the future of energy - iaee
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The Future of EnergyA view from the finance world
January 2021
0
Gerard ReidCo-Founder & Partner, Alexa Capital
Confidential – August 2020
A REVOLUTION IN HOW WE CONSUME AND PRODUCE ENERGY IS UNDERWAY
1January 2021
CONTENTS
Drivers supporting the revolution
Implications for capital flows
What does this mean for the future?
2January 2021
FIVE FACTORS WILL DRIVE US TO A MORE SUSTAINABLE FUTURE
3
The need to electrify
Rise of renewables
Digitalisation 2.0
Electrification of transport
Emergence of Storage
DRIVERS OF THE ENERGY REVOLUTION
A ZERO-CARBON, SUSTAINABLE PLANET
January 2021
ELECTRICITY IS BECOMING THE WORLD’S MOST IMPORTANT ENERGY SOURCE
4
Electricity
January 2021
DRIVER #1: IT ALREADY IS AS OUR DIGITAL WORLD CAN NOT SURVIVE WITHOUT ELECTRICITY!
Electricity
January 2021 5
DRIVER #2: TECHNOLOGY CHANGE AND ECONOMICS WILL PUSH US TO ELECTRIFY TRANSPORT, HEAT AND HEAVY INDUSTRY
Electricity
January 2021 6
DRIVER #3: ONE OF THE BEST WAYS TO LOWER CO2 EMISSIONS IS TO REDUCE ENERGY CONSUMPTION THROUGH ELECTRIFICATION
7
Our Energy System is highly inefficient, wasting 60% of the energy extracted
Electricity
January 2021Source: IFU Hamburg
DRIVER #4: OUR FUTURE DIGITAL WORLD NEEDS MORE ELECTRICITY!
8
Electricity
January 2021
RENEWABLES TECHNOLOGY WILL DOMINATE THE GLOBAL CAPACITY MIX OVER THE COMING DECADES
9
Renewables
January 2021
DRIVER #1: LOW COST RENEWABLES...
Source: Alexa Capital 10
Renewables
LCOE by technology in different markets
0
20
40
60
80
100
120
Solar Wind Coal Gas
$/M
Wh
0
20
40
60
80
100
120
Solar Wind Coal Gas
$/M
Wh
0
20
40
60
80
100
120
Solar Wind Coal Gas
$/M
Wh
0
20
40
60
80
100
120
Solar Wind Coal Gas
$/M
Wh
January 2021
DRIVER #2: WE WILL SEE FURTHER COST REDUCTIONS IN RENEWABLESAND IN PARTICULAR SOLAR WE WELL AS PERFORMANCE INCREASES
11
Sources: Bloomberg, International journal of science
20.6%
24.0%
30.0%
0.18
0.16
0.12
0.05
0.07
0.09
0.11
0.13
0.15
0.17
0.19
0.21
0.23
0.25
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
2020 2025 2030
Mass production module efficiency Module price ($ / MW)
Renewables
January 2021
DRIVER #3: IT IS MUCH EASIER AND CHEAPER TO DECARBONISE ELECTRICITY THAN HYDROCARBON FUELS…
12
Renewables
Decarbonising heat is:
Expensive
Disruptive
January 2021
&
DIGITALISATION 2.0 IS THE KEY TECHNOLOGY DISRUPTOR OF THE NEXT DECADE, AND WILL TRANSFORM THE WAY WE THINK ABOUT ENERGY & MOBILITY
13
Impact of Big Technology Shifts on Economic Development Cloudcomputing
Big Data
AI
IoT
5G
Digitalisation 2.0
Digitalisation
January 2021
DRIVER #1: ECONOMICS
Digitalisation
14January 2021
DRIVER #2: EASE OF USE
Digitalisation
15January 2021
DRIVER #3: COVID-19 IS ACCELERATING THE DIGITAL TRANSITION
Digitalisation
16January 2021
DRIVER #4: BIG TECH POWER DEMAND WILL CONSUME 21% OF TOTAL ENERGY BY 2030
17
Digitalisation
Global data center market size projections appear conservative, since forecast growth rates for Big
Data applications are significantly higher.
Gaming
Secure Cloud
Streaming
BlockchainMining
AI & ML
Big Data
Rendering
0%
5%
10%
15%
20%
2018 2020 2022 2024 2026 2028 2030
Information Communication Technology (ICT) Energy Consumption
(as % of Global Demand)
Data Centres
Consumer devices
Production of ICT
Networks
January 2021
Sources: Bloomberg, International journal of science
THE TRANSPORTATION SECTOR IS ELECTRIFYING
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EVs
January 2021
DRIVER #1: PHYSICS AND ECONOMICS ARE DRIVING AUTOMOBILES TOWARDS AN ELECTRIC FUTURE
77% efficiency
ICE Hybrid EV
28% efficiency25% efficiency
Engine&
transmission
Thermodynamic losses
Plant to tank
Oil Li-ion batteries
Battery charger
Grid lossesRenewables
6 litres per 100km 4.5 litres per 100km
€6.50 €4.50
15.5kWh per 100km
€1.08
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EVs
Engine&
transmission
Thermodynamic losses
Plant to tank
Oil
January 2021
Source: Alexa Capital
DRIVER #2: BATTERY CELL COSTS ARE GOING TO FALL FURTHER IN THE NEXT YEARS AND PERFORMANCE AND LIFETIME IS GOING TO IMPROVE
91.3
73.5
63.8 62.3 61.3
85.480.8 80.1 79.7
79.4
71.7 70.6 69.8
0
10
20
30
40
50
60
70
80
90
Benchmark Material pricingdecrease
Energy densityincrease
Production rateincrease
Scrappagedecrease
$/kWh
by 10%
by 20%
by 30%
1000+km range EVs are in sight!
EVs
January 2021
Source: BNEF & CATL
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DRIVER #3: AUTOMOBILE MANUFACTURERS ARE UNDER PRESSURE TO IMPROVE FUEL EFFICIENCY AND REDUCE EMISSIONS
21
TCO advantage to drive widespread adoption
Depends on the evolution of fuel & battery prices, taxes, incentives
Increasing offer of desirable EVs in premium segments
Tightening regulations & CO2 fleet emissions targets
City level emissions regulations & restrictions
ICE registration bans
Incentives and tax advantages are present but declining
xEV adoption will follow announced targets for NEV and FH/MH
Source: Alexa Capital
EVs
January 2021
DRIVER #4: EVS ARE EXCITING TO DRIVE!
Tesla Model 3 S
0-100kmh = 3.2sec!
22
VW ID3
0-100kmh = 7sec!
EVs
January 2021
WE ARE GOING TO SEE ENERGY STORAGE EVERYWHEREFOSSIL FUELS ARE EASY TO STORE WHILE ELECTRICITY IS NOT…
23
Storage
January 2021
Supercapacitors
Flywheels
Batteries
Thermal Energy Storage
LAESCAES
Pumped Hydro
100 kWh
1 MWh
100 MWh
1 GWh
10 GWh
100 GWh
10 kWh
1 kWh
10 MWh
1 sec
1 min
1 hour
1 day
1 month
1 year
Disc
harg
e tim
e at
rate
d po
wer
DRIVER #1: THERE ARE LOTS OF ELECTRICAL STORAGE TECHNOLOGIES ALREADY, AND THESE NEED TO BE USED DIFFERENTLY
Energy capacity
Storage
TWO TECHNOLOGIES HAVE DOMINATED THE LAST 100 YEARS: PUMPED HYDRO & LEAD ACID
Source: BNEF
January 2021 24
DRIVER #2: LITHIUM ION BATTERIES ARE ALREADY EVERYWHERE!
Storage
January 2021
I COUNTED 150 IN MY HOME…
25
4061
85 80
118140
200 200
250
350
0
50
100
150
200
250
300
350
400
Leadacid
NiCd NiMH LTO LFP LMO NMC LCO NCA FutureLi-ion
DRIVER #3: LITHIUM-ION BATTERIES IS TAKING OVER FROM LEAD ACID BATTERIES
Li-ion
0
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Li-ion Lead acid
Li-ion are now at the same price as lead acid Energy Density of Different Batteries
$/kW
h
Wh/
kgStorage
January 2021
Source: BNEF
26
DRIVER #4: LITHIUM-ION PRICING IS GOING TO GET LOWER AND VOLUMES ARE INCREASING - MOSTLY GOING INTO TRANSPORT
0
200
400
600
800
1,000
1,200
0
2,000
4,000
6,000
8,000
10,000
12,000
2010 2015 2020 2025 2030
Lithium-ion battery pack price (real 2019 $/kWh)
E-bus
Stationarystorage
Commercialvehicles
Passenger EV
Observed prices
18% learning rate
2024 implied price: $93/kWh
2030 implied price: $61/kWh
Cumulative demand for lithium-ion batteries (GWh)
Source: BNEF
2019: $156/kWh
Storage
January 2021 27
DRIVER #5: BATTERY CELL COSTS ARE GOING TO FALL FURTHER IN THE NEXT YEARS AND PERFORMANCE AND LIFETIME IS GOING TO IMPROVE
Source: BNEF & CATL
91.3
85.4
80.8 80.1 79.779.4
71.7 70.6 69.8
73.5
63.862.3 61.3
50
60
70
80
90
100
Benchmark Materialpricing
decrease
Energydensityincrease
Productionrate increase
Scrappagedecrease
by 10% by 20% by 30%
$/kWh
2020 2025 2030
Ener
gy d
ensi
ty
Short term Mid term Long term
Development projects
1000+km range EVs are in sight!
Ni80+ / Gr + Si300-350Wh/kg
Solid State Battery HV cathode / Li metal
350-500Wh/kg
Li-Air Battery
500-700Wh/kg
January 2021
Storage
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DRIVER #6: LITHIUM-ION BATTERIES WILL BRING TOGETHER THE UTILITY AND AUTOMOBILE VALUE CHAINSAND CARS ARE ONLY USED 5% OF THE TIME...
1m Tesla = 100GWh of power = Peak power needs of Germany and Netherlands
Storage
January 2021Source: Alexa Capital
29
DRIVER #7: THERE WILL LOTS OF LOW COST BATTERIES OUT THERE…SECOND LIFE BATTERIES ARE COMING
30
Mobility
Repurposing
Testing (using battery management systems)
Second life Recycling
Recycling
Storage
January 2021
Source: Alexa Capital
DRIVER #8: DIGITALISATION ENABLES STORAGE BY ALLOWING DEVICES TO BE CONNECTED TOGETHER
31
Storage
January 2021
CONTENTS
Drivers supporting the revolution
Implications for capital flows
What does this mean for the future?
32January 2021
THE FINANCE WORLD IS PUSHING CAPITAL INTO LOW CARBON TECHNOLOGIES AND ELECTRICITY!
33
1. The evidence on climate risk is compelling investors to reassess core assumptions about modern finance
2. Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk.
3. Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself’
Larry Fink, CEO Blackrock
January 2021
CAPITAL IS FLOWING OUT OF OIL AND INTO ELECTRICITY AND IN PARTICULAR CLEAN ENERGY PRODUCERS
34
0%
10%
20%
30%
40%
50%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Big OilBig Electricity
YTD
shar
e pr
ice
chan
ge
January 2021
Source: Bloomberg
THE LARGEST RENEWABLE SUPPLIER VESTAS IN THE WORLD IS WORTH MORE THAN THE TWO BIGGEST OIL AND GAS SERVICES BUSINESSES TOGETHER
35
Source: Bloomberg
33.4
Mar
ket C
ap ($
bn)
32.8
>
January 2021
ENERGY AND MOBILITY STOCKS PERFORMED EXCEPTIONALLY WELL IN 2020
36January 2021
+700%
+300%
+140%
+330%
+90%
+90%
+80%
EVs Solar Wind
Source: Bloomberg
WE ARE SEEING A BIG COMMITMENT TO CLEAN ENERGY FROM FINANCIAL INSTITUTIONS
37January 2021
Source: The Guardian
MASSIVE AMOUNTS OF INFRASTRUCTURE CAPITAL IS FLOWING TO THE ENERGY SECTOR
38
Source: Inframation
January 2021
HUGE AMOUNTS OF PUBLIC MARKET CAPITAL ARE FLOWING INTO MOBILITY TECH –$100BN IN VALUATIONS
39
Source: Pitchbook
January 2021
CAPITAL NEEDS TO FLOW TO THE MINING SECTOR DUE TO THE INCREASING NEED FOR NATURAL MATERIALS TO SUPPORT NEXT GENERATION BATTERIES
40January 2021
Source: Telegraph; FT
FROM 2.5M TO 25M EVS IN A DECADE 1. LITHIUM IS THE LONG TERM WINNER AS IS VERY LIGHT, HAS EXCEPTIONAL NEGATIVE ELECTRODE POTENTIAL AND IS ABUNDANT
Demand up 9x to over 1.2m tonnes p.a by 2030 (25m new EVs) – noting that 50% of lithium demand is already from batteries
January 2021 41Source: BNEF
FROM 2.5M TO 25M EVS IN A DECADE 2. COPPER WILL BE A BIG WINNER AS EVERY EV NEEDS AN EXTRA 60KG OF COPPER
25KG
85kg (car)-200kg (bus)
1-10kg
10x increase - 1.5m tonnes p.a. (from 24m tonnes p.a.) – could have big impact on market
January 2021Source: Alexa Capital
FROM 2.5M TO 25M EVS IN A DECADE3. NICKEL WILL SEE AT LEAST A 10X INCREASE IN DEMAND FROM BATTERIES BY 2030 TO 1.3M TONNES P.A.
BNEF refined class 1 nickel supply curveSegment 2018 2019 2020 2021 2022 2023 2024 2025Passenger EV demand 54 51 88 153 201 252 298 395Commercial EV demand 4 4 9 15 23 32 43 56E-bus demand 1 1 1 2 2 2 2 2Two-wheeler demand 19 16 17 24 26 29 34 37Storage demand 4 8 10 17 26 32 34 27CE demand 14 14 18 20 23 24 27 29TOTAL battery demand 96 93 143 231 301 372 438 546Non-battery demand 760 768 749 759 764 768 768 768Flexible non-battery demand 313 337 311 324 331 337 337 337Total demand 1,169 1,199 1,203 1,314 1,395 1,478 1,544 1,652De-risked supply (2019) 1,078 1,175 1,248 1,330 1,365 1,386 1,391 1,407Nameplate capacity (2019) 1,078 1,216 1,273 1,380 1,422 1,422 1,422 1,476
By 2030 over 50% of global demand will go to batteries
January 2021Source: BNEF
CONTENTS
Drivers supporting the revolution
Implications for capital flows
What does this mean for the future?
44January 2021
1. THERE IS AN OPPORTUNITY TO CREATE GLOBAL CHAMPIONS AS AT THE START OF THE 20TH
CENTURY
January 2021
2. THIS REVOLUTION WILL CAUSE A MAJOR SHIFT IN THE WEALTH OF REGIONS AND NATIONS
46January 2021
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5
10
15
20
25
30
35
40
Jan-2014 Jan-2015 Jan-2016 Jan-2017 Jan-2018 Jan-2019
3. MANY INCUMBENTS WILL NOT SURVIVE AS THEY WILL BE TOO SLOW TO CHANGE
47
Shar
e pr
ice
($)
Source: BloombergJanuary 2021
THE ONLY OIL & GAS COMPANIES THAT SURVIVE WILL HAVE VERY LOW COSTS OF PRODUCTION, OR WILL CHANGE THEIR BUSINESS MODELS
Change business model
Lower production costs
January 2021
SOME INCUMBENTS WILL MAKE RADICAL CHANGE – VW, FOR INSTANCE, IS BECOMING A UTILITY
January 2021
50