May 2021 Cleantech Roundup: How Oil and Gas Companies Will Tackle Climate | Electric Trucks = Thumbs Up | Building EV Infrastructure | Hiding Carbon Offsets
For the month gone by, we are talking about several seismic developments for oil and gas companies, the much anticipated release of the Ford F-150 Lightning electric vehicle, emerging models to build new charging infrastructure, and a new initiative using carbon markets to offset emissions.
Oil and Gas Majors Receive New Marching Orders
It was a big month for how oil and gas companies approach climate change.
First, in a landmark ruling, Dutch courts ordered Shell to cut emissions 45% by 2030, in order to be consistent with the Paris Climate Accords. Plaintiffs successfully argued that the company endangered their human rights by continuing on an emissions pathway inconsistent with the climate accords, which aim to limit warming to 2.0 degrees celsius. While Shell plans to appeal, this ruling opens the door for many other lawsuits (in some jurisdictions) to essentially force the private sector to conform to the Paris Climate Accords, even if governments themselves haven’t yet made such commitments.
The same day, Exxon lost a proxy battle with an activist hedge fund for at least two of its board seats. Engine Number 1 has pressed Exxon to be more aggressive in dealing with climate change and planning for the future, arguing that it was bad for business if the company did not have a robust plan to reduce emissions (primarily by spending money to develop resources that may not be profitable in a carbon constrained future). While the election of board members more concerned about cutting emissions may not have any immediate impacts, it represented a sea change moment, as some of the institutional fund managers like Blackrock and Vanguard supported the new board members (against the wishes of Exxon management). Blackrock in particular has been vocal about sustainability for some time now, although has only recently started to vote more proactively in this space. The same week, Chevron’s shareholders voted for the company to cut its scope 3 emissions.
These 3 different oil companies (Shell, Exxon, Chevron) were being pressured by 3 different sets of stakeholders (shareholders, mainstream financial institutions, and the courts), but all 3 are harbingers of an emerging business reality: net zero by 2050 is the new baseline, whether or not institutions have mandated this transition, or whether companies understand how they will get there.
To top the month off, the International Energy Agency (IEA) came out with a very clear report on the implications of reaching net zero emissions by 2050 as well as the interim milestones recommended to pursue that pathway. One of the most newsworthy items from the report is that the IEA recommended that no new oil and gas fields be developed in the future (see Exxon’s disagreement, above) in order to be consistent with the 1.5 degree pathway — one more obstacle that oil and gas companies will have to deal with as they attempt to make the case they both develop new oil and gas resources and have a plan for long term sustainability. Link
Lightning Strikes the Electric Vehicle Market
Ford recently revealed the 2022 F-150 Lightning, the electric version of the best selling truck in the U.S. It went pretty well: the company received more than 70,000 preorders in the first week (for context, about 250,000 EVs were sold in the U.S. in 2020, and 80% of those were Teslas, while Ford sold 787,000 internal combustion F-series trucks in 2020).
Ford avoided talking about climate or emissions, and really focused on how the electric truck has features that make it better than the original (11 electrical plugs, excellent acceleration, a frunk the size of a sedan’s trunk, etc…). It also surprised many observers by pricing it lower than expected, with the base trim under $40,000 before the $7,500 federal tax credit (this will make it by far the cheapest electric truck on sale in 2022, although if you want the top trim you could still spend $90,000 on one).
One segment that will likely be a big buyer of the F-150 Lightning are fleets of work trucks: fleets have higher utilization than passenger vehicles, so the payback on EVs is quicker. Some fleet segments also may benefit from the ability to plug in to the truck (to power lighting, power tools, air compressors, etc…).
Ford also announced a partnership with Sunrun to install charging stations for the F-150 Lightning, as well as a feature that enables the truck to serve as a robust home energy backup system. That should be a partnership that serves both parties well — Ford gets a nationwide installer network (with the know-how to install transfer switches and related power systems equipment), and Sunrun gets access to potential solar+storage customers (customer acquisition for residential solar is expensive, so this should be a real benefit to Sunrun). The home backup piece seems like a niche market to me, but then again I live in a place with very reliable power; if someone currently has a pickup truck and a generator at home, presumably it’s not a big leap to switch to an electric pickup that can power your home in a pinch.
And it’s possible I’m wrong about what the niche is: current battery home solutions can cost more than $10,000; it seems plausible that some people thinking about installing battery backup might just put that money towards a new vehicle instead.
In any case, 2022 will be a furiously interesting year in the electric vehicle space, as automakers release a bunch of models aimed at mass market consumers (namely, crossover SUVs).
Where Do I Plug This Thing In?
As all those electric vehicles come to market, there will naturally be increasing demand for charging infrastructure. While there are a number of existing EV charging solutions companies already trying to scale up and become profitable, there are also new entrants pursuing different models.
While most of the EV charging companies are selling individual stations to corporate customers (like malls and grocery stores), Terawatt Infrastructure is entering the market as more of a project developer, planning to acquire land rights and develop charging infrastructure at logistics hubs and key highway corridors (presumably, also in locations with sufficient distribution system capacity for all the electricity required for such a facility). As I suggested a couple years ago, I think there will be a lot of demand for this type of infrastructure:
“Most EV owners are likely to almost never use charging infrastructure near their home or office, because they typically already have charging available to them and are usually leaving their homes and offices with a good deal of range… The charging stations EV owners will use will be fast chargers located on or near highways, in the midst of long drives — a very different use case.”
The post referenced above was focused on consumer adoption of electric vehicles, but charging for fleets (which are likely to adopt EVs even faster than consumers) is an important consideration as well. Speaking of, Nuvve is developing vehicle to grid (V2G) charging facilities for fleets at a number of U.S. locations, including one in southern Illinois close to the site of a shuttered coal power plant. In order to make the economics of the project favorable (and to make use of the batteries as a grid asset practical), the sites need to be well-equipped to handle very large loads. Imagine a depot with 100 buses or trucks charging at once — each vehicle with a battery of 500 kWh. Even charging slowly (i.e. overnight) might generate a peak demand of several megawatts (roughly comparable to the demand from a football stadium on game day — that’s a lot of demand). By the way, both these companies, as well as the other EV charging infrastructure companies referenced above, stand to benefit significantly from federal investment in charging infrastructure if it comes to pass in an infrastructure bill.
There are interesting things happening in the ecosystem that surrounds charging infrastructure as well — a couple of recently funded startups include ChargerHelp! (which helps service and repair malfunctioning charging stations) and Weavegrid (which develops software to help utilities manage the increased demand coming from new electric vehicles). I think the EV infrastructure-adjacent space is a particularly ripe one for business opportunities.
(A hat tip to Canary Media for sharing news on both Terawatt and Nuvve)
Locking up Carbon Credits and Throwing Away the Key (Leveraging Market Mechanisms)
Former White House Economic Advisor and Director of the Economic Policy Institute at the University of Chicago Michael Greenstone has launched a nonprofit focused on leveraging existing carbon credit markets to help entities offset their emissions. Climate Vault buys emissions credits on existing government-backed markets, but holds on to them (hence the vault) instead of the traditional use case, where a private company uses the credit to cover the emissions it produces. But wait, there’s more! As described by the Wall Street Journal:
“Climate Vault also plans to work with companies that are using technology or natural processes to remove carbon from the atmosphere. This so-called carbon capture is a potential tool in the effort to reduce carbon emissions enough to limit climate change.
If the carbon-removal companies succeed in removing carbon dioxide, Climate Vault will pay them with the carbon permits it has vaulted away. The companies can then sell those permits on the carbon market for cash.”
I think this is a very elegant solution — it gets around the issues of verification and authentication that currently bedevil many offset markets, while putting pressure on the price of the credits (at scale) and also incentivizing real carbon-removal technologies. Not bad for a day’s work. Link (behind WSJ paywall)
Other News
While we talked about Dutch courts ordering Shell to reduce emissions, it was not the only court that was active in May: German courts ruled that the country needs to get more aggressive on its climate strategy. In this case, the plaintiff was a young person who is the heir to a low lying farm that will be destroyed by significant sea level rise. Essentially, the court decided that being less aggressive in addressing climate change was unfair to future generations of Germans. This inter-generational harm argument hasn’t fared quite as well to date in the U.S. Link
Volkswagen announced plans for autonomous microbuses to be on the road in 2025. Time will tell whether the company will actually live up to that plan, but I think it is a product category with enormous potential. As I’ve shared in the past, the minibus/microbus/small shuttle format could achieve significant penetration in fleets because of its utility and flexibility. Depending on the specific model, these minibuses could operate as traditional ride-hailing vehicles, supplement public transit routes, replace corporate campus shuttles and government fleet vehicles, serve as a paratransit solution, and operate as intercity shuttles, depending on the day — and those are just some of the obvious ones.
BNEF projects that EVs will be cheaper to produce than internal combustion engine vehicles by 2027 (including SUVs and vans). One interesting note from this analysis — the report suggests that automakers will only achieve these cost savings by manufacturing EVs based on dedicated electric vehicle platforms (as opposed to offering an electric powertrain option in an existing internal combustion vehicle). This analysis is also not a one-off — UBS thinks EVs will be cheaper in 2025. Tip of the hat to scaled battery manufacturing.
The Biden Administration approved the first large scale offshore wind farm in the United States. The project, located off the coast of Massachusetts will generate 800MW of power (20 times larger than the generation capacity of existing U.S. offshore wind farms). Link
Carbon offset project developer South Pole and Japanese Industrial conglomerate Mitsubishi launched a vehicle for investments in a portfolio of carbon removal technology solutions. This is a nice example of one of the differences between cleantech 1.0 and 2.0 — a variety of unique financing mechanisms that were not available a decade ago. Link
Springfield, Illinois is on track to become home to the largest individual carbon capture project in the world with an initiative between the city’s local utility and the University of Illinois, supported by the U.S. Department of Energy. Link
In Europe, a new project supported by Shell, Exxon, the government of the Netherlands, Air Products, and Air Liquide is projected to be one of the largest carbon sequestration projects in the world, piping CO2 to be stored in empty gas fields in the north sea. Link
Electric bus and truck manufacturer Lion is setting up shop in Joliet, IL, with what is expected to be the largest electric truck manufacturing facility in the country. Link
Mainspring Energy launched its flexible fuel generator and announced a $150 million contract with NextEra Energy Resources. The ability to run on natural gas today but also transition to biogas or hydrogen in the future may prove to be a very attractive value proposition. Link
The New York Times examines the mania taking place with electric vehicle SPACs. Link
The U.S. is weighing sanctions on Chinese solar over concerns we discussed last month surrounding the use of forced labor. Link
There’s a new space race you may not have heard of: Amazon, SpaceX, and OneWeb are all in the process of launching constellations of tiny satellites to set up low-latency satellite internet networks. My impression is that the business focus is to provide high-quality internet service to the many areas that don’t have broadband infrastructure in place (rural or less developed areas, but also maritime and aviation applications), although it may end up having positive externalities for land-based mobility, especially if teleoperation of vehicles ends up being a bridge step to autonomous vehicles (teleoperations is a challenge over 4G today because of latency and connectivity issues). Link
