How New Climate Technologies Fit Together
There are multitudes of categories of new climate technology to decarbonize electricity, heavy industry, transportation, and heating. But how are they connected and what is the big picture?
Summary: The scaling of solar and wind generation enabled investments in Lithium technology and Green Hydrogen. Lithium is enabling investments into Battery Energy Storage and EVs. Green Hydrogen will enable investments into decarbonizing heavy industry, freight and heating.
Solar and Wind Energy: Setting the Stage
Solar and wind have grown tremendously in the last decade, mainly due to decreasing prices of PV systems and turbines. Solar and onshore wind installation costs have decreased 80% and 45%, respectively, over the past 10 years and are expected to drop further in the next 10 years.[i]
Construction and operations costs for solar and wind plants have dropped so much that the Levelized Cost of Energy (a decision metric akin to the Net Present Value) has surpassed parity with coal. It is now cheaper to build and operate a new 1,000 MW PV solar plant than it is to merely operate existing 1,000 MW coal plant.[ii] Unfortunately, solar and wind farms need 100x and 500x more space, respectively, than a coal plant to produce the same amount of electricity [iii] and investments in transmission would be required as renewables plants are generally further from cities.
Batteries and Hydrogen: The Enablers
The growth of solar and wind has enabled innovations in Lithium Batteries and Green Hydrogen.
1. Lithium Batteries: Lithium batteries can power devices, automobiles and large facilities. Costs have dropped by 16% per year due to improvements in underlying technology and manufacturing economies of scale.[iv] Cost curves have shown to be the highest determinant of economic viability because they determine salability of generated electricity to the grid. More importantly, demand for batteries has been increasing due to their ability to smoothen load curves.
2. Green Hydrogen: Hydrogen is an energy carrier and can complement or blend with natural gas. Energy produced from wind and solar can power electrolyzers that harvest hydrogen molecules from H2O. Hydrogen can be compressed then stored or transported across the globe using the existing fossil fuel infrastructure (railways, pipelines, and trucks). Electrolysis is a mature technology, but still costly unless advances can reduce the cost of manufacturing large-scale electrolyzers.[v] Another key challenge is that project proponents need to retrofit existing fossil fuel infrastructure to accept hydrogen since the latter’s atoms are smaller than the atoms of fossil fuels.
The Next Generation: Tech for the new decade
Advances in Lithium Batteries and Green Hydrogen are enabling nextgen investments.
1A. Lithium tech is enabling Grid-scale Battery Energy Storage Systems: Power generated from solar and wind face intermittency issues –the sun isn’t always shining, and the wind isn’t always blowing. Intermittency can be handled by storing energy in large batteries, particularly for the more-predictable solar energy. Though lithium-based storage is the most advanced scalable technology, the key challenge is that these batteries can only handle short-term intermittency, not seasonal intermittency — it is still too expensive to store power during the fall for use in the winter when the sun shines for fewer hours in a day. Lithium’s popularity now has investors looking into other materials that can be utilized for longer durations.
1B. Lithium tech is enabling Electric Vehicles (EV): Increased battery density and lower production cost of lithium batteries have made passenger electric vehicles more affordable. Increased demand from consumers has prompted auto manufacturers to invest in efficiency and increase production volumes — EVs in European roads have more than doubled pre-COVID levels.[vi] Increased policy support and further rollouts of charging infrastructure are estimated to increase consumer adoption, particularly if the infrastructure offers quicker charging and greater geographical reach.
Decarbonizing electricity generation complimented with increased electrification together is one solution. But how else can we get closer to net zero? Let’s take the example of Costa Rica — a sustainability leader in the developing world — where 99% of electricity is clean, yet half of the energy consumed is from oil. Countries with high clean energy penetration can also work to reduce carbon emitted in industrial processes, freight mobility, and heating.
2A. Green Hydrogen will enable Decarbonization of Heavy Industries: The steel, cement, chemicals manufacturing industries produce 13% of global CO2e emissions.[vii] Roughly 40% of embodied carbon in steel and cement are produced in power generated to run facilities. While 60% is produced during the chemical processes themselves. Hydrogen energy can be blended into natural gas to mitigate emissions or be a fuel on its own. Additionally, the remaining embodied CO2 of steel can be reduced by using hydrogen — to replace coal — in removing the O2 from iron ore. The key challenges are the industry players’ low risk tolerance and the industry’s low technology readiness. Governments can provide subsidies or green procurement standards to promote purchase of low carbon steel, cement and chemicals.
2B. Green Hydrogen will enable Low-carbon Freight Mobility: While light vehicles are more cost-effectively powered by lithium batteries, heavier vehicles need combustion to generate the necessary force for movement. Hydrogen fuel cells are more appropriate for heavy transport because of the space requirement to store the fuel onboard and its power output.
2C. Green Hydrogen will enable Low-carbon Building Heating: Perhaps the closest to technological readiness as a use case for green hydrogen is in building heating. Similar to utilizing green hydrogen to blend with or replace natural gas power generation, green hydrogen can be used in the infrastructure that allows building heating and cooking.
Solar and wind spurred investments into new technology that can allow the world to decarbonize electricity (27% of GHG), heavy industry (31%), transportation (16%) and heating (7%).[viii] While many are still under development, the amount of investment into the space will determine the rate at which we can rollout low-carbon solutions. As some industry players point out, Climatetech is the largest investment opportunity of this decade. Stay tuned for future deep-dives into the investibility of specific technologies.
[i] Ardib, Door, Seba (2021, August). RethinkX. Rethink Climate Change. https://www.rethinkx.com/climate-implications
[ii] Lazard (2021). Levelized Cost Of Energy, Levelized Cost Of Storage, and Levelized Cost Of Hydrogen. https://www.lazard.com/perspective/levelized-cost-of-energy-levelized-cost-of-storage-and-levelized-cost-of-hydrogen/
[iii] Gates B. (2021). How to Avoid a Climate Disaster
[iv] Ardib, Door, Seba (2021, August). RethinkX. Rethink Climate Change. https://www.rethinkx.com/climate-implications
[v] Ford N. (2021, June 17). Reuters Events “Rapid scaling of electrolyzers accelerates wind hydrogen savings.” https://www.reutersevents.com/renewables/wind/rapid-scaling-electrolyzers-accelerates-wind-hydrogen-savings.
[vi] Wyburd, et all. (2021, June 25). BofA Securities. Pan-European Utilities Themes From Pump to Plug: EV Adoption Takes Off — Can Charging Keep Pace?
[vii] McKinsey (2018, July 13). Decarbonization of industrial sectors: the next frontier: https://www.mckinsey.com/business-functions/sustainability/our-insights/how-industry-can-move-toward-a-low-carbon-future
[viii] Gates B. (2021). How to Avoid a Climate Disaster
Disclaimer: This post reflects my personal views and not those of the International Finance Corporation, World Bank, or any other member of the World Bank Group
