and supply chains, negatively impacting food and beverage manufacturers’ pricing and profit margins.

The financial toll on businesses increased significantly, especially regarding the expenses associated with diesel purchases to run generators in the absence of power from the grid.

Transition to renewable energy hindered by political resistance and policy gaps

South Africa is blessed with abundant sunshine and wind, but the transition to renewable energy from coal power plants is not going to be a quick fix for the energy crisis in the near future. This is mainly due to political resistance by people with a vested interest in the fossil fuel industry and a lack of clear policies/regulations to promote renewable energy deployment.

Inconsistencies and a lack of coordination between energy companies and the government hinder existing policies aimed at encouraging the deployment of renewable energy. Additionally, the dominance of Eskom managing R&D investments related to power generation and market control hampers the deployment of renewable energy.

Despite the establishment of REIPPPP, renewable energy generation has not increased sufficiently to address the crisis. According to the Council for Scientific and Industrial Research (CSIR), only 7.3% of energy was generated from renewable sources in 2022. Concerns about job loss and insufficient grid infrastructure further hamper the transition to a more sustainable energy landscape.

Renewable energy growth driven by international collaborations

However, the government has begun to understand the importance of renewable energy in tackling energy shortages and has been promoting the sector. This has resulted in increasing foreign investment in renewable energy projects in South Africa. The increase in renewable projects due to retiring coal power plants is also likely to help combat the ongoing energy crisis.

For instance, in mid-2022, Scatec, a Norway-based renewable energy company, signed a 20-year contract with Eskom to supply 150MW to the national grid through various projects with a capacity of 50MW each.

Similar to this, in April 2023, Lions Head Global Partners (a UK-based investment banking and asset management firm), Power Africa (a US government-led presidential partnership initiative aimed at increasing access to electricity in Africa) in collaboration with the US Agency for International Development, Flyt Property Investment (a South Africa-based property development company), and Anuva Investments (a South Africa-based real estate and renewable energy investment firm) announced investment of US$12.1 million in Decentral Energy Managers, an independent power producer that focuses on renewable energy in South Africa.

Also, in September 2023, the USA proposed to invest US$4.8 million in partnership with the US African Development Foundation and the US Departments of Energy, Commerce, and State through Power Africa to support initiatives aligned with South Africa’s ‘Just Energy Transition Partnership’ (JETP) investment plan. JETP is an agreement forged among the governments of South Africa, the USA, France, the UK, Germany, and the EU, aimed at expediting the phased shutdown of South Africa’s coal-fired power plants and speeding up the transition from fossil fuels to renewable energy. The USA has been the largest source of foreign direct investment (FDI) in the renewables space in tenders issued by the South African Department of Energy under REIPPPP.

In addition, in August 2023, South Africa signed several agreements with China to strengthen energy security and transition. China, being the leading installer of hydro, wind, and solar power and having close diplomatic and economic relations with South Africa, is expected to help the country with solar equipment while providing technical expertise.

Moreover, the REIPPPP launched the sixth round of the bid window in April 2022 to incorporate an additional capacity of 5.2GW into the energy mix. Still, only five bidders were chosen in Q4 2022 and are expected to generate around 17% of the total anticipated capacity.

Power crunch partially eased by soaring rooftop solar installations

An increase in the installation of rooftop solar systems by individuals and businesses to prevent disruptions to their operations caused by prolonged load shedding is also likely to help tackle the energy crisis. South Africa’s installed rooftop solar PV capacity increased by about 349% from 983MW in March 2022 to 4,412MW in June 2023.

The introduction of tax rebates for households and businesses for rooftop solar system installation is anticipated to stimulate increased adoption of rooftop solar systems across the country. For instance, in March 2023, the government proposed a tax rebate of 25% of the rooftop solar installation cost, up to a maximum of US$817.74 from March 2023, and a tax rebate of 125% of the businesses’ cost of investment in renewable energy sources such as solar, wind, hydropower, and biomass. This is expected to expand electricity generation and help ease the ongoing energy supply crisis.

Hope for improved power management brought by government activities

The government is slowly doubling up its efforts to encourage more participation of IPPs in renewable energy generation. This is expected to help boost power generation and, thus, play a crucial role in addressing the energy crisis in the near future. The National Energy Regulator of South Africa (NERSA) approved over 15 IPPs between May 2022 and June 2022. As of June 2023, the country has an extensive pipeline of wind and solar projects, amounting to 66GW of capacity. Projects amounting to a capacity of over 5.5GW are expected to be operational by 2026.

The state has taken various initiatives to improve energy security, ease renewable energy project licensing requirements, and encourage participation from the private sector to generate renewable energy in the country. In October 2023, the World Bank approved a US$1 billion Development Policy Loan (DPL) to support the government’s initiatives to enhance long-term energy security and facilitate a low-carbon transition.

In July 2023, the South African Department of Trade, Industry, and Competition (DTIC) launched an initiative called ‘Energy One-Stop Shop’ (EOSS), aimed at accelerating the issuance of regulatory approvals and permits required before initiating the development of a project. As a result of this initiative, over 100 projects amounting to a capacity of over 10GW worth US$11 billion are being developed.

Along with this, in July 2023, the National Energy Regulator of South Africa (NERSA) finally decided to proceed with splitting Eskom into three different identities: generation, transmission, and distribution. NERSA authorized the National Transmission Company of South Africa to operate independently of Eskom, for which the Independent System and Market Operator (ISMO) Bill was passed in 2012 and implemented in 2013. The company will have non-discriminatory access to the transmission system, authority to buy and sell power, and will be responsible for grid stability. This is expected to improve electricity supply security, stabilize Eskom’s finances, and establish a foundation for long-term sustainability.

Moreover, in May 2023, two new ministers were appointed: a Minister in the Presidency responsible for Electricity to focus specifically on addressing the power outages, and a Minister in the Presidency responsible for Planning, Monitoring, and Evaluation, with the specific responsibility of overseeing the government’s performance.

Furthermore, South Africa’s JETP initiative implemented in 2021, supported by funding worth US$8.5 billion, is expected to integrate efficient energy production methods, reduce the adverse impact of power generation on the external environment, and improve energy security.

EOS Perspective

Endemic corruption within the government-owned national power utility and primary power generator, Eskom, has exacerbated the load shedding in South Africa. A deteriorating grid also significantly threatens the country’s economic stability. There is a great need for energy storage initiatives to optimize grid efficiency, improve power transmission across regions, and combat load shedding. With the split of Eskom, grid efficiency is expected to improve, and it is also anticipated to foster involvement from IPPs.

Alongside promoting the increased participation of IPPs, the newly appointed Minister for Electricity also stresses extending the life of coal-fired powered stations. Coal continues to be the predominant source of energy mix, constituting 80% of the total system load. While this approach might help the country with the immediate pressures of power supply requirements, more emphasis should be placed on reducing South Africa’s dependency on coal and the transition to green energy to stabilize energy distribution as well.

While various initiatives and programs have been implemented to encourage participation from IPPs to generate energy, it all comes down to execution, which the government currently lacks. Not enough funding support is being offered by the government to the participants. For instance, of the total power generation capacity anticipated from the participants in the fifth bidding round of REIPPPP, only half of the anticipated capacity, amounting to 2.58GW, is expected to come online. Most projects did not reach a financial close, or for many projects, legal agreements were not signed due to high interest rates, slow production of equipment post-pandemic, and increased cost of energy and other commodities. These issues led to increased construction costs beyond the budget initially set for the projects by the bidding companies. With soaring costs, the projects require greater financial support from the government to reach financial closure.

Also, the endless blame game between Eskom and the Department of Mineral Resources and Energy makes it difficult for IPPs to enter the market and provide clean energy to the country. Eskom’s dominance in the electricity sector is likely to continue to influence initiatives implemented to encourage participation from IPPs.

However, with increasing government efforts to encourage IPPs to generate energy in the long run, the private sector is expected to play a crucial role in pioneering the shift from fossil fuel to renewable energy sources and tackling the energy crisis.

27/09/2023by EOS Intelligence EOS Intelligence No Comments

IMO 2023 – Shipping Industry Sailing towards a Greener Future but Unsure of the Route

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The shipping industry plays a vital role in global trade. The majority of goods are transported by sea, and most shipping vessels currently rely on marine fuels such as Marine Diesel Oil (MDO), Marine Gas Oil (MGO), and Heavy Fuel Oil (HFO). One of the main reasons is that these fuels are cheaper and readily available, however, they are not environmentally friendly. The shipping industry discharges a significant amount of carbon emissions, therefore, decarbonization and eventually reaching zero carbon emissions in this sector has become imperative. The United Nations agency responsible for regulating shipping, the International Maritime Organization (IMO), aims to reduce ocean-vessel emissions to half by 2050. To meet the target, the shipping sector is looking to switch to alternative fuels, however, the feasibility of this change still remains to be assessed.

The shipping industry accounts for a vast proportion of global trade as a result of rapid growth in cargo transportation due to increased globalization and e-commerce. According to the International Chamber of Shipping, 90% of global trade is transported by sea, hence perpetuating carbon emissions in the shipping industry. According to a study published by the European Parliament, the shipping industry could be responsible for up to 17% of global carbon emissions by 2050. In comparison, in 2021, the sector contributed to about 3% of worldwide greenhouse gases. This significant increase in carbon emissions by the sector is resulting in increased pressure on the shipping industry to reduce its carbon footprint.

In an attempt to reduce emissions, IMO has adopted the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) rating regulations. While the EEXI is a rating system that assesses the energy performance of existing ships based on speed, power, and engine size, the CII rating uses a ranking system to monitor the efficiency of individual ships. Under the CII rating system, each vessel will receive a ranking from A (good) to E (poor) starting in 2023. Ships receiving grade D for three years or Grade E for one year will have to put a corrective action plan in place. These new sets of regulations have been in effect since January 2023 and are a part of IMO’s Greenhouse Gas Strategy (GHG) that aims to reduce the carbon emissions from international shipping by 40% by 2030 and 70% by 2050 compared with 2008 levels.

Shipping is a highly capital-intensive industry with a great dependence on fossil fuels. Most vessels are still dependent on traditional marine fuels and would require significant investment in infrastructure to transition to zero-carbon emission fuels. A 2020 study by the University of Massachusetts estimated the total cost of decarbonization efforts would be about US$1.65 trillion by 2050 to create apt infrastructure to support zero carbon emission fuels. With shipping being the backbone of international trade, trade volumes are expected to grow continuously, resulting in an increase in carbon emission, which will further push industry players to invest in alternative carbon-efficient fuel.

IMO 2023 – Shipping Industry Sailing towards a Greener Future but Unsure of the Route by EOS Intelligence

Alternative fuels have limited availability and cost restrictions

Currently, there are three primary fuels that are used in ships – MDO, MGO, and HFO. All three fuels are made from crude oil and emit carbon when burnt. Hence, the sector is actively looking for alternative fuels to replace these fuels with the introduction of IMO 2023 regulations.

Methanol could be a suitable alternative, but availability could be a challenge

In pursuit of sustainable and greener fuel, the shipping industry is moving towards using other fuels – one of which is methanol. As per a Finland-based technology company Wärtsilä, methanol usage in ships, when compared to HFO, dramatically reduces carbon emissions and is easy to store. Considering this, the shipping giant AP Moller-Maersk, headquartered in Denmark, has ordered 19 methanol-powered vessels. The company estimated that they would require about one million tons of green methanol per year to run these vessels, which will generate annual carbon emission savings of about 2.3 million tons. Another shipping company based in Beijing, China Ocean Shipping Company (COSCO), has ordered 12 container ships worth US$2.87 billion, which use methanol as a fuel.

However, the availability of methanol is also to be considered while assessing it as an alternative fuel. As per the world’s largest methanol producer, Methanex, the shipping industry would require about three million tons of methanol annually to fuel vessels. Therefore, it is not enough to build vessels that run on methanol but also ensure its availability to fuel the vessels.

Keeping such requirements in mind, Maersk has partnered with six companies across the globe to source at least 730,000 tons of methanol annually by the end of 2025. The six companies are CIMC ENRIC (China), European Energy (Denmark), Green Technology Bank (China), Orsted (Denmark), Proman (Switzerland), and WasteFuel (USA). Additionally, in 2018, COSCO partnered with the US-based IGP Methanol and China-based and Jinguotou (Dalian) Development to construct two methanol plants in IGP Methanol’s Gulf Coast Methanol Park. The plants are planned to have a capacity of 1.8 million tons of methanol per year each. COSCO is ensured to fuel its 12 newly ordered vessels through these two partners

Most methanol produced today is derived from fossil fuels. There are primarily three kinds of methanol – grey or brown methanol derived from natural gas, green methanol made from biomass gasification, and blue methanol derived from natural gas combined with carbon capture and storage technology (CCS). With the help of CCS technology, the carbon emitted is captured and later transported and stored deep underground permanently, hence reducing carbon emissions.

Both green and blue methanol are considered to be the most environmentally friendly. However, most methanol available and used currently is either grey or brown. The availability of blue and green methanol is estimated to be less than 0.5 million tons annually in 2022, which is considered to be severely inadequate to power the current fleet of vessels. While Washington-based Methanol Institute estimated that renewable methanol production might increase to over 8 million tons annually by 2027, it is still unlikely to be sufficient to replace diesel as the go-to fuel.

Methanol as a fuel also has its challenges in terms of cost. Depending on the type of methanol consumed, traditional bunker fuels can be up to 15 times more expensive. Assuming the limited availability of methanol, the cost is likely to increase. Further, industry players need to ensure methanol availability and feasibility before switching away from traditional marine fuel.

LNG – most likely a transitional fuel

While some players are looking at methanol as an alternative fuel, other players are considering LNG. LNG is 20-25% less carbon intensive than HFO and emits fewer nitrogen oxides and sulfur oxides.

Rio Tinto, a mining company based in London, announced plans to add nine LNG dual-fueled Newcastlemax vessels in their fleet that transport bulk cargo, such as coal, iron ore, and grain, in 2023. The company started a one-year trial and is already seeing a reduction of about 25% in carbon emissions.

The main driver to convert to LNG fuel is the reduction in fuel costs. According to S&P Global, an energy company based in the UK, LNG prices vary from US$213-$353 as compared with MGO prices, which vary from US$550-$640. While LNG is cheaper, bunkering LNG to the vessel could be a challenging operation as there is a lack of LNG bunkering infrastructure. Another significant drawback in the usage of LNG is methane slip, which is the discharge of unburned methane from an engine that could poison aquatic life.

As per the World Bank, LNG as a marine fuel is most likely to play a limited role, given its drawbacks. However, a combination of lower prices and the increasing number of LNG dual-fueled vessels might support bunkering demand in the future.

Ammonia at the nascent stage of adoption

Unlike LNG, ammonia is turning out to be a viable option as infrastructure is already taking shape. As per a 2020 report by Siemens, a German industrial manufacturing company, 120 ports are already dealing with the import and export of ammonia worldwide. However, even with the infrastructure, only green ammonia is a zero-carbon fuel and it is not produced anywhere at the moment.

Looking at the fuel as an alternative option, Grieg Maritime and Wärtsilä (Norwegian and Finnish shipping companies, respectively) are jointly running a project to launch an ammonia-fueled tanker producing no greenhouse gas emissions by 2024. The project is also being supported by the Norwegian government with a funding of US$46.3 million. The partnership aims to build the world’s first green ammonia-fueled tanker. The partners plan to distribute green ammonia from a factory based in Norway to various locations and end-users along the coast.

There is a wide range of alternative fuels that are yet to be examined from the point of sustainability. Hydrogen is also one of the fuels that is considered an option for shipping vessels.

Read our related Perspective:
 Hydrogen: Future of Shipping Industry?

Other synthetic fuels combining hydrogen and carbon monoxide are also present and are already used extensively in other industries such as agriculture. However, their viability is yet to be tested in the shipping industry. Moreover, transitioning to alternative fuels is not easy. Several factors need to be considered before switching. To be a practical replacement for diesel, it needs to be readily available and price-competitive with traditional fuels.

EOS Perspective

The global shipping sector was already on its toes since the IMO’s 2020 sulfur regulation that limited sulfur content in a ship’s fuel oil to a maximum of 0.5% (from the previous 3.5%). After the IMO’s sulfur regulation, players started to gradually switch to other fuels and phased out high-sulfur fuel oil from their operations. The new 2023 regulation again brings the shipping industry to heel. The key challenge the marine industry faces in decarbonization is the limited availability and high cost of alternative fuels. Additionally, infrastructural changes are also required while adapting to these new fuels. Ship modifications require major capital investments, while construction of new vessels takes several years.

MGO is shipping’s primary fuel today and is hard to match in terms of existing scale and commercial attractiveness as it already is a well-established fuel and has been in use for decades. Other viable fuels, such as methanol, LNG, hydrogen, and ammonia, although present themselves to be better options for achieving IMO’s 2050 target, are likely to be costly and would require a much higher supply to meet the demand to power the vessels. Future fuel scenarios are likely to be determined by both supply and demand side dynamics.

For now, the key question for the players remains the availability of cleaner fuels at a cost that is acceptable and has the potential to replace traditional fuels. This further opens up the scope for partnerships between the players and fuel producers to jointly build a roadmap to ascertain fuel availability and bunkering infrastructure. With the players already moving towards adopting cleaner fuels, it is safe to infer that more partnerships between the fuel producers and the players are likely to be seen in the sector in the years leading towards meeting IMO’s 2050 target.

07/08/2023by EOS Intelligence EOS Intelligence No Comments

Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage

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The transition to Electric Vehicles (EVs) is picking pace with concentrated efforts to achieve the net-zero carbon scenario by 2050. The International Energy Agency (IEA) estimated that global EV sales reached 6.6 million units in 2021, nearly doubling from the previous year. IEA projects that the number of EVs in use (across all road transport modes excluding two/three-wheelers) is expected to increase from 18 million vehicles in 2021 to 200 million vehicles by 2030, recording an average annual growth of over 30%. This scenario will result in a sixfold increase in the demand for lithium, a key material used in the manufacturing of EV batteries, by 2030. With increasing EV demand, the industry looks to navigate through the lithium supply disruptions.

Lithium supply shortages are not going away soon

The global EV market is already struggling with lithium supply constraints. Both lithium carbonate (Li2CO3) and lithium hydroxide (LiOH) are used for the production of EV batteries, but traditionally, lithium hydroxide is obtained from the processing of lithium carbonate, so the industry is more watchful of lithium carbonate production. BloombergNEF, a commodity market research provider, indicated that the production of lithium carbonate equivalent (LCE) was estimated to reach around 673,000 tons in 2022, while the demand was projected to exceed 676,000 tons LCE. In January 2023, a leading lithium producer, Albemarle, indicated that the global demand for LCE would expand to 1.8 million metric tons (MMt) (~1.98 million tons) by 2025 and 3.7 MMt (~4 million tons) by 2030. Meanwhile, the supply of LCE is expected to reach 2.9 MMt (~3.2 million tons) by 2030, creating a huge deficit.

There is a need to scale up lithium mining and processing. IEA indicates that about 50 new average-sized mines need to be built to fulfill the rising lithium demand. Lithium as a resource is not scarce; as per the US Geological Survey estimates, the global lithium reserves stand at about 22 million tons, enough to sustain the demand for EVs far in the future.

However, mining and refining the metal is time-consuming and does not keep up with the surging demand. According to IEA analysis, between 2010 and 2019, the lithium mines that started production took an average of 16.5 years to develop. Thus, lithium production is not likely to shoot up drastically in a short period of time.

Considering the challenges of increasing lithium production output, industry stakeholders across the EV value chain are racing to prepare for anticipated supply chain disruptions.

Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage by EOS Intelligence

Automakers resort to vertical integration to tackle supply chain disruptions

At the COP26 climate meeting in November 2021, governments of 30 countries pledged to phase out the sales of petrol and diesel vehicles by 2040. Six automakers – Ford, General Motors, Mercedes-Benz, Jaguar Land Rover, Quantum Motors (a Bolivia-based automaker), and Volvo – joined the governments in this pledge. While Volkswagen and Honda did not officially sign the agreement, both companies announced that they are aiming to become 100% EV companies by 2040. Other leading automakers have also indicated EVs to be a significant part of their future product portfolio. Such commitment shows that EVs are indeed going to be the future of the automotive industry.

Automakers have resorted to vertical integration to gain better control over the EV supply chain – from batteries to raw materials supply, including lithium, to keep up with the market demand.

Building own battery manufacturing capabilities

Till now, China has dominated the global battery market. The country produced three-fourths of the global lithium-ion batteries in 2020. At the forefront, automakers are looking to reduce their reliance on China for the supply of EV batteries. Moreover, many automakers have invested in building their own EV battery manufacturing capabilities.

While the USA contributed merely 8% to global EV battery production in 2020, it has now become the next hot destination for battery manufacturing. This is mainly because of the government’s vision to develop an indigenous EV battery supply chain to support their target of 50% of vehicle sales being electric by 2030. As per the Inflation Reduction Act passed in August 2022, the government would offer up to US$7,500 in tax credit for a new EV purchase.

However, half of this tax credit amount is linked to the condition that at least 50% of EV batteries must be manufactured or assembled in the USA, Canada, or Mexico. Taking effect at the beginning of 2023, the threshold will increase to 100% by 2029. To be eligible for the other half of the tax credit, at least 40% of the battery minerals must be sourced from the USA or the countries that have free trade agreements with the USA. The threshold will increase to 80% by 2027. In October 2022, the Biden Administration committed more than US$3 billion in investment to strengthen domestic battery production capabilities. While some automakers had already been planning EV battery production in the USA, after the recent announcements, the USA has the potential to become the next EV battery manufacturing hub.

BloombergNEF indicated that between 2009 and 2022, 882 battery manufacturing projects (with a total investment of US$108 billion) were started or announced in the USA, of which about 25% were rolled out in 2022.

In September 2021, Ford signed a joint venture deal with Korean battery manufacturer SK Innovation (BlueOvalSK) to build three battery manufacturing plants in the USA, investing a total of US$11.4 billion. Once operational, the combined output of the three factories will be 129 GWh, enough to power 1 million EVs.

In August 2022, Honda announced an investment of US$4.4 billion to build an EV battery plant in Ohio in partnership with Korean battery manufacturer LG Energy Solutions.

As of January 2023, GM, in partnership with LG Energy Solutions, announced the build of four new battery factories in the USA that are expected to have a total annual capacity of 140GWh.

Toyota, Hyundai, Stellantis, and BMW are a few other automakers who also announced plans to establish EV battery production facilities in the USA during 2022.

Automakers are also expanding battery manufacturing capabilities in the regions closer to their EV production base. For instance, Volkswagen is aiming to have six battery cell production plants operating in Europe by 2030 for a total of 240GWh a year.

In August 2022, Toyota announced plans to invest a total of US$5.6 billion to build EV battery plants in the USA as well as Japan, which will add 40 GWh to its global annual EV battery capacity.

Focusing on securing long-term lithium supply

While vertically integrating the battery manufacturing process, automakers are also directly contacting lithium miners to lock in the lithium supply to meet their EV production agenda.

Being foresightful, Toyota realized early on the need to invest in lithium supply and thus acquired a 15% share in an Australian lithium mining company Orocobre (rebranded as Allkem after its merger with Galaxy Resources in 2021) through its trading arm Toyota Tsusho in 2018. As a part of this agreement, Toyota invested a total of about US$187 million for the expansion of the Olaroz Lithium Facility in Argentina and became an exclusive sales agent for the lithium produced at this facility. In August 2022, a Toyota-Panasonic JV manufacturing EV batteries struck a deal with Ioneer (operating lithium mine in Nevada, USA), securing a supply of 4,000 tons of LCE annually for five years starting in 2025.

Since the beginning of 2022, Ford secured lithium supply from various parts of the world through deals with multiple mining companies. This included deals with Australia-based mining company Ioneer, working on the Rhyolite Ridge project in Nevada, USA, US-based Compass Minerals, working on extraction of LCE from Great Salt Lake in Utah, USA, Australia-based Lake Resources, operating a mining facility in Argentina, and Australia-based Liontown Resources operating Kathleen Valley project in Western Australia.

GM is also among the leading automakers that jumped on the bandwagon. In July 2021, the company announced a strategic investment to support a lithium mining company, Controlled Thermal Resources, to develop a lithium production site in California, USA (Hell’s Kitchen project). The first phase of production is planned to begin in 2024 with an estimated lithium hydroxide production of 20,000 tons per annum, and under the agreement, GM would have the first rights on this. In July 2022, GM announced a strategic partnership with Livent, a lithium mining and processing company. As part of this agreement, Livent would supply battery-grade lithium hydroxide to GM over a period of six years beginning in 2025. The automaker continues to invest in this direction; in January 2023, GM announced a US$650 million investment in the lithium producer Lithium Americas, developing one of the largest lithium mines in the USA, which is expected to begin operations in 2026. As a part of the deal, GM will get exclusive access to the first phase of lithium output, and the right to first offer on the production in the second phase.

Other automakers also invested heavily in partnerships with mining companies to secure a long-term supply of lithium in 2022. The partnership between Dutch automaker Stellantis and Australia-based Controlled Thermal Resources, Mercedes-Benz and Canada-based Rock Tech Lithium, and Chinese automaker Nio and Australia-based Greenwing Resources are a few other examples.

There are also frontrunners who are directly taking charge of the lithium mining and refining process. In June 2022, the Chinese EV giant BYD announced plans to purchase six lithium mines in Africa. If all deals fall in place as planned, BYD will have enough lithium to manufacture more than 27 million EVs. American Tesla recently indicated that it might consider buying a mining company. In August 2022, while applying for a tax break, Tesla confirmed its plan to build a lithium refinery plant in the USA.

This vertical integration is nothing new in this sector. In the early days of the auto industry, automakers owned much of the supply chain. For instance, Ford had its own mines and steel mill at one point. Do we see automakers going back to their roots?

Battery makers are also looking for alternatives

Some of the battery makers, especially the Chinese EV battery giants, are going upstream and expanding into lithium mining. For instance, in September 2021, Chinese battery maker Contemporary Amperex Technology (CATL) agreed to buy Canada’s Millennial Lithium for approximately US$297.3 million. Another Chinese battery maker, Sunwoda, announced in July 2022 that the company plans to buy the Laguna Caro lithium mining project in Argentina through one of its subsidiaries.

However, being aware that the lithium shortage is not going to be resolved overnight, battery makers are ramping up R&D to develop alternatives. In 2021, CATL introduced first-generation sodium-ion batteries having a high energy density of 160 watt-hours per kilogram (Wh/kg). This still does not match up to lithium-ion batteries that have an energy density of about 250 Wh/kg and thus allow longer driving range. Since sodium-ion batteries and lithium-ion batteries have similar working principles, CATL introduced an AB battery system that integrates both types of batteries. The company plans to set up the supply chain for sodium-ion batteries in 2023.

Zinc-air batteries, which are composed of a porous air cathode and a zinc metal anode, have been identified as another potential alternative to lithium-ion batteries. Zinc-air batteries have been proven to be suitable for use in stationary energy storage, mainly energy grids, but it is yet to be seen if they could be as effective in EVs. The application of zinc-air batteries in EVs – either standalone or in combination with lithium-ion batteries – is under development and far from market commercialization. A World Bank report released in 2020 indicated that mass deployment of zinc-air batteries is unlikely to happen before 2030.

EOS Perspective

Despite all the measures, the anticipated lithium shortages will be a setback for the transition to EV. One of the major factors will be the escalating costs of lithium, which will, in turn, impact the affordability of EVs.

Lithium prices have skyrocketed in the past two years on account of exploding EV demand and lithium supply constraints. The price per ton of LCE increased from US$5,000 in July 2020 to US$70,000 in July 2022.

One key reason driving the adoption of EVs has been the cost of EVs becoming comparable to the cost of conventional internal combustion engine vehicles because of the continually decreasing lithium battery prices. By the end of 2021, the average price of a lithium-ion EV battery had plunged to US$132 per kilowatt-hour (kWh), compared to US$1,200/kWh in 2010.

Experts project that EVs will become a mass market product when the cost of the lithium-ion battery reaches the milestone of US$100/kWh. Being so near to the milestone, the price of lithium-ion batteries is likely to take a reverse trend due to the lithium supply deficit and increase for the first time in more than a decade. As per BloombergNEF estimates, the average price of the lithium-ion battery rose to US$135/kWh in 2022. Another research firm, Benchmark Mineral Intelligence, estimated that the cost of lithium-ion batteries increased by 10% in 2022. This would have a direct impact on the cost of EVs, as batteries account for more than one-third of the cost of EV production.

Read our related Perspective:
 Chip Shortage Puts a Brake on Automotive Production

Automakers are still healing from the chip shortage. They are now faced with lithium supply constraints that are not expected to ease down for a few years. There is also a looming threat of a shortage of other minerals such as graphite, nickel, cobalt, etc., which are also critical for the production of EV components. While the world is determined and excited about the EV revolution, the transition is going to be challenging.

Nuclear Fusion – Reality or a Fairy Tale by EOS Intelligence

26/07/2023by EOS Intelligence EOS Intelligence No Comments

Commercial Nuclear Fusion – Reality or a Fairy Tale?

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Nuclear fusion has recently gained attention as a potential source of clean energy. It was a result of the US National Ignition Facility in California achieving a major milestone in December 2022 in which researchers were able to produce more energy than was used to ignite it for the first time. Several countries are cooperating in the world’s largest fusion experiment project called ITER, focused on the construction and operation of an experimental fusion reactor located in France. Large-cap companies such as Google and the ministries regulating energy policies across the globe are also investing in fusion energy projects and start-ups to promote fusion energy generation. Despite huge investments, commercializing fusion energy still has a long way to go due to certain technological and operational challenges associated with the generation of this type of energy.

Ever-increasing carbon emissions due to the ongoing rise in energy consumption are driving the need for accelerating energy generation from renewable sources. As of October 2022, over 40% of global carbon emissions were caused by power generation. As per the International Energy Agency, carbon emissions from energy generation increased by 0.9% in 2022, in comparison with 2021, to reach 36.8GT.

Additionally, the energy crisis caused by the Russia-Ukraine war, particularly in Europe, further augmented the need for energy generation using renewable sources. The surge in energy demand from households and industries is putting pressure on the existing energy supplies, thus resulting in high energy prices.

So far, solar and wind energy sources have been prominently used across countries to meet the rapidly increasing energy demand. Nuclear fusion is another alternative renewable source as it does not emit carbon emissions or produce long-lived radioactive waste products, unlike nuclear fission.

Nuclear fusion is an energy-intensive process and requires high temperatures for fusion reaction. In the nuclear fusion process, energy is released by combining two atomic nuclei into one heavier nucleus. The released energy is then captured and converted into electricity by a fusion machine. This process is also the key source of energy in the sun and other stars.

Nuclear fusion releases around four million times more energy as compared to coal, gas, or oil, and four times more than nuclear fission technology. Nuclear fusion can provide energy to an extent that can power up homes, cities, and whole countries.

Current state of the nuclear fusion energy

The potential of generating nuclear fusion energy has been recognized since the 1950s. Countries across geographies have been involved in nuclear fusion research, led by the EU, USA, Russia, and Japan, along with vigorous programs underway in China, Brazil, Korea, and Canada. Various experimental fusion devices have been designed and constructed to advance and transform the way fusion energy is generated. These include tokamaks, stellarators, and laser-based technology devices. Tokamaks and stellarators have been used more commonly for fusion energy research experiments.

Some of the tokamaks and stellarators built across countries for generating fusion energy include the Joint European Torus (JET), started in the UK in 1978, the Wendelstein 7-X stellarator, started in Germany in 1994, Korea Superconducting Tokamak Advanced Research (KSTAR) started in South Korea in 1995, the Mega Amp Spherical Tokamak- (MAST) initially started in the UK in 1997 and further upgraded to MAST-U in 2013, and Experimental Advanced Superconducting Tokamak (EAST) started in China in 2000, among others. Six countries, including China, India, Japan, Korea, Russia, the USA, as well as the EU, are cooperating in the world’s largest fusion experiment, ITER, an experimental fusion reactor currently under construction in France through EURATOM, the European Atomic Energy Community. ITER idea was first launched in 1985 and established in 2007. Its first experiment was scheduled to start in 2025 but is delayed due to Covid-19 disruptions. It is aimed at producing 500MW of fusion power from 50MW of input heating power.

Further, in 2017, China launched the China Fusion Engineering Test Reactor (CFETR) project as a follow-up to the ITER. This tokamak device is aimed at producing an extremely powerful magnetic field to confine plasma and generate fusion energy. This magnetic field can contain and control hydrogen gas ten times hotter than the core of the sun. CFETR is aimed at producing a peak power output of 2GW once completed in 2035, bridging the gap between scientific experiments and commercial use.

Extensive progress has been noticed in studying laser-based technology for fusion energy generation. Some of the facilities that use laser technology to produce fusion energy include the National Ignition Facility (NIF) at the Lawrence Livermore National Laboratory (LLNL) in the USA and the Laser Mégajoule (LMJ) in France.

The International Atomic Energy Agency (IAEA) also supports its member states in research activities related to fusion energy generation. It also organizes various workshops on fusion power plant concept demonstrations, technical meetings, and coordinates research activities.

Nuclear Fusion – Reality or a Fairy Tale? by EOS Intelligence

Some of the breakthroughs achieved in fusion energy experiments to date

There has been significant progress in the research and development activities focused on nuclear fusion energy generation. Researchers are continuously emphasizing optimizing the condition of plasma through changes in density, temperature, and confinement time to achieve the required level of performance for a power plant. Several nuclear reactors were able to sustain high temperatures during the fusion process. For instance, in January 2022, the EAST reactor in China sustained temperatures of 126 million degrees Fahrenheit, which is nearly five times hotter than the sun, for 17 minutes, and thus, broke the record for longest sustained nuclear fusion.

In February 2022, the Joint European Torus (JET) achieved a record performance for sustained fusion energy of 59MJ over five seconds.

Also, in September 2022, the Korea Superconducting Tokamak Advanced Research (KSTAR) experiment achieved plasma temperatures of 120 million kelvins for up to 20 seconds, a key demonstration of simultaneous high temperatures and plasma stability.

Recently, in December 2022, a major breakthrough was achieved at the US National Ignition Facility in California by using inertial confinement fusion, which released more energy than was pumped in by the lasers for the first time in the world. The laser shot released 3.15MJ of energy in comparison with the 2.05MJ pumped to the hydrogen isotope pellet by lasers. This breakthrough is likely to pave the way for abundant clean energy in the future.

Breakthroughs driving further investment in fusion energy R&D

Breakthroughs achieved over the past years in various projects have attracted significant investment by both the government and private sector in the research and development of fusion energy. For instance, in February 2023, Israel’s Ministry of Energy (MoE) proposed to provide US$11.5 million to establish a national nuclear fusion institute in Israel. This initiative includes major universities of Israel, namely the Hebrew University of Jerusalem, Ben-Gurion University of the Negev, the Technion and Tel Aviv University, the Weizmann Institute of Science, as well as NT-Tao, an Israel-based start-up which is engaged in the development of a compact system for nuclear fusion.

Similarly, in October 2022, the UK government announced to provide US$249.6 million of funding for the Spherical Tokamak for Energy Production (STEP) project’s first phase, which will include concept design by the UK Atomic Energy Authority by 2024. STEP is a program aimed at designing and constructing a prototype fusion energy plant by 2040.

In March 2022, the US Department of Energy (DOE) proposed to provide around US$50 million of federal funding to support US scientists involved in conducting experimental research in fusion energy science. Of this, US$20 million was to support tokamak facilities and US$30 million to support fusion research to improve the performance of fusion and increase the duration of burning plasma. In addition to this, the US government’s budget for the financial year 2023 included US$723 million for the Office of Science Fusion Energy Sciences research in enabling technologies, materials, advanced computing and simulation, and new partnerships with private fusion efforts. This amount included US$240 million for the ongoing construction of ITER tokamak. Also, the budget for the financial year 2024 includes US$16.5 billion to support climate science and clean energy innovation, including US$1 billion to advance fusion energy technology.

Private funding in fusion companies has also increased significantly in the recent past. As per the Fusion Industry Association Report 2022 published in July, private sector funding amounted to about US$4.8 billion in total, witnessing an increase of 139% since 2021. Fusion companies also received an additional US$117 million in grants and other funding from governments. Big resource groups such as Equinor, based in Norway, Google, and Chevron, based in the USA, have also invested in fusion energy research. For instance, in July 2022, Chevron, together with Google and Japan-based Sumitomo Corporation, invested in TAE Technologies, a US-based nuclear fusion start-up, in a US$250 million fundraising round to build its next-generation fusion machine.

In addition to this, entrepreneurs, including Bill Gates and Jeff Bezos, are also providing financial support. In December 2021, Commonwealth Fusion Systems (CFS) raised around US$1.8 billion in series B funding from various key investors, including Bill Gates, DFJ Growth, and Emerson Collective, among others, to commercialize fusion energy.

Companies engaged in nuclear fusion energy generation

More than 35 companies are engaged in fusion energy generation for commercial use, such as Tokamak Energy, General Fusion, Commonwealth Fusion Systems, Helion Energy, Zap Energy, and TAE Technologies, among others. These fusion companies are increasingly emphasizing collaborations and experimenting with new technologies to produce fusion energy and make it available for commercial use.

In March 2023, Eni, an energy group based in Italy, and Commonwealth Fusion Systems (CFS) based in the USA, a spin-out of the Massachusetts Institute of Technology (MIT), signed a collaboration agreement aimed at accelerating the industrialization of fusion energy.

In February 2023, TAE Technologies achieved a breakthrough in its hydrogen-boron fusion experiment in magnetically confined fusion plasma. This experiment was a collaboration between Japan’s National Institute for Fusion Science (NIFT) and TAE Technologies.

Also, in February 2023, Tokamak Energy proposed to build a new fusion energy advanced prototype at the United Kingdom Atomic Energy Authority’s (UKAEA) Culham Campus, UK, using power plant-relevant magnet technology. It also built the first set of high-temperature superconducting magnets for testing nuclear fusion power plants. This supermagnet can confine and control extremely hot plasma created during the fusion process.

Certain breakthroughs achieved over the years in the nuclear fusion energy field have encouraged the entry of various start-ups across geographies. For instance, Princeton Stellarators, a US-based start-up focused on building modular, utility-scale fusion power, was founded in 2022. Another start-up named Focused Energy, a Germany-based fusion company, was founded in 2021 to develop a fusion power plant based on laser and target technology. In September 2021, the company raised US$15 million in seed funding led by Prime Movers Lab, along with additional investment from various entrepreneurs.

Start-ups are also emphasizing raising funds to create new fusion technologies and make a significant impact on the industry. In February 2023, NT-Tao, an Israel-based nuclear fusion start-up founded in 2019, raised US$22 million in a series A funding round aimed at developing a high-density, compact fusion reactor to provide clean energy.

Additionally, in January 2023, Renaissance Fusion, a France-based start-up founded in 2020, raised US$16.4 million in a seed funding round led by Lowercarbon Capital. The company is engaged in the development of a stellarator reactor for fusion energy generation.

Challenges to nuclear fusion energy generation

Although a lot of companies and governments across geographies are investing in nuclear fusion energy generation experiments, building full-scale fusion-generating facilities requires advanced engineering, advanced vacuum systems, and superconducting magnets. One of the key challenges in the fusion process is the requirement of extremely high temperatures to produce energy. Also, it becomes difficult to control plasma at such high temperatures.

Additionally, the lack of availability of materials that can extract heat more effectively while withstanding their mechanical properties for a longer duration is another challenge affecting the fusion energy generation process.

Moreover, fusion research projects are also facing capital and financing challenges due to high upfront costs, return uncertainty, and long project duration. The capital investment involved in building and operating a fusion reactor is high due to complex technology that requires significant investment in R&D, high energy requirements, use of advanced materials, and regulatory requirements aimed at ensuring the safety and low environmental impact of the fusion reactor. The cost of building a fusion reactor ranges between tens to hundreds of billions of dollars. It can vary depending on various factors such as size, design, location, materials, and technology used.

Since fusion energy is a new technology, there is uncertainty about when nuclear fusion will become a viable and cost-effective energy source, such as other energy sources, including wind and solar. This makes it difficult for investors to invest in fusion projects and predict the return on investment.

However, ongoing research and development activities aimed at building advanced, highly efficient, and cost-effective fusion reactors and commercializing fusion energy generation at a large scale are likely to overcome these challenges in the long term.

EOS Perspective

Accelerating climate crisis is driving the investment in nuclear fusion research and development as it does not create carbon emissions and long-lasting nuclear waste products. Over the past several years, various fusion research projects, university programs, and start-ups have achieved breakthroughs in the fusion energy field. The most recent breakthrough at the US National Ignition Facility in California, which released more energy than was pumped in by the lasers, has paved the way to the nuclear fusion gold rush and sparked excitement among investors, companies, and researchers.

Many fusion companies, such as Commonwealth Fusion Systems and TAE Technologies, are claiming to exceed breakeven by 2025 and commercialize fusion energy by 2030. Billions of dollars have been invested in nuclear fusion energy generation experiments but no company or projects have been able to achieve breakeven yet.

Several new fusion projects are planning on using advanced materials and putting a new generation of supercomputers to tweak the performance of ultrahigh-temperature plasma, but commercializing fusion energy is still far from reality. Moreover, the fusion process is very complex, requires extreme temperatures for fusion reactions, and involves huge energy costs. Thus, alternative clean energy sources such as wind and solar will likely remain the near-term methods to meet sustainable energy demand. At the same time, it should be expected that the increasing government support and investment by large cap organizations and entrepreneurs are likely to help set up viable fusion power plants in the future.

23/03/2023by EOS Intelligence EOS Intelligence No Comments

Sustainable Electronics Transforming Consumer Tech Companies

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Globally, electronics are discarded at alarming rates, generating unprecedented amounts of e-waste. On the other side, finite resources such as minerals and metals, which are used to make these electronics, are getting depleted. To foster sustainability across the electronics value chain, many tech companies are adopting strategies such as incorporating long-lasting product design, using recyclable and biodegradable materials, using clean energy for power generation, etc. However, the sustainable electronics concept is still in a nascent stage of adoption, and a lot of work needs to be done. Strict legislation, cross-sectoral collaborations, organizations facilitating networking and knowledge sharing, and changes in business models are needed to implement sustainability across various business units in the electronics industry.

Growing need for sustainability in electronics

Global consumption of electronics is rising exponentially and is expected to double by 2050. This increase is set to adversely affect the environment, leading to more mining of raw materials, an unprecedented increase in e-waste, and increased carbon emissions during manufacturing.

Globally, people are discarding electronics sooner than before due to the availability of new electronics, owning outdated models, obsolescence, etc. Over the last few years, nearly 50 million tons of e-waste has been generated annually. Only 17% of this e-waste is recycled globally, and the rest is transported and dumped in developing countries such as Pakistan, Nigeria, and India, which do not have adequate facilities for processing and handling e-waste. This e-waste ends up in landfills, accounting for approximately 70% of hazardous chemicals, and pollutes the air and water streams. Moreover, e-waste generated globally contains recyclable or reusable raw materials, scrap rare earth metals, plastics, and valuable elements, which are valued at US$62.5 billion per year.

Given the economic and environmental cost of e-waste, as well as responding to growing consumer preference for sustainable products, several companies are looking to transition to sustainable electronics. Sustainable electronics are products that are made using recycled or reusable and biodegradable materials, as well as products that generate low carbon emissions during manufacturing and distribution.

Sustainable Electronics Transforming Consumer Tech Companies by EOS Intelligence

Recycling, clean energy power, and modular design for sustainable electronics

Over the last few years, consumer tech companies have been adopting many strategies for manufacturing electronics sustainably. In 2021, tech giants Cisco, Dell, Google, Microsoft, Vodafone, and many others together formed a “Circular Electronics Partnership (CEP)” to accelerate the circular economy for electronics by 2030 and to help businesses and organizations overcome barriers to sustainable electronics.

Several companies are looking to increase the life span of their smartphones to make them more sustainable. Increasing the phone’s life span by two years can reduce carbon emissions to a great extent, as 80% of the carbon emissions come during manufacturing, shipping, and the first year of phone usage. Fairphone, a Dutch-based smartphone manufacturer, has introduced smartphones with a lifespan of approximately 5 years, higher than the average lifespan of 2.5 years. Similarly, Teracube, a US-based sustainable smartphone manufacturer, has launched phones that can last up to 4 years.

Many companies are also designing their products with modularity, which allows users to repair, upgrade, customize, and disassemble their gadgets easily. For instance, Framework Computer, a US-based laptop manufacturer, sells laptops that can be upgraded. The company offers upgrading kits that contain laptop main boards and top covers to customize the device as per the user’s need. Similarly, Fairphone manufactures modular smartphones, which are easy to repair and upgrade. These kinds of gadgets eliminate the user’s need to buy new ones, saving both costs and wastage.

There is also an increased interest among consumer electronics companies to use recycled materials in various products. Sony, a Japan-based multinational corporation, has developed a recycled plastic, SORPLAS, and has been using it in a range of its products, such as audio systems and televisions, since 2011. In 2022, Logitech, a Swiss-American manufacturer of computer peripherals and software, used recycled plastic in 65% of its mice and keyboards. Similarly, in 2021, Acer, a Taiwan-based electronics corporation, launched a series of PCs named Vero, which uses recycled plastics for the chassis and keycaps. Acer also launched the Earthion program, an eco-friendly initiative, in the same year and started working closely with suppliers and partners to bring various sustainability measures in product design, packaging design, and production. Tech giant Apple stopped selling chargers and headphones along with the iPhone in 2020 to cut e-waste. The company used 20% recycled material in all its products in 2021 and uses robots to disassemble or separate metals from e-waste. There is 40% recycled content in the MacBook Air with Retina display, and 99% recycled tungsten is used for the iPhone 12 and Apple Watch Series. Samsung, a multinational electronics corporation, is using recycled plastics in refrigerators, washing machines, air conditioners, TVs, monitors, and mobile phone chargers.

Due to this increased demand for recycled materials, recycling companies are receiving investments to a significant extent. In 2021, Closed Loop Partners, a US-based investment firm, invested an undisclosed amount in ERI, a US-based electronics recycler that supplies materials to companies such as Best Buy, Target, and Amazon, to extend the capacity for the collection and processing of electronics. Similarly, in 2022, the Australian Business Growth Fund (ABGF), an investment fund focused on small to medium-sized Australian businesses, invested US$7.5 million in Scipher, an Australia-based urban mining and e-waste recycling business.

Significant activity has been happening in the refurbished electronics market as well due to the rising consumer awareness of sustainability. Trade-in and refurbishment reduce e-waste piling up at landfills, as it limits buying newer gadgets and thereby paves the way for greater sustainability across the electronics industry. Back Market, a France-based marketplace of renewed devices (which provides refurbished devices with a one-year warranty), has raised over US$1 billion since its launch in 2014. In 2022, Verdane, a European specialist growth equity investment firm, announced an investment worth US$124 million in Finland-based Swappie, a re-commerce company that sells previously owned, new, or used smartphones. Vodafone also announced a major initiative to extend the life of new mobile phones and to encourage customers to trade in or recycle their old devices. The company is planning to provide customers in European markets with a suite of services, including insurance, support, and repairs for their devices, in 2022. Samsung collaborated with iFixit, an online repair community, for its self-repair program in 2022. The company said that under this program, Galaxy device owners in the USA can make their own repairs to the Galaxy Tab S7+, Galaxy S20, and S21 products using easy-to-repair tools available from iFixit.

Tech companies have also started transitioning to renewable energy and looking for ways to reduce their carbon emissions. Intel, a US-based technology company, uses green energy of up to 3,100,000 MWh annually in the manufacturing of processors and computer accessories. Samsung’s facility operations in the USA and China switched to 100% renewable energy in 2019. In 2021, Microsoft entered into a partnership with IFC, a member of the World Bank Group, to reduce carbon emissions in the organization’s supply chain. IFC is said to work with selected Microsoft suppliers in emerging markets, primarily in Asia, to identify technical solutions and financing opportunities to reduce emissions in the production process.

Legislation to aid the shift toward the circular economy in electronics

For years, many countries did not have appropriate policies enforcing sustainability across the electronics industry. Nevertheless, the trend is reversing with several countries adopting legislation for the circular economy. For instance, in 2020, the European Commission announced a circular electronics initiative that would promote eco-design (a design that considers environmental aspects at all stages of the product development), right-to-repair rules, including a right to update obsolete software, and regulatory measures on universal chargers, to name a few. France became the first European country to pass the Anti-Waste for a Circular Economy Act (AGEC) in 2020, which requires producers of electronic devices to provide details on how repairable their products are. According to AGEC, manufacturers are required to scale their products at a rate of 1-10 based on the reparability index. France also plans to introduce a durability index by 2024, whereby manufacturers would be asked to describe the full lifecycle of their products. Moreover, the US government passed an order in 2021 to draft regulations that protect the consumer’s right to repair electronic devices and other tools.

It is not easy to manufacture sustainable electronics

While sustainable electronics are the need of the hour, and several leading players have already started promoting and investing in this space, the sector faces many challenges. Currently, there are no established standards, concepts, or definitions concerning sustainable electronics, and there is no strict legislation to enforce sustainability practices in the electronics industry. There are some rating systems that identify energy-efficient products followed in the USA and Europe (for example, the USA’s ENERGY STAR program). However, registering and complying with the ratings and their requirements is up to the manufacturer and is not mandatory. Moreover, e-waste regulations in several countries are poorly enforced due to low financing, and illegal practices such as dumping e-waste and incineration by the informal sector still persist.

Most electronics companies are also not transparent about their environmental performance, and the impact is often hidden. The term ‘sustainable’ is widely misused as a promotional tactic by companies targeting environmentally conscious consumers.

The electronic industry also operates on a linear established model, wherein products are manufactured (with planned obsolescence) and sold to consumers. Incorporating circular strategies for recycling and reuse requires a lot of remodeling and reconfigurations across the supply chain, and the rising consumption of electronic devices makes it difficult to adapt to any new changes. Challenges, such as complex recycling processes, costs of recycling, and consumer perception of green electronics, also hamper sustainability development. Most electronics are not designed for recycling and are made of a complex mixture of materials such as heavy metals, highly toxic compounds, glass, plastics, ferrous and nonferrous materials, etc. Recycling these materials is tedious and involves several steps such as dismantling, removing the hazardous waste, shredding into fine materials, and sorting the materials into various types. The process is also resource and cost-intensive, requiring human labor, more processing time, and adequate infrastructure such as various material screening types of equipment. Recycling e-waste could also be polluting, with potential exposure to toxic metal fumes.

Finally, the perception of consumers about sustainable electronics also needs to be changed, which is challenging. There is a notion among customers that the use of recycled, sustainable materials in electronics means products would be of lower quality. A lot of investment would be required to educate and convince consumers about the benefits of sustainable electronics and to address any concerns about quality. In most cases, it is difficult to pass on these costs to the consumers as they are unlikely to accept higher prices. Thus, this cost would be required to be absorbed by the companies themselves. Due to this, most current initiatives toward sustainable electronics can be best described as half measures.

EOS Perspective

The economic benefits of sustainable electronics are enormous. The resource scarcity and the price fluctuation of various minerals and metals make them necessary to recycle, recover, and reuse in the circular economy. Over the last few years, consumer electronics manufacturers have taken many sustainability initiatives, such as reducing energy consumption, eliminating hazardous chemicals, introducing biodegradable packaging, incorporating recycled and recyclable materials in products, and investing in renewable energy projects. Also, the refurbished electronics segment is growing fast, while interest is surging in introducing devices with built-in reparability. While several small initiatives are being taken by leading players, electronics manufacturers mainly do not know how to introduce sustainability across their products in a mainstream fashion.

Sustainability in electronics has still a long way to go. Several legislative initiatives are underway toward a circular (sustainable) electronics economy, and it is high time for electronics manufacturers to be proactive and rethink their business models. A complete business model transformation is required to integrate sustainability across every unit. Cross-sector collaborations with stakeholders such as product designers, manufacturers, investors, raw material producers, and consumers are crucial to understanding the technical know-how. It is essential to analyze the entire life cycle of products, from choosing raw materials to their disposal, and to prioritize circular strategies for such products. Electronic manufacturers also need to come up with creative and rewarding ways for consumers to be willing to choose sustainable products, as, in the end, the industry cannot flourish without consumer acceptability. The future of sustainable electronics can be bright, and manufacturers who see this as a potential business opportunity rather than a problem will benefit in the long term.

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Japan prioritizes hybrids and plug-in hybrids over electric vehicles

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Current state of the nuclear fusion energy

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Breakthroughs driving further investment in fusion energy R&D

Companies engaged in nuclear fusion energy generation

Challenges to nuclear fusion energy generation

EOS Perspective

Growing need for sustainability in electronics

Recycling, clean energy power, and modular design for sustainable electronics

Legislation to aid the shift toward the circular economy in electronics

It is not easy to manufacture sustainable electronics

EOS Perspective