Chevron Launches $300m Fund to Focus on Low-Carbon Technology

Chevron Corp on Thursday said it had launched a $300 million fund focused on low-carbon technology, as traditional global oil and gas firms attempt to invest more in green energy and tackle climate change.
Major energy firms have set targets to reduce greenhouse gas emissions or are exploring investments in renewable energy and green technology amid rising pressure from investors and activists.
Earlier this month, top U.S. oil producer Exxon Mobil Corp unveiled a carbon-removal technology venture that would directly compete with Occidental Petroleum Corp’s efforts to develop the largest ever facility to pull carbon dioxide out of the atmosphere.
Chevron Technology Ventures, the venture capital division of the company, launched the first Future Energy Fund in 2018 and has invested in more than 10 companies in the field that focus on carbon capture and energy storage.
Last month, Chevron invested in Blue Planet Systems Corp, a startup commercializing a technology that makes a substitute for limestone in concrete and building materials from carbon dioxide.
The oil major in October also formed a joint venture to market dairy biomethane, a renewable natural gas made of methane emissions from cattle burps as part of its push to reduce emissions.

China’s Emissions of Ozone-Harming Gas Are Declining, Studies Find

Emissions from China of a banned gas that harms Earth’s ozone layer have sharply declined after increasing for several years, two teams of scientists said Wednesday, a sign that the Beijing government had made good on vows to crack down on illegal production of the industrial chemical.
The findings ease concerns that increased emissions of the gas, CFC-11, would slow progress in the decades-long environmental struggle to repair the ozone layer, which filters ultraviolet radiation from the sun that can cause skin cancer and damage crops.
“We see a huge decline both in global emission rates and what’s coming from Eastern China,” said Stephen A. Montzka, a research chemist with the National Oceanic and Atmospheric Administration and the lead author of one of the studies. Work by Dr. Montzka and others three years ago first revealed the illegal emissions.
“It looks like there’s been a substantial response, potentially as a result of us raising a flag and saying, ‘Hey, something’s not happening as it should,’” Dr. Montzka said.
Matthew Rigby, an atmospheric chemist at the University of Bristol in England and an author of the second study, said that if emissions had not declined, “we could be seeing a delay in ozone recovery of years.” As of now, full recovery is still expected by the middle of the century.
Chinese government officials did not immediately respond to requests for comment.
Chemical traders in Shandong, a heavily industrialized province in Eastern China where CFC-11 was widely used for making insulating foams, said trade in the banned gas had largely dried up. “It hasn’t disappeared entirely, but it’s much scarcer than before,” Gao Shang, a chemical merchant in Shandong, said in a telephone interview.
CFC-11 was outlawed a decade ago under the Montreal Protocol, the treaty established in the 1980s, when research revealed its effects on atmospheric ozone, along with the effects of similar widely used chemicals.
The revelation in a 2018 study of rogue emissions from China that began five years before was a shock to scientists, policymakers, environmentalists and others who monitor the protocol, which is largely regarded as the most effective environmental treaty in history.
Meg Seki, acting executive secretary of the Ozone Secretariat, the United Nations body that administers the treaty, said the organization was pleased to see that emissions had dropped and that the effect on the ozone layer was likely to be limited. “It is important, however, to prevent such unexpected emissions in the future through continued, high-standard monitoring by the scientific community,” she said in a statement.
The 2018 research did not pinpoint the source of most of the emissions beyond locating them as coming from East Asia. But investigations that year by the Environmental Investigation Agency, an independent advocacy group based in Washington, D.C., and by The New York Times found evidence that the gas was still being produced and used in Eastern China, particularly Shandong.
An atmospheric analysis led by Dr. Rigby in 2019 found that Shandong, as well as a neighboring province, Hebei, were major sources.
When first confronted with the evidence, Chinese environmental authorities hedged and raised doubts about the findings, suggesting that there could be other, unaccounted sources of the chemical or that manufacturers of insulating foam would not use so much CFC-11.
At the same time, China’s Ministry of Ecology and Environmental Protection vowed “zero tolerance” for businesses found illegally making or using CFC-11.
Policy announcements, industry reports and court judgments all indicate that the Chinese government cracked down on the illicit trade, even as it kept denying that there ever was a serious problem. Last year, the government publicized a conviction of a businessman, Qi Erming, as the first case in China of a criminal prosecution for illegally trading in ozone-damaging chemicals.
As well as prosecutions, the government tightened rules and monitoring of the chemical and foam production industries, and promised to create a comprehensive data system to trace the movement of chemicals that could be used to make CFC-11.
There are legal gases that can replace CFC-11 in foam production. Mr. Gao, the chemical merchant in Shandong, said his company specializes in one of them.
The availability of substitutes may have helped China’s efforts to reduce CFC-11 emissions. Zhu Xiuli, a sales manager at another company in Shandong that sells foaming agents, said that customers previously had asked whether they had CFC-11. But “in the past couple of years there have been fewer and fewer inquiries,” she said.
CFC-11 has also been used in refrigeration equipment. As the gear ages, and as foams containing CFC-11 degrade over time, the gas will slowly be released. Although the size of this “bank” of CFC-11 is not precisely known, it is accounted for by the protocol, and is one reason full ozone recovery will take decades.
The new papers, which were published in the journal Nature, also do not account for the entire global increase in CFC-11 emissions that had occurred since 2013. The gas may still be being produced or used in other countries or in other parts of China, but the researchers said there are not enough air-sampling stations worldwide to know for certain.
“This is a useful lesson that we really need to expand our monitoring capabilities,” Dr. Rigby said.
Avipsa Mahapatra, a climate campaign lead for the Environmental Investigation Agency, said of the new findings that it was “exciting to see atmospheric studies confirming that on-the-ground intelligence and subsequent enforcement have culminated in a spectacular climate win.” But she said her group had indications that enforcement may have been more successful in some parts of China than others. “This is not the time for complacency,” she said.
Susan Solomon, an atmospheric chemist at the Massachusetts Institute of Technology who was not involved in the research, said the work was “a real triumph for science.”
But the problem is not over, Dr. Solomon said, because in addition to CFC-11, there are other, similar chemicals being emitted. “There’s a whole zoo of molecules,” she said, and although the amounts are smaller, they add up.
They also are potent greenhouse gases, she said, although their contribution to warming is much less than the far more prevalent heat-trapping gases like carbon dioxide and methane. “The chemical industry worldwide is still not monitored closely enough for us to actually be confident in how much greenhouse gases they’re making and how much ozone-depleting gases they are making,” she said.

IEA Debuts Scenario for Net Zero Emissions in 2050

In its World Energy Outlook 2020, released in November 2020, the International Energy Agency (IEA) for the first time added a scenario in which the world’s energy sector would achieve net-zero emissions by 2050, as it underscored the importance of bringing the world’s carbon emissions under control.
Compared to IEA’s base case of a global recovery from Covid-19 by the end of 2021 and maintenance of national emissions goals (but no new goals), the Net Zero Emissions by 2050 (NZE2050) scenario would accelerate energy efficiency measures and installation of solar and photovoltaic power generation. NZE2050 also includes acceleration of energy efficiency programs and equity investments, such as universal substitution of cooking with biomass with propane or electricity.
“Primary energy demand in the NZE2050 falls by 17% between 2019 and 2030, to a level similar to 2006, even though the global economy is twice as large. Electrification, efficiency gains and behaviour changes are central to achieving this. Coal demand falls by almost 60% over this period to a level last seen in the 1970s,” IEA said.
NZE2050 takes the SDS’s modeling of about 26.7 Gigatons (Gt) of CO2 emissions in 2030, and then asks how this can be reduced to 20.1 Gt, which is the midpoint of the Intergovernmental Panel on Climate Change’s estimate of the level of emissions that could enable the world to limit global warming to 1.5oC. This reduction would start the path towards zero net emissions in 2050.
Electrification drives the change. “The rapid reduction of emissions from electricity generation in the NZE2050 is critical because electrification based on low-emission electricity is one of the key mechanisms to reduce emissions in end-use sectors. These emissions reductions therefore occur against the backdrop of expanding electricity demand. Globally, electricity demand grows by around 400 terawatt-hours (TWh) each year on average to 2030, or 1.6% a year. This is equivalent to adding the current electricity demand of India, the fourth-largest global electricity market, to the power mix every three years,” IEA said.
To meet demand, worldwide annual solar PV additions would grow from about 110 GW in 2019 to 500 GW in 2030 and would leave renewables generating about 60% of power in 2030, compared to 27% today. This would enable unprecedent growth in actual renewable power generation, from a record 440 TWh in 2018 to 1,100 TWh per year.
Those changes would drive down CO2 emissions from the power sector by 60% from 2019 through 2030. For context, IEA noted that the only recent example of a country’s power sector reducing emissions at that pace is the UK during the period of 2008 to 2018.
NZE2050 is very ambitious. The investment by the power sector would be immense: $2.2 trillion per year by 2030, with about one-third of that on strengthening and expanding the power grid. For comparison, global power sector investment in 2019 was $760 billion.
“Realising the pace and scale of emissions reductions in the NZE2050 would require a far-reaching set of actions going above and beyond the already ambitious measures in the SDS. A large number of unparalleled changes across all parts of the energy sector would need to be realised simultaneously, at a time when the world is trying to recover from the Covid-19 pandemic,” IEA said.
In addition to shifts in power generation, another key element would be reduction in power demand. This would include 50% of new passenger cars in 2030 being electric, compared to 2.5% today. IEA notes that EV engines are fie times more efficient than internal combustion engines, which will further improve global energy efficiency.
Other measures would include retrofitting buildings to make them more energy efficient; use of electric heat pump systems in 100 million or more residences; mandating the use of ultra-efficient air conditioners; and electrification of one-third of low-temperature heating in industrial settings. IEA also forecasts that “green” hydrogen (hydrogen made through processes that do not generate carbon emissions) and other clean fuels would represent about 25% of the fuels mix.
Comparison to IPCC
IEA noted that the IPCC has created more than 90 forecasts of how the world can reach at least a 50% chance of limiting global warming to 1.5oC by 2100. In many ways, NZE2050 is more aggressive in renewables investments and more conservative about nuclear power and carbon capture than IPCC’s 1.5oC scenario:
• NZE2050 assumes a higher population and higher economic growth (both of which increase energy demand).
• NZE2050 forecasts a 10% lower energy intensity level for electricity generation.
• IPCC’s scenarios generally assume much higher growth in nuclear power than NZE2050’s 36% through 2030.
• NZE2050 generally assumes higher growth in renewables to 60% of global energy supply and lower use of oil and coal. NZE2050 forecasts global oil demand will fall from 98 million barrels per day (MMb/d) in 2019 to 65 MMb/d in 2030.
• IPCC generally assumes greater use of carbon capture and utilization technology.

Global Coal Demand to Rise 2.6% in 2021 after Record Decline This Year

Global demand for coal is set to jump 2.6% next year after a record pandemic-led drop this year, as recovering economic activity will lift use for electricity and industrial output, the International Energy Agency (IEA) said on Friday.

Demand for thermal and metallurgical coal should rise to 7,432 million tonnes in 2021, from 7,243 million tonnes this year, the Paris-based agency said in its Coal 2020 report.

Global coal demand fell by 5% this year as the impact of the pandemic curbed usage, IEA said.

Between 2018 and 2020, global coal demand will have fallen by an unprecedented 7%, or 500 million tonnes, the agency said, due to the pandemic and as countries around the world seek to shift to cleaner sources of energy.
“Before the pandemic, we expected a small rebound in coal demand in 2020, but we have since witnessed the largest drop in coal consumption since the Second World War,” IEA’s director of energy markets and security, Keisuke Sadamori, said in a statement.

While even the United States and Europe could see their first increases in coal consumption in nearly a decade next year, demand in 2021 would still trail 2019 levels and the IEA expected coal use to flatten out by 2025 at around 7.4 billion tonnes.
Renewables would likely surpass coal as the largest global source of electricity by 2025, while natural gas would take coal’s place as the second largest primary energy source after oil, Sadamori said.

“But with coal demand still expected to remain steady or to grow in key Asian economies, there is no sign that coal is going to fade away quickly,” he added, with key Asian markets accounting for 75% of global coal demand.
Coal is a key driver of CO2 emissions and governments around the globe have pledged carbon neutrality in the next decades, including China, which has set its target for before 2060.

The IEA said it would need to review its 2025 coal demand forecast, once the Chinese government releases its economic plans for 2021-2025, due in March.

Japan Greenhouse Gas Emissions Fall in FY2019 for 6th Straight Year

Japan’s greenhouse gas emissions fell in fiscal 2019 for the sixth straight year to reach their lowest level since comparable data became available in fiscal 1990, partly due to the impact of the U.S.-China trade dispute, the Environment Ministry said Tuesday.
The equivalent of 1,213 million tons of carbon dioxide was emitted in the year through March 2020, down 2.7 percent from a year earlier to rewrite the previous low recorded in fiscal 2018, according to preliminary data.
The ministry attributed the drop to declines in production in the steel and other industries affected by the U.S.-China trade war, and expansions of renewable energy.
Under the 2015 Paris Agreement on climate change, Japan aims to slash greenhouse gas emissions by 26 percent in fiscal 2030 compared with fiscal 2013.
With total emissions falling 14 percent in fiscal 2019 from fiscal 2013, the ministry believes the reduction target is attainable if the current pace of decline in greenhouse gas emissions continues.
However, the ministry thinks Japan cannot achieve its longer-term goal of cutting emissions to zero on a net basis by 2050 “unless all sorts of measures are taken.”
There have been calls for steps such as raising the fiscal 2030 emissions-cut target in order to meet the longer-term goal, which is on a par with pledges by other economies including the European Union and Britain.
Prime Minister Yoshihide Suga has pledged to establish a fund of 2 trillion yen ($19.2 billion) for firms developing green technologies as part of efforts to achieve carbon neutrality by 2050 and spur economic growth.
In fiscal 2019, electricity consumption by Japan’s steel and machinery industries fell along with a decline in their exports to China, affected by trade disputes between the world’s two largest economies.
Meanwhile, the share of electricity generated in Japan using renewable sources rose to 18 percent on the back of an increase in solar power.
Nuclear power generation accounted for just 6 percent as many nuclear plants remained offline under stricter safety regulations implemented after the 2011 Fukushima nuclear disaster triggered by a massive earthquake and tsunami.
The ministry said emissions in fiscal 2019 saw almost no impact from the coronavirus outbreak, but called for the need to monitor the situation.

China’s CO2 Emissions will be Higher in 2020 than in 2019

China’s greenhouse gas emissions will increase in 2020 compared to 2019 as they have rebounded after the COVID-19 outbreak, the head of the International Energy Agency said on Wednesday.
“As of today, Chinese emissions this year, 2020, will be higher than in 2019, they rebounded,” Fatih Birol told a digital energy conference organised by Norwegian oil firm Equinor.

Norway’s Equinor Aims for Net Zero Emissions by 2050

Norway’s Equinor aims to become a net zero emitter of greenhouse gases by 2050, including emissions from the production and final consumption of oil and gas, the energy producer’s new chief executive said as he took office on Monday.
Anders Opedal, the first engineer to lead state-controlled Equinor, plans to expand the company’s acquisition of acreage for wind power. He said achieving net zero emissions would require carbon capture and storage (CCS), so-called natural sinks and the use of technologies to produce hydrogen.
“We are ready to further strengthen our climate ambitions, aiming to reach net zero by 2050,” Opedal, who replaces Eldar Saetre, said in a statement.
The new CEO also repeated the company’s long-held ambition of increasing oil and gas output by 3% per year in 2019-2026.
Oil firms have set varying goals for cutting so-called Scope 1, 2 and 3 emissions. Scope 1 emissions come from oil and gas production, Scope 2 covers emission from energy purchased and Scope 3 covers the supply chain and final consumption.
For Scope 1 and 2 greenhouse gases, Equinor’s net zero ambition covers all emissions from its operations, while for Scope 3 greenhouse gases the net zero ambition is limited to the company’s actual stake in any field or operation.
“Equinor is preparing for an expected gradual decline in global demand for oil and gas from around 2030 onwards … In the longer term, Equinor expects to produce less oil and gas than today,” the company said.
“Equinor also assumes that an increasing share of oil and gas will be used for petrochemicals towards 2050,” it added.
Opedal plans to present an updated strategy for the company in June of 2021, Equinor said.

Oil Industry is Waging Price War against Recycled Plastics amid Pandemic Demand Boom

With the coronavirus pandemic fuelling the demand for plastics, from face shields to packaging used for online shopping deliveries, oil industry players are taking advantage and starting a price war between new plastics that they manufacture against recycled plastics. Across the world, statistics are also showing that recyclers are losing the battle too, putting the little hope left of solving the world’s mounting waste crisis and climate emergency into serious doubt.
Speaking to Reuters earlier this month, Steve Wong, CEO of Hong Kong-based Fukutomi Recycling and chairman of the China Scrap Plastics Association said that in the wake of the oil industry’s slashed prices for new petroleum-based plastics, many recyclers are struggling and “don’t see a light at the end of the tunnel”.
Compared to new plastics, recycled plastics – even the most commonly recycled plastic materials such as PET bottles – are now 83% to 93% costlier, according to market research conducted by the Independent Commodity Intelligence Services (ICIS). Prior to the pandemic, prices for new plastics stood at around half compared to their recycled counterparts.
And with the coronavirus and growing electrification of vehicles reducing the global demand for fossil fuels from industrial operations, the oil and gas industry has decided to embark on a plan to shift more of their focus on virgin plastic production. A study by think tank Carbon Tracker recently found that the dirty energy industry is now looking to spend as much as US$400 billion over the next five years on enormous plants to make new raw plastic materials.
The consequences of rising virgin plastic production extends beyond exacerbating the planet’s already dire outlook in terms of plastic pollution and waste crisis. Scientists have previously predicted that we would still be looking at 710 million tonnes of plastic waste left littering oceans and landfills by 2040 even if we significantly reduced plastic use.
It’s also going to mean far more greenhouse gas emissions entering the atmosphere, further driving climate change and putting hopes of keeping temperatures 1.5 degrees celsius above pre-industrial levels as outlined under the Paris agreement into serious doubt.
Based on a study by the beverage industry, the World Economic Forum (WEF) estimates that the manufacturing of just four new plastic bottles alone would release the equivalent carbon emissions of driving a mile in a car.
On top of investing more into virgin plastic manufacturing, dirty energy companies are shirking on their waste-reduction responsibilities too, literally adding more fuel to the fire when it comes to environmental degradation. In a survey conducted by Reuters, only a handful of the 12 biggest oil and chemical corporations in the world have provided any details of how they would invest in tackling waste.
Describing these moves as “quite concerning”, Lisa Beauvilain, the head of sustainability at Impax Asset Management told Reuters that this trend could completely overwhelm developing countries who are often at the forefront of handling the world’s trash, especially since China’s outright ban on plastic waste imports.
“We are literally drowning in plastics,” she said.
Meanwhile, recyclers are finding it hard to survive, with business shrinking by as much as 60% in the U.S. and 50% in parts of Asia-Pacific. Some have also seen their operations halted due to social distancing restrictions, including in the Philippines, Vietnam and India, where 80% of the industry were shut down at the height of the coronavirus pandemic.
“The combination of the impact of COVID-19 and low oil prices is like a double whammy,” explained Rob Kaplan, CEO of Circulate Capital, a Singapore-based investment firm dedicated to financing solutions for ocean pollution. “We’re seeing massive disruption.”
At a crucial juncture in global affairs that has seen a number of right-wing groups stoking unfounded fears about reusable bags and successfully dismantling single-use plastic bans in several U.S. states and cities, what seems like the oil industry’s win against recyclers is a huge blow for anti-plastic efforts.
It is vital now more than ever before that consumers do what they can to adopt reusables as much as possible. A few weeks ago, top scientists and experts reiterated that reusable items do not pose a higher risk of transmission and are perfectly safe for use during the crisis.

Tesla Plans to Produce Lithium

Lithium producers do not feel threatened by Tesla’s plan to produce lithium in Nevada. Miners, as well as analysts, believe that despite the recent drop in lithium prices, the industry is in for a supply shortage after 2025 as automakers significantly ramp up electric vehicle (EV) production. Massive amounts of additional lithium supply will be needed to support not only the EV revolution but also the expected surge in stationary battery storage to support the wider adoption of renewable energy.
Therefore, lithium mining companies and researchers are looking to develop innovative ways to produce lithium more efficiently, in order to meet what they expect will be growing demand from the automotive sector in the coming years. Tesla, for its part, is looking to source its own lithium in the United States in a more environmentally friendly way, Elon Musk said on Tesla’s Battery Day last week.
Lithium extraction needs to “reinvent” itself to meet demand, the chief executive of Standard Lithium, Robert Mintak, told Bloomberg in a recent interview.
“We’re not going to be saddled with 20-year-old processes and refining capabilities,” Mintak told Bloomberg.
Standard Lithium has just launched its direct lithium extraction project near El Dorado, Arkansas. Standard Lithium uses a proprietary and environmentally friendly technology that selectively extracts lithium ions from tail brine that is a byproduct of existing bromine production facilities, the company said in September. Compared to the conventional methods for recovering lithium from brine, the process significantly reduces recovery time to several hours versus as long as a year, and the rate of recovery is 90 percent versus 40-60 percent in conventional production, according to Standard Lithium.
Earlier this year, a team of researchers from Australia’s Monash University, Australia’s national science agency CSIRO, the University of Melbourne, and the University of Texas at Austin, said they had developed a new filtering technology to extract lithium ions from brine. This technology has a much higher recovery rate than current extraction techniques and cuts the extraction process time down to just a few hours from several months to years in current lithium extraction and could potentially cut the production costs of one of the key components of lithium-ion batteries.
Tesla is also moving into lithium extraction, Musk said on the Battery Day, noting that “Basically, there’s so much damn lithium on Earth it’s crazy.”
According to Tesla’s CEO, Nevada alone holds enough lithium to convert the entire U.S. vehicle fleet into electric. Tesla has rights on over 10,000 acres of a lithium clay deposit in Nevada, from which it plans to extract lithium.
Tesla will also aim to “reinvent every aspect of cell production, from mining the ore to a complete battery pack, because it’s the fundamental constraint. We’re not getting into the cell business just for the hell of it, it’s because it’s the fundamental constraint, it’s the thing that is the limiting factor for rapid growth,” Musk said.
Stocks of lithium producers plunged in the wake of Tesla’s announcement, but analysts believe there will be more than enough room for everyone in the market, considering the increase in EV production and stationary storage installation globally.
“We appreciate Tesla’s goal to secure its raw materials supply. However, we disagree with the claim that Tesla will be able to supply all its own lithium. While we view lithium as an abundant resource, with lithium present in ocean water, nearly all of the world’s lithium is not economically viable to extract at current prices,” Seth Goldstein, a senior equity analyst for Morningstar, wrote after Tesla’s Battery Day.
According to Morningstar, Nevada could supply less than half of U.S. demand for EVs in 2030.
“Even if Tesla was to produce some lithium, we think greater demand would sop up the new supply, leaving our long-term lithium price forecast intact,” Morningstar’s Goldstein said.
According to Wood Mackenzie’s Accelerated Energy Transition (AET) scenario, which sees global warming limited to 2.5 degrees Celsius, the world’s lithium market could surpass 1 million tons of lithium carbonate equivalent (LCE) in 2025.
“However, except for a small group of companies, OEMs are yet to take the plunge with investing in mining assets. If OEMs do not choose to secure their own supply, Wood Mackenzie says EV sales penetration rates are unlikely to surpass 15% in the medium term,” the consultancy noted.
With many legacy automakers unveiling EV models and plowing billions of U.S. dollars into electric mobility, global demand for lithium will grow this decade, and the market will need every new efficient method of extraction, be it from lithium producers or carmakers invested in lithium mining assets.

Hydrogen, A Low Carbon Energy Source of the Future

It’s official: The big hydrogen techlash is now history. For decades, there was an undeniable and growing animus towards anything hydrogen by the investing universe, with the technology relegated to niche corners of the market, such as material handling and emergency power backup. Hydrogen technology was considered too costly and impractical, with Tesla Inc. CEO Elon Musk famously dismissing hydrogen fuel cells as ‘fool cells’ and ‘mind-bogglingly stupid.’
But the tide has gone full circle, and suddenly Wall Street can’t stop gushing about the enormous potential of the plentiful, versatile gas to cut emissions from many hard to decarbonize sectors.
Bank of America is the latest analyst to chime in with a bullish note.
According to the giant investment bank, hydrogen could supply our vast energy needs, fuel our cars, heat our homes, and also help to fight climate change. BAC says we have reached the tipping point of harnessing this element effectively and economically and predicts the hydrogen marketplace to reach a staggering $11 trillion by 2050.
BAC has likened hydrogen to smartphones pre-2007 and has advised investors to double-down before it goes fully mainstream.
Hydrogen fuel cell propulsion system
BAC is hardly alone in this adulation.
Morgan Stanley has upgraded Plug Power Inc. (NASDAQ:PLUG) from Equal Weight to Overweight with a $14 price target after the leading fuel cell maker impressed during its investor day presentation. Morgan Stanley’s Stephen Byrd believes green hydrogen will become economically viable quicker than investors appreciate saying Plug Power’s deal with Apex Clean Energy to develop a green hydrogen network using wind power offers a chance to tap into “very low cost” renewable power and helps accelerate the shift to clean energy. Plug has a goal for over 50% of its hydrogen supplies to be generated from renewable resources by 2024.
PlugPower is no longer content to be viewed merely as a maker of fuel cells for forklifts. The company has announced a partnership with Universal Hydrogen to build a commercially-viable hydrogen fuel cell-based propulsion system designed to power commercial regional aircraft. The initiative will help bring Plug’s proven hydrogen ProGen fuel cell technology to new markets.
“Through this partnership, we are taking our first steps toward establishing a complete ecosystem for the aviation market, from powertrain to hydrogen solutions, ultimately enabling a global transportation system powered by green hydrogen,” says CEO Andy Marsh.
Plug shares have jumped 13.3% after the latest bullish notes and are now sitting on a 317.4% gain in the year-to-date.
The cost conundrum
Over the years, the hydrogen economy has endured many false dawns, mainly due to technical and, mostly, cost issues. This has led to a situation whereby wind and solar energy are now competitive with traditional fossil fuels in electricity generation, whereas hydrogen remains considerably more expensive.
For instance, fueling a hydrogen fuel cell vehicle (FCEV) in California costs around $16.50 per kilogram compared to $3.232 per gallon of regular petrol in the same state. Light-duty FCEVs are typically 2.5x more fuel-efficient than comparable gasoline-powered vehicles, which means that achieving price parity with gasoline would require that 1 kilogram of hydrogen sells for not more than $8.08. In other words, hydrogen costs need to fall by 50% to become competitive with fossil fuels.
Luckily, there’s hope on the horizon.
According to a recent report by the Hydrogen Council, “…scaling fuel cell production from 10,000 to 200,000 units can reduce unit costs by as much as 45%, irrespective of any major technological breakthroughs, and can impact multiple end-use cases. Scaling up to 70 GW of electrolysis will lead to electrolyser costs of less than $400 per kW.”
This already appears to be happening in California: FirstElement Fuel has reported selling hydrogen for $12 per kilogram plus tax for a total $13.11 per kilogram and expects prices to continue coming down as hydrogen production cost falls.
Currently, California has a network of 43 open retail hydrogen refueling stations, capable of dispensing more than 11,800 kilograms of hydrogen each day. That is enough to support nearly 17,000 light-duty FCEVs or more than double California’s fleet of 7,000 FCEVs ( 5,000 FCEVs in 2018).
Green steel
The hydrogen ecosystem has been expanding and has lately added a new application to its portfolio: Using hydrogen to manufacture green steel.
Back in April, Swedish steelmaker Ovako successfully used hydrogen instead of LNG in trial runs at its Hofors steel mill, managing to demonstrate that H2 had no effect on the quality of steel. This marked the first time that hydrogen had been used in commercial scale during steel manufacture.
Given that steel production accounts for ~7% of global carbon emissions, steel made from renewable energy is expected to become a multi-billion industry as countries move to decarbonize.
The Anti-Tesla
Not everybody is convinced about the hydrogen hype, though.
Barron’s Bill Apton says Wall Street has discovered hydrogen this year and that hydrogen stocks are a bubble. Apton says the huge runup by Plug Power, Ballard Energy, and Bloom Energy has left them trading at more than 50x future cash flow, making it hard for them to grow into their steep valuations. He notes that smaller hydrogen companies are up against big players and deep-pocketed manufacturers, including government-backed rivals in China and the likes of Cummins.
According to Apton, it could take a decade or more before environmentally-friendly hydrogen can become competitive with natural gas on a cost-basis, making hydrogen stocks better long-term picks than the cult stocks they have become.
Famous Wall Street short seller Andrew Left of Citron Research has been even more blunt, labeling PlugPower an anti-Tesla:
“$PLUG back to $7 as it is the Anti- Tesla. Why even look to short $TSLA when $PLUG is twice as expensive with a never profitable business,” tweeted the firm.
Citron has been negative on PLUG dating back to 2014.
Wall Street remains overwhelmingly bullish, with 8 out of 10 Wall Street firms covering the stock giving it the nod.