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

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.

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

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.

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

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
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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

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.

Sustainable electronics transforming consumer tech companies by EOS Intelligence
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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

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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Clean Energy: How Is India Faring?

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The rising annual average global temperature due to global warming is alarming. These changes affect virtually every country in the world, and India is no exception in witnessing extreme weather conditions. To illustrate this, the country faced floods in 2019 that took 1,800 lives across 14 Indian states and displaced 1.8 million people. Overall, the unusually intense monsoon season impacted 11.8 million people, with economic damage likely to be around US$10 billion.

Concerns over rising global temperature causing climate change

According to the latest climate update by the World Meteorological Organization (WMO), there is a 50% probability of the annual average global temperature temporarily exceeding the pre-industrial level by 1.5 °C in at least one of the next five years. As a result, there is a high chance of at least one year between 2022 and 2026 becoming the warmest on record, removing 2016 from the top ranking.

India has also been bearing the brunt of climate change with the average temperature rising by around 0.7°C between 1901 and 2018. The temperature in India is likely to further rise by 4.4°C and the intensity of heat waves might increase by 3-4 times by the end of the century. In the future, India is likely to face weather catastrophes such as more recurrent and extreme heat waves, intense rainfall, unpredictable monsoons, and cyclones, if clean energy transition measures are not taken.

Clean Energy – How is India Faring by EOS Intelligence

India to witness economic losses if initiatives are not taken

The rising population, industrialization, and pollution levels in India are causing emissions (greenhouse gases, carbon dioxide), depleting air quality, and impacting the environment adversely. Also, with coal being a major source of energy in India’s electricity generation, pollution levels are further rising. These factors intensify the need to take clean energy initiatives seriously. If India does not take timely actions to reduce reliance on fossil fuels, it may suffer a heavy loss of nearly US$35 trillion across various sectors by 2070. Industries such as services, manufacturing, retail, and tourism are likely to lose around US$24 trillion over the next 50 years if India neglects climate warnings.

Renewable energy generation in India seeing a boost

The Indian clean energy sector is the fourth most lucrative renewable energy market in the world. As of 2020, India ranked fifth in solar power, and fourth in the wind and renewable power installed capacity globally.

The installed renewable energy capacity in India was 152.36 GW as of January 2022, accounting for 38.56% of the overall installed power capacity. Energy generation from renewable sources increased by 14.3% y-o-y to 13.15 Billion Unit (BU) in January 2022. The Indian government set an ambitious target of achieving 500GW installed renewable energy capacity by 2030, with wind and solar as key energy sources to achieve the target.

The government has been taking several measures to boost the clean energy sector. In the Union Budget 2022-2023, the government allocated US$2.57 billion for Production Linked Incentive (PLI) scheme to boost manufacturing of high-efficiency solar modules. The scheme provides incentives to companies to increase domestic production of solar modules in order to reduce dependence on imports.

Furthermore, the Indian government has undertaken several initiatives to foster the adoption of clean energy practices, one of them being the Green Energy Corridor Project, which aims at channelizing electricity produced from clean energy sources, such as solar and wind, with conventional power stations in the grid. Another project, the National Wind-Solar Hybrid Policy, was rolled out in 2018 by the Ministry of New and Renewable Energy (MNRE) as an initiative to promote a large grid-connected wind-solar PV hybrid system for efficient utilization of the transmission infrastructure and land.

Big-scale projects in development

To meet the growing energy needs of the country, the Indian government is taking measures to look at alternative sources of energy. At the 2021 United Nations Climate Change Conference, India announced its ambitious target of meeting 50% of its energy needs from renewable energy by 2030. In the near term, India aims to achieve 175GW renewable energy installation by the end of 2022.

Besides rolling out various policies and reforms, India has been taking several other measures as well to facilitate the growth of the renewable sector and to meet the energy targets. One such measure is the series of agreements signed by India and Germany in May 2022, which would see India receiving up to US$10.5 billion in assistance through 2030 to boost the use of clean energy. Furthermore, 61 solar parks have been approved by MNRE, with a total capacity of 40GW. Most of these solar parks are under construction.

Apart from the government, also the key industry players see potential in the clean energy market and have ambitious plans to ramp up renewable energy capacity as well as their investments in the sector.

Indian public sector companies including IOC, BPCL, and private sector conglomerates such as Reliance Industries, Tata Power, and the Adani Group have already announced billions of dollars’ worth of investments in renewable energy projects. BPCL is planning to invest up to US$3.36 billion in building a diversified renewables portfolio including solar, wind, small hydro, and biomass. Adani Green Energy is planning to invest US$20 billion to achieve 45GW of renewable energy capacity by 2030. RWE (German multinational energy company) and Tata Power are likely to collaborate to develop offshore wind projects in India. They are planning to install 30GW of wind energy projects by 2030.

Current and future challenges

Despite the measures taken by various renewable industry stakeholders, India still faces several pressing challenges that it needs to overcome.

The solar energy segment accounts for a majority share (60%) of India’s commitment of 500GW by 2030. With the ongoing momentum, India needs to install 25GW of solar capacity each year. In the first half of 2021, India could only add 6GW of renewable energy capacity, indicating a slowdown in the rate of energy addition. Besides the supply chain disruptions caused by the pandemic, another reason for the slowdown could be the high component prices.

India’s solar industry relies excessively on imports of solar panels, modules, and other parts. Before the pandemic, in 2019-2020, India imported US$2.5 billion worth of solar wafers, cells, modules, and inverters. These components have become 20-25% more expensive since the pandemic. To keep the clean energy market economically viable, the Indian government needs to increase the domestic production of solar equipment.

Another issue is the fact that power distribution companies in some states of India do not encourage solar net-metering because of the fear of losing business and becoming financially unstable. Thus, it is imperative for the government to introduce a uniform, consumer and investor-friendly policy regarding buying solar electricity equipment and accessories across all states in India.

Moreover, some solar ground-mounted projects have encountered difficulty because of the opposition from local communities and environmentalists for their negative impact on the local environment. According to energy pundits, rooftop solar installments are more eco-friendly and are able to create substantial employment opportunities. Consequently, increasing the current target for rooftop installations from 40% to 60% is considered to be a viable proposition for the near future.

Wind energy market also faces challenges due to lack of developed port infrastructure, higher costs of installing turbines in the sea, and delays in starting projects due to the pandemic. As a result, India’s first offshore wind energy project in Gujarat is yet to take off after four years of tender announcements by the government to invite companies to set up the project.

Some of the other challenges of wind power generation in India are additional costs including investments needed in transmission assets to evacuate additional power, issues related to ownership of wind plants by multiple owners, low Power Purchase Agreement (PPA) bound tariffs on existing assets, as well as lack of incentives to start new wind power projects.

EOS Perspective

As a large developing economy, India’s clean energy targets and ambitions are not just transformational for the country but the entire planet. The energy targets set by India are formidable, but the transition to clean energy is already happening; however, not without challenges.

With government support and aid, the Indian clean energy sector is likely to overcome some of those challenges. For instance, to reduce dependence on expensive imports, the government started taking measures to boost domestic production of solar modules through its Production Linked Incentive (PLI) scheme. Moreover, in 2017, the government increased taxes on solar panels and modules and hiked the basic customs duty on imports of solar and wind energy equipment to encourage domestic production of this equipment. In the budget for FY 2022, the government injected US$133 million into the Solar Energy Corporation of India and US$200 million into Indian Renewable Energy Development Agency. The capital will be used by these entities for running various central government-sponsored incentive programs to attract foreign and domestic companies to invest in this sector. In fact, foreign investors/companies already see potential in India’s clean energy sector, which led to FDI worth US$11.21 billion between April 2000 and December 2021.

India has immense clean energy potential, which has not been fully exploited yet. The shift to renewable energy presents a huge economic opportunity for India. The clean energy sector in the country has the potential to act as a catalyst for economic growth by creating significant job opportunities. According to a January 2022 report by the Natural Resource Defense Council (NRDC), India can generate roughly 3.4 million short and long-term jobs by installing 238GW of solar and 101GW of wind capacity to accomplish the 2030 goal.

In order for the clean energy sector to meet the energy targets and flourish in the future, it will continue to require government support and brisk actions to overcome the challenges.

by EOS Intelligence EOS Intelligence No Comments

Commentary: Europe’s Energy Woes – The Way Forward

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Europe is struggling to build up energy supply ahead of anticipated growth in demand due to economic rebound after pandemic outbreak and the winter months. Considering the knock-on effect of the energy crisis on industrial growth and consumer confidence, the prime focus for Europe is not only to respond to the mounting energy issues in the short term, but to also establish energy sustainability and security for the future.

In October 2021, the European Commission published an advisory for the member states to take some immediate steps to ease the effect of the energy crisis. Governments were urged to extend direct financial support to the most vulnerable households and businesses. Other recommended ways of intervention included targeted tax reductions, temporary deferral of utilities bill payments, and capping of energy prices. About 20 member states indicated that they would implement the suggestions outlined by the European Commission at a national level. While these measures may aid the most vulnerable user segment, there is not much that can be done to safeguard the wider population from the energy price shocks.

Energy security and sustainability is the key

While a magical quick-fix for Europe’s energy crisis does not seem to exist, the ongoing scenario has exposed the region’s vulnerabilities and serves as a wake-up call to move towards energy security and self-sufficiency.

Diversify energy mix

In general, petroleum products and natural gas contribute significantly to Europe’s energy mix, respectively accounting for about 35% and 22% of the total energy consumed in the EU. The remaining energy needs are fulfilled by renewable sources (~15%), nuclear (~13%), and solid fossil fuels (~12%).

The high dependence on fossil fuels is one of the main reasons behind Europe’s ongoing energy crisis. In order to mitigate this dependency, Europe has made concerted effort in the development of renewable energy production capabilities. In 2018, the European Commission set a target to achieve 32% of the energy mix from renewables by 2030, but in July 2021, the target was increased to 40%, clearly indicating the region’s inclination towards renewables.

Expediting renewable energy projects could help Europe to get closer to energy self-sufficiency, although the intermittency issue must also be accounted for. This is where nuclear energy can play a critical role.

After Fukushima disaster in 2011, many countries in Europe pledged to phase-out nuclear energy production. France, Germany, Spain, and Belgium planned to shut down 32 nuclear reactors with a cumulative production capacity of 31.9 gigawatts by 2035. However, in the wake of the current crisis, there is a renewed interest in nuclear power. In October 2021, nine EU countries (Czechia, Bulgaria, Croatia, Finland, Hungary, Poland, Romania, Slovakia, and Slovenia) released a joint statement asserting the expansion of nuclear energy production to achieve energy self-sufficiency. France, which generates about three-fourth of its electricity through nuclear plants, is further increasing investment in nuclear energy. In October 2021, the French government pledged an investment of EUR 1 billion (~US$1.2 billion) in nuclear power over the period of 10 years.

Look beyond Russia

More than 60% of EU’s energy needs were met by imports in 2019. Russia is the major partner for energy supply – in 2019, it accounted for 27% of crude oil imports, 41% of natural gas imports, and 47% of solid fossil fuels imports. While Europe is accelerating the development of renewable energy production, fossil fuels still remain an important source of energy for the region. In the face of escalating political differences with Russia, there is a need to reduce energy reliance on this country and to build long-term partnerships with other countries to ensure a steady supply.

EU has many options to explore, especially in natural gas imports. One of them is natural gas reserves in Central Asia. The supply link is already established as Azerbaijan started exporting natural gas to Europe via Trans-Adriatic Pipeline (TAP), operational since December 31, 2020. In the first nine months, Azerbaijan exported 3.9 billion cubic meters of gas to Italy, 501.7 million cubic meters to Greece, and 166 million cubic meters to Bulgaria. Trans-Caspian Pipeline (TCP) is a proposed undersea pipeline to transport gas from Turkmenistan to Azerbaijan. This pipeline can connect Europe with Turkmenistan (the country with the world’s fourth-largest natural gas reserves) via Azerbaijan. As a result, Europe has heightened its interest in the development of this pipeline.

Eastern Mediterranean gas reserve can also prove to be greatly beneficial for the EU. In January 2020, Greece, Cyprus, and Israel signed a deal to construct a 1,900 km subsea pipeline to transport natural gas from the eastern Mediterranean gas fields to Europe. This pipeline, expected to be completed by 2025, would enable the supply of 10 billion cubic meters of gas per year from Israel and Cyprus to European countries via Greece.

Africa is another continent where the EU should try to strengthen ties for the imports of natural gas. Algeria is an important trade partner for Europe, having supplied 8% of natural gas in 2019. Medgaz pipeline connects Algeria directly to Spain. This pipeline currently has the capacity to transport 8 billion cubic meters of gas per year, and the ongoing expansion work is expected to increase the capacity to 10.7 billion cubic meters per year by the end of 2021. In addition to this, Nigeria is planning the development of a Trans-Sahara pipeline which would enable the transport of natural gas through Nigeria to Algeria. This will potentially open access for Europe to gas reserves in West Africa, via Algeria. Further, as African Continental Free Trade Agreement came in to effect in January 2021, the natural gas trade within countries across Africa received a boost. Consequently, liquefied natural gas projects across Africa, including Mozambique’s 13.1 million tons per annum LNG plant, Senegal’s 10 million tons per annum Greater Tortue Ahmeyim project, and Tanzania’s 10 million tons per annum LNG project, could help Europe to enhance its gas supply.

Business to strive to achieve energy independence

While governments are taking steps to reduce the impact of the energy crisis on end consumers, this might not be enough to save businesses highly reliant on power and energy. Therefore, businesses should take the onus on themselves to achieve energy independence and to take better control of their operations and costs.

Some of the largest European companies have already taken several initiatives in this direction. Swedish retailer IKEA, for instance, has invested extensively in wind and solar power assets across the world, and in 2020, the retailer produced more energy than it consumed.

There has also been growing effort to harness energy from own business operations. In 2020, Thames Water, a UK-based water management company, generated about 150 gigawatt hours of renewable energy through biogas obtained from its own sewage management operations.

However, a lot more needs to be done to change the situation. Companies not having any means to produce energy on their own premises should consider investing in and partnering with renewable energy projects, thereby boosting overall renewable energy production capacity.

Energy crisis is likely to have repercussions on all types of businesses in every industry. Larger entities with adequate financial resources could use several hedging strategies to offset the effect of fluctuating energy prices or energy supply shortage, but small and medium enterprises might not be able to whither the storm.

Economist Daniel Lacalle Fernández indicated that energy represents about a third of operating costs for small and medium enterprises in Europe, and as a result, the ongoing energy crisis can trigger the collapse of up to 25% of small and medium enterprises in the region. Small and medium enterprises need to actively participate in government-supported community energy initiatives, which allow small companies, public establishments, and residents to invest collectively in distributed renewable energy projects. By early 2021, this initiative gained wide acceptance in Germany with 1,750 projects, followed by Denmark and the Netherlands with 700 and 500 projects, respectively.

EOS Perspective

Europe must continue to chase after its green energy goals while developing alternative low-carbon sources to address renewables’ intermittency issue. This would help the region to achieve energy independence and security in the long term. In the end, the transition towards green energy should be viable and should not come at a significant cost to the end consumers.

On the other hand, immediate measures proposed so far do not seem adequate to contain the ongoing energy meltdown. Further, energy turmoil is likely to continue through the winter, and, in the worst-case scenario, it might result in blackouts across Europe. If the issue of supply shortages remains difficult to resolve in the short term, a planned reduction in consumption could be the way forward.

In view of this, Europe would need to actively encourage energy conservation among the residential as well as industrial sectors. Bruegel, a Brussels-based policy research think tank, suggested that the European governments could either force households to turn down their thermostats by one degree during the winter to reduce energy consumption while not compromising much on comfort, or provide financial incentives to households who undertake notable energy saving initiatives.

This is perhaps a critical time to start promoting energy conservation among the masses through behavioral campaigns. Like businesses, it is necessary to enhance consumers’ participation in the energy market and they should be encouraged to generate their own electricity or join energy communities. The need of the hour is to harness as well as conserve energy in any way possible. Because, till the time Europe achieves self-sufficiency or drastically strengthens the supply chain, the energy crunch is here to stay.

by EOS Intelligence EOS Intelligence No Comments

Hydrogen: Fuel of the Future for Shipping?

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Just like many other carbon-emitting sectors, the shipping industry is also working to reduce its contribution to greenhouse gases and get closer to carbon neutrality. For this, the sector is pinning its hopes on hydrogen-based fuel. Being one of the most polluting industries in the world, the shipping sector is also one of the most difficult ones to introduce such a profound change. This is owing to the massive size of commercial vessels, long distances, hydrogen storage issues, and commercial costs. Although small-level adoption of hydrogen fuel has already begun, it remains unknown whether it will be functional in large commercial vessels as well.

As per the International Maritime Organization (IMO), the shipping industry was responsible for 2.9% of the total anthropogenic emissions in 2018, up by almost 10% between 2012 and 2018. It is expected that the sector’s contribution towards global greenhouse emissions will significantly increase by 2050 if proper efforts are not made towards decarbonization. To counter the situation, the IMO has set a global target to cut annual shipping emissions by 50% by 2050 (based on 2008 levels). In response to this, shipping corporations and other stakeholders across the shipping industry have been exploring different ways to reduce their impact on the environment. One of the most critical aspects in this is replacing fossil fuel with a greener fuel. This is where hydrogen fuel might find its place.

As we discussed in one of our previous articles (China Accelerates on the Fuel Cell Technology Front), hydrogen fuel is considered to be the fuel of the future for the transportation sector, as it produces zero emissions. Moreover, with regards to shipping, it is one of the only conceivable options at the moment.

That being said, using hydrogen fuel alone cannot solve the issue of reducing the sector’s carbon footprint, as it depends on how the hydrogen fuel is produced. Currently most of the hydrogen that is produced (and used in other industries), is produced using fossil fuels, while only a small portion of it is produced using renewable energy. Hydrogen produced through renewable energy is much more expensive, which keeps the production levels low. If ships run on hydrogen fuel produced using mainly fossil fuels, while the fuel itself would produce zero emissions, the whole process will not carbon efficient. However, with the shipping industry making real efforts to consider a change in fuel, it is expected that production of hydrogen through renewable sources will ramp up, which in turn may reduce costs (to some extent) owing to economies of scale.

Hydrogen Fuel of the Future for Shipping by EOS Intelligence

 

At the moment, several leading players have pledged to develop new or modify existing vessels so that they can run on hydrogen fuel, however, these are currently either prototypes or short-distance small vessels. Antwerp-based Compagnie Maritime Belge (CMB) Group, which is one of the leading maritime groups in the world, commissioned the world’s first hydrogen-powered ferry in 2017, named Hydroville. It is currently operational between Kruibeke and Antwerp. It runs on a hybrid engine, with options of both hydrogen and diesel. CMB, which has been a pioneer and advocator of clean fuel for the shipping industry, also partnered with Japanese shipbuilder, Tsuneishi Group, to develop and build Japan’s first hydrogen-powered ferry (in 2019) and tugboat (in 2021). Moreover, it launched a joint venture with the Japanese firm to develop hydrogen-based internal combustion engine (H2ICE) technology for Japan’s industrial and marine markets. In another move to find a strong foothold with the shipping fuel of the future, CMB Group acquired UK-based Revolve Technologies Limited (RTL) in 2019, which specializes in engineering, developing, designing, and testing hydrogen combustion engines for automotive and marine engines. Moreover, CMB is building its own maritime refueling station for hydrogen automobiles and ships at the Antwerp port, which will produce its own hydrogen through electrolysis.

Similarly, in November 2019, Norwegian ship building and design company, Ulstein, developed a hydrogen-fueled vessel, called ULSTEIN SX190. The vessel is the company’s first hydrogen-powered offshore vessel providing clean shipping operations to reduce the carbon footprint of offshore projects. The vessel, which uses fuel-cell technology, can operate for four days in emission-free mode at the moment. However, with constant development and investment in the hydrogen fuel space, it is expected that it will be able to run emission-free for up to two weeks, post which it will have to fall back on its diesel engine. Ulstein also launched another hydrogen-powered vessel in October 2020, called ULSTEIN J102, which can operate at zero-emission mode for 75% of the time. Since Ulstein used readily available technology in developing the J102, the additional cost of adding the hydrogen-powered mode was limited to less than 5% of its total CAPEX. This vessel design is expected to cater to the offshore wind industry.

A leading oil corporation, Shell, also announced that it is looking at hydrogen as the key fuel for its fleet of tanker ships in the coming future as the company aims to become carbon neutral by 2050. In April 2021, the company commenced trials for the use of hydrogen fuel cells for its ships in Singapore. The trial encompasses the development and installation of a fuel cell unit on an existing roll-on/roll-off vessel that transports wheeled cargo such as vehicles between Singapore and Shell’s manufacturing site in Pulau Bukom. Shell has chartered the vessel, which is owned by Penguin International Ltd, however, Shell will provide the hydrogen fuel.

In addition to this, several other companies across Europe and Japan are undertaking feasibility studies to understand and assess the use of hydrogen fuel to power ferries and also the production of hydrogen fuel from renewable sources for the same purpose. For instance, in 2020, Finland-based power company, Flexens conducted a feasibility study to generate green hydrogen through wind farms in order to fuel ferries in the Aland group of islands. Similarly, Japan-based companies, Kansai Electric Power, Iwatani, Namura Shipbuilding, the Development Bank of Japan, and Tokyo University of Marine Science and Technology, are collaborating on a feasibility study to develop and operate a 100-foot long ferry with hydrogen fuel. The ferry is expected to be in operation by 2025.

Apart from small ferries, hydrogen fuel is also making a slight headway with commercial vessels. In April 2020, a global electronic manufacturer, ABB, signed an MoU with Hydrogène de France, a French hydrogen technologies specialist to manufacture megawatt-scale hydrogen fuel cells that can be used to power long-haul, ocean-going vessels. While most of the currently operational hydrogen technology is used in small-scale and short-distance vessels, this partnership, which builds on an already existing 2018 collaboration between ABB and Ballard Power Systems, is expected to bring this technology for larger vessels (which in turn are responsible for most of the carbon emissions).

In April 2021, French inland ship owner, Compagnie Fluviale de Transport (CFT), in partnership with the Flagships Project (which is a consortium of 12 European shipping players), launched the first hydrogen-powered commercial cargo vessel, which will ply the Sevine river in Paris. The vessel is scheduled for delivery in September 2021. In 2018, the Flagships project was awarded EUR 5 million of funding from the EU’s Research and Innovation Program Horizon 2020.

While several companies are bullish about hydrogen fuel being the answer to the industry’s carbon woes, others are skeptical to what extent hydrogen fuel can replace the current traditional fuel, especially given the challenges with regards to large commercial vessels. For instance, Maersk, global player in the shipping industry, does not feel that hydrogen fuel is suitable for container ships as the fuel takes up a lot of physical space in comparison with traditional bunker oil.

As per estimates, hydrogen fuel takes up almost eight times as much space as gas oil would take to power the same distance. The more space is occupied by the fuel, the less space is left for carrying containers, and this negatively impacts its container-carrying capacity and revenue per trip/ship. Moreover, container vessels travel extremely long distances across oceans, and carrying that much hydrogen fuel in either liquid or compressed form at this moment is not physically and commercially viable. To be stored as a liquid, hydrogen needs to be frozen using cryogenic temperatures of -253˚C, which makes it expensive to store. Currently about 80-85% of the sector’s emissions come from large commercial vessels such as cargo ships, container ships, etc., and considering that hydrogen can play only a limited role in these vessels, its adaptability and effectiveness as a tool to reduce carbon emissions may be restricted.

However, that being said, the industry is open to alternative fuels and one such fuel is ammonia, which in turn is also produced from hydrogen. Thus using green hydrogen to create green ammonia is another option to explore. Ammonia can be used either as a combustion fuel or in a fuel cell. Moreover, it is much easier and cheaper to store since it does not need cryogenic temperatures and takes up about 50% less space compared with hydrogen fuel, since it is much denser. Thus ammonia seems to fit the needs of commercial vessels in a better manner, however, at present most of ammonia being produced (mainly for the fertilizer industry) uses hydrogen obtained from fossil fuels. Moreover, it further uses fossil fuels to convert hydrogen into ammonia. Thus, to create green ammonia, additional renewable energy will be required, which adds to further costs.

EOS Perspective

Given the industry’s vision to reduce its carbon footprint and the ongoing efforts, investments, and feasibility studies, it is safe to say that hydrogen will definitely be the fuel of the future for the shipping industry, whether used directly or processed further into ammonia. However, how soon the industry can adapt to it is yet to be seen.

Moreover, the industry cannot bear the cost of the transition alone. To transition to a greener future, the shipping industry needs support in terms of on-ground infrastructure and investments in production of green hydrogen. Till the time production of green hydrogen reaches economies of scale, it will definitely be much more expensive compared with traditional fuel. This in turn, will make shipping expensive, which would possibly impact all industries that use this service. While the shipping industry may absorb a bit of the high costs during the transition phase, some of it will be passed down to the customers, which is likely to be met with resistance and in turn will impact the overall transition.

On the other hand, green hydrogen projects are expensive to set up and require significant investment and gestation period. Hydrogen companies do not want to rush into making this investment, unless they see global acceptability from the shipping sector. Thus while the transition to a more carbon-neutral fuel is inevitable, it may not be a short-term transition. Unless governments and regulatory bodies come up with strict regulations or a form of a carbon tax on the sector to expedite the transition, the change is likely to be slow and phased, especially when it comes to large commercial vessels.

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