Weekly Climate Recap: Batteries, Geothermal, Energy Efficiency
It is COP time! The 28th version of COP is kicking off hosted in UAE by head of its national oil company Sultan Ahmed Al Jaber. Next week expect some more COP news but for this week we have some different stories to focus on. First up, batteries continue their drop in price per an analysis from BNEF, the US just switched on its first enhanced geothermal well with promising implications, and a new report on energy efficiency efforts.
🔋 Lithium-Ion Battery Prices Continue to Decline in Price
If 2022 scared you with the cost of solar and batteries actually increasing for the first time, please note that it is just an anomaly. New analysis by BNEF highlights that lithium-ion batteries have continued to fall in price in 2023.
The price of these li-ion battery packs has dropped ~14% to US$139/kWh driven by declines in raw materials and component prices falling as production continues to ramp up across all phases of the value chain to match demand. This demand increase in 2023 ammounted to a whopping 53% yoy to 950 GWh in 2023 but despite this growth, battery manufacturers reported lower utilization rates, demand, and revenue than expected.
The price of these packs has some regional fluctuations with prices in various important regions as follows:
🇨🇳 US$126/kWh
🇺🇸 US$139/kWh
🇪🇺 US$151/kWh
The difference in these regional prices is due to immaturity of market, higher production costs, lower volumes, and diverse range of applications per BloombergNEF with increase price competition in China resulting in increase domestic production in China. This difference in prices is also attributable to the localization of production, as battery manufacturing becomes localized, the price experiences upward pressure.
Per the analysis, the battery chemistry is also receiving meaningful attention with the industry continuing the trend to lower-cost cathode chemistry lithium iron phosphate batteries from lithium nickel manganese cobalt oxide . LFP proved to be 32% cheaper than lithium NMC.
Takeaway: If skeptics told you in 2022, “see renewables aren’t cheap!”, well feel free to send this to them. The decline of battery prices is an important return to normalcy and proves that despite higher rates, the cost to produce these batteries continues to align with our need to decarbonize. However, it is important that continued R&D and scaling continues to keep the prices falling.
🌋 Geothermal Energy Heats Up
Just in July this year, geothermal company Fervo Energy announced a successful well test for their enhanced geothermal technology. This test demonstrated that their project was able to generate 3.5 MW. Fast forward to today and Project Red, as named by Fervo, starting sending that 3.5 MW to the grid in Nevada! Google had signed an agreement to deliver clean electricity to their data centres in Nevada in 2021.
🚀 The Technology
Enhanced geothermal technology relies on Fervo Energy implementing innovation in drilling and production learned from the fossil fuel industry that enables the company to drill horizontally enabling multiple wells from a single location resulting in less of a footprint and in general increases total resource potential for geothermal energy.
Google seems bullish on the technology with comparisons to solar industry growth:
“While there are some important differences between solar and geothermal technologies, we would like to see geothermal power follow a similar trajectory as solar has over the last few decades in terms of rapid cost declines and performance improvements,”
-Maud Texier, Global Director of clean energy and decarbonization development
With this exciting announcement, there is potential that with this technology geothermal can scale rapidly. Fervo is already starting on a massive 400 MW enhanced geothermal facility located in Utah, called Cape Station. Currently, geothermal energy accounted for only 0.4% of US utility scale electricity generation and is concentrated mostly in California and Nevada.
Takeaway: A While Google seems bullish on this technology to rapidly approach the DOE target of US$45/MWh by 2035. This decline in cost of 90% is something we have seen solar, wind, and batteries do, so surely geothermal can do it. In my view, I think geothermal lacks the key trait that has enabled these other technologies to decline, the modularity. I hope to be proven wrong as geothermal represents a potential baseload source of clean power for the grid.
⚙️ International Energy (read: Efficiency) Agency
The International Energy Agency has released a new report on progress towards efficiency changes. If I have said it once, I’ve said it a few times, energy efficiency is the first fuel. Per IEA:
“Energy efficiency is called the “first fuel” in clean energy transitions, as it provides some of the quickest and most cost-effective CO2 mitigation options while lowering energy bills and strengthening energy security.”
-IEA
Energy Efficiency 2023 released by the IEA this week delves into progress toward optimizing our electric systems. The headline takeaway is that our global rate of progress in energy intensity which is used as the benchmark for energy efficiency is set to fall in 2023 to 1.3% from 2.0% achieved in 2022. The IEA believes that this is attributable to an increase in energy demand of 1.7% in 2023 vs 1.3% in 2022.
Despite the global trend being lacklustre, there are some major highlights including the EU, US, Korea, Türkiye and the United Kingdom that registered gains ranging between 4%-14%. Much change occurring across the efficiency front is attributable to Russia’s invasion of Ukraine that has resulted in countries aiming to shore up their energy independence and the following strengthening efficiency policy packages from countries representing 70% of global energy demand.
One easily quotable thing to remember from the report:
“Almost one in every five cars sold today is an electric vehicle and growth in global heat pump sales is now outpacing gas boilers in many markets.”
Takeaway: While not overwhelmingly positive, I think that energy efficiency is clearly top of mind for many countries and if I were a betting man I would forecast that 2024 will be a far better improvement than what we have seen with 2023. As heat pump, EV, and efficiency adoptions scale up I think that energy efficiency will truly launch. Importantly, much of the world in energy is committed to becoming more efficient, it is just a matter of scaling up these efforts to meaningful levels.
What Else is in the News
- Virgin Atlantic will make history by flying a passenger plane across the Atlantic Ocean using only fossil-free jet fuel. The British airline will use 100% sustainable aviation fuel (SAF) on a flight from London to New York, which will reduce carbon dioxide emissions from flying by over 70% compared to fossil jet fuel. While SAF is not entirely emissions-free, it is an appealing solution for airlines facing mounting regulatory and public pressure to decarbonize, and it can work in existing fleets. Demand for SAF is rapidly increasing, but supplies remain extremely limited across the industry.
- An environmental charity, World Animal Charity, has urged countries to curb factory farming to help reduce climate-warming greenhouse gases, with food systems becoming a major focus of COP28 climate talks in Dubai as reported by Reuters. Factory farming is responsible for at least 11% of global emissions and contributes to around 70% of the 80 billion animals reared each year for food. The charity has called for a 10-year moratorium on new factory farms and for countries to redirect subsidies to more sustainable livestock and plant-based food production. COP28 will include a “Food4Climate” Pavilion and a “Food Day” to highlight the role of food production in global warming.m
- In a news release that quite honestly does not surprise me, the president of COP28, Sultan Al Jaber, has been accused of using his role to lobby foreign governments on behalf of the Abu Dhabi National Oil Company (Adnoc) during meetings about the UN climate summit. Leaked documents show that Al Jaber held scores of meetings with senior government officials, royalty, and business leaders from around the world to increase exports of Adnoc’s oil and gas. Talking points were requested from Adnoc and Masdar and incorporated into Al Jaber’s briefings ahead of meetings with foreign government officials. Al Jaber and the COP28 team have not denied using bilateral meetings about the summit for business talks.
