Energy, Geopolitical & Money - 2024.02.16
Welcome to EPM, where we take our daily look at the interconnected worlds of Energy, (Geo)Politics and Money. Curated from the world’s leading sources of information, we provide you both the information and the objective, neutral commentary that you need to make sense of it all – and beat the market.
In this roundup, based on client request, we provide EPM’s perspective on battery technology. We see batteries as the key technology in making the energy transition a reality. Battery technology enables electrification of transportation, as well as the shift from a fossil-based electricity system to a renewables-based system (through enabling cost-effective storage). However, current battery technology is not yet at the level where this energy transition can be achieved.
As to what we expect when it comes to battery technology innovation, shorter-term we foresee continued optimization of lithium-ion based technology, which will make EVs cost competitive with ICEVs in the light- and medium-duty road transportation segment. Medium-term, we expect to see the first step change improvements, through development of a wider variety of battery chemistries optimized for the different sectors of the economy -- light duty road transport, medium and heavy duty, stationary industrial scale electricity storage, etc. Longer-term, solid-state batteries would enable the energy future we set out above, in which electrified transportation becomes not only possible and but also economic for all types of road transport, as well as most segments of marine and aviation, while renewables with storage becomes the cheapest electricity solution around the world.
Furthermore, we look at:
The IEA’s 50th anniversary, and the discussions if its current positioning in the energy transition debate is “political” or analytical
The latest warnings about problems in US commercial real estate, which right now is still only a micro issue, but that could well turn into a macro issue
The US “cranking up the pressure” on Israel, to make it align with the US view for the War on Gaza, and beyond that the Palestinian issue
The boom in US renewables capacity expected this year
The Hydrogen Demand Initiative (H2DI) over in the US, which is a public-private collaboration to drive forward demand for hydrogen
Ford and General Motors’ search for partners in the EV, to prevent becoming outcompeted by the Chinese competition
The decision by JPMorgan Chase, BlackRock and State Street Global Advisors to quit and/or substantially scale back their involvement in the Climate Action 100+ investor group; which in the EPM view is symptomatic of the growing backlash against the ESG / climate change agenda globally
General Energy News
The International Energy Agency turned 50 this week. Energy ministers, oil executives and green investors gathered to mark the event and debated the agency shift from being energy security and thereby fossil energy focused to being an active proponent of the energy transition, writes Reuters. This some see as taking a political position, this undermining its role as an impartial energy authority. Founded in 1974 after the Arab oil embargo caused global energy prices to soar and plunged many countries into recession, the IEA focused on stockpiling oil supplies to stave off future emergencies. It now regards the use of fossil fuels and the greenhouse gases they emit as the world's new energy crisis.
Macroeconomics
Reuters warns for big problems in US commercial real estate. The underlying cause of these problems is the rapid rise in interest rates over the past two years, which pushes down the value of property by making future rental income relatively less appealing. The trouble started with office property, which underpins around a quarter of all US commercial real estate mortgages. But the problem is now spreading to so-called multi-family properties such as apartment buildings. There’s no shortage of demand, but the combination of higher rates and the difficulty in getting tenants to pay more is creating problems. The biggest problem is the wave of mortgages coming due, which could turn a micro problem into a macro one. Borrowers are due to repay $929 billion of US commercial real estate loans this year, and $573 billion the year after. The result is that a property owner who has to remortgage not only will be faced with significantly higher costs, the value of his property has also significantly declined. In this situation a sale does not solve the issue, and default or bankruptcy becomes almost inevitable.
Geopolitics
The US is cranking up the pressure on Israel, to make it align with the US view for the War on Gaza, and beyond that the Palestinian issue. The Wall Street Journal writes that the US will be investigating whether Israel has committed war crimes in Gaza and Lebanon using US supplied weapons.
Additionally, the US is also using its allies to increase pressure on Israel’s prime minister Netanyahu. Bloomberg writes that Canada, Australia and New Zealand have released a joint statement warning Netanyahu against a planned offensive in the southern Gaza city of Rafah.
EPM notes this all takes place while the US is pushing for a ceasefire at meetings between the Israeli’s and Hamas in Cairo in Egypt, also attended by representatives from Qatar.
Energy Transition & Technology News
Solar and battery storage will make up a vast majority of new utility-scale electric-generating capacity projects expected in the US this year, according to the latest US Energy Information Administration data, writes S&P Global. Developers and power plant owners plan to add 62.8 GW of capacity in 2024, the EIA said in a Feb. 15 report. This projection represents a 55% increase in added capacity compared to 2023, which saw 40.4 GW added, the most since 2003. 81% of the new capacity will be made up by solar and battery storage projects, according to the data. Total battery storage in the US is expected to nearly double from the existing 15.5 GW.
Meanwhile, a new consortium imagined and promoted by former Energy Secretary Ernest Moniz and Jennifer Granholm, the current energy secretary, wants to push forward the “hydrogen economy”, writes Forbes. The point person at the Department of Energy is David Crane, undersecretary for infrastructure. The mission of the new consortium, called the Hydrogen Demand Initiative (H2DI), is established of a market for hydrogen. To achieve this, it has brought together leading players in marketing: S&P Global, which has market knowledge and analytical ability; the Intercontinental Exchange, which organizes market platforms like the New York Stock Exchange; Dentons, the world’s largest law firm; and the MIT Energy Initiative, the famed university’s hub for energy research, education and outreach. The anticipated hydrogen customers on this marketplace are heavy industries, like steel and other processors, that use huge quantities of natural gas. It will also be looking at long-haul trucking using hydrogen in conjunction with fuels cells, and even ship propulsion using ammonia as the carrier.
The Electrification of Transport
Ford and General Motors are considering partnerships to cut electric vehicle technology costs, and deal with the challenge posed by Chinese rivals moving into the US and European markets, writes Nikkei Asia. "If there's ways that we can partner with others, especially on technologies that are not consumer-facing, and be more efficient with R&D as well as capital, we're all in," GM CEO Mary Barra told investors.
Other
JPMorgan Chase and institutional investors BlackRock and State Street Global Advisors (SSGA) on Thursday announced that they are quitting or, in the case of BlackRock, substantially scaling back involvement in the Climate Action 100+ investor group, writes Fox Business. Climate Action 100+ was formally established in December 2017 at the UN as a way of aligning the world's largest private sector financiers of greenhouse gas producers behind the climate change agenda. Since the association was created, it has grown to include more than 700 financial institutions that are collectively responsible for a staggering $68 trillion in assets under management. The group calls for members to engage companies on "improving climate change governance," curbing carbon emissions and strengthening climate-related financial disclosure policies. JPMorgan Chase says it has now pulled out because it has developed sufficient internal ESG resources. BlackRock and State Street say the alliance's climate initiatives have gone too far, and also expressed concern about potential legal issues in the US as well. In the EPM view this is all symptomatic of the growing backlash against the ESG / climate change agenda globally.