• Pathways to net zero targets. We attended Rystad Energy’s APAC virtual forum “Business opportunities in Energy Transition” yesterday, presented by its CEO and founder Jarand Rystad, consulting partners Jo Husebye and Jon Fredrik Muller as well as its head of global renewables, Gero Farruggio. The forum explored the pathways to achieve net-zero emission targets via carbon capture & storage (CCS), hydrogen (H2) and renewable energy (RE).

CCS is the process of capturing, transporting and depositing waste carbon dioxide (CO2) to a storage site to prevent re-entry into the atmosphere. While some decarbonization technologies such as renewable power generation and electric vehicles are on the verge of becoming self-supporting financially, CCS and hydrogen have yet to prove their competitiveness in a carbonfree energy system at this stage against the backdrop of large-scale grid battery costs falling by 80% over the past 8 years.

• Net zero dynamics. The evolution of CCS and hydrogen is being impacted by: 1) a high penetration of grid batteries removing full load hours from green hydrogen while shifting the volume of expensive green H2 to cheaper blue hydrogen; 2) lower cost batteries eroding the revenue base of traditional power generation; 3) imposition of carbon taxes which could drive CCS applications for thermal power plants and reduce the intermittency problem of renewable generation, thereby decreasing the need for batteries and green H2’s competitive edge while raising the competitiveness of blue hydrogen; and 4) battery supply constraints and a flattening of the battery cost curve that could limit integration and allow the development of alternative technologies.

• CCS requires higher carbon prices and government support. CCS has the theoretical potential to address 62% of global emissions of 40 gigatonnes (Gt) annually vs. hydrogen’s 51%. However, based on Rystad’s projection, the current portfolio of operational CCS projects will only increase the carbon capture potential from 40 megatonnes (Mt) per annum currently to 110 Mt annually by the end of 2026. This is far below the IEA’s sustainable development scenario which projects 5.6 Gt captured in 2050, implying an unlikely 50x increase from the current project pipeline. Hence, higher carbon prices are needed to support most applications of CCS, excluding some European countries and US states which currently utilise a combination of emissions trading systems, carbon tax, carbon credits and direct subsidy schemes.

Additionally, the slow development in CCS-supporting policy has also enabled renewable energy solutions such as solar and wind to rapidly expand and secure a larger share of the decarbonized energy system. However, the cost gap between emissions and capturing, transporting and storing is closing depending on location, industry and regulatory regime. CCS offers a broad range of applications in CO2 reduction from fossil fuel combustion in power and industries such as cement and steel, together with direct air capture and bioenergy. Hence, Rystad views CCS as a necessary component for net zero solution with a potential market value of US$50-100bil per GT CO2 captured.

• Reducing hydrogen costs. Ongoing reductions in renewable energy costs, rising capacity and government incentives on carbon pricing mechanism are driving the economics of green hydrogen projects. Large-scale H2 consumption could subsequently accelerate learning curves and expand end-use applications in the refineries, steel, fertilizer and plastics sectors together with electricity grid balancing functions. While green H2 has the highest decarbonizing potential, blue hydrogen can utilise existing production pathways by pairing with CCS mechanisms to reach near-zero goals. Hence, Rystad projects hydrogen demand to grow by 5x to 335mil tonnes in 2050, of which half will stem from Asia.

• Solar PV and offshore wind to drive RE this year. As highlighted in our update last week, global RE installations in solar, wind and storage facilities are set to rise by 40% YoY to another record 190GW globally this year as solar PV utility power purchase tariffs decrease 20% YoY to US$51/MWh while wind prices remain at US$41/MWh. Additionally, the RE growth is projected to be driven by solar photovoltaic (PV) solutions, followed by offshore wind installations over the next 10 years.

• Rising local interest in RE. The shift towards RE in Malaysia is already in progress over the past 3 years with Petronas’ investment in AmPlus, which operates over 600MW of solar capacity in India and Southeast Asia. In its “great reset”, the national oil company is looking into the possibility of deploying more low-carbon solutions in the long term, with a project on carbon capture & storage, bio-based products and hydrogen on the horizon.

Source: AmInvest Research - 25 Mar 2021