What does the Electrification of the economy mean?

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Let us review the case around the benefits of electric vehicles (EVs) and the need to reduce our reliance on Internal Combustion Engine vehicles (ICEs).

If indeed there is an increase from a few million EVs in 2017 to an estimated 300 million by 2040, global emissions are expected to drop by approximately 1%. The poster child for EV usage has been Norway. A recent study by the Copenhagen Consensus Center, a renowned global think tank, discovered some revealing findings. EVs in Norway produce 24% less carbon emissions but the average household owns two vehicles – one EV and one ICE. On average, the EV is only driven 5,000 miles per year while the ICE vehicle handles the bulk of long distance and vacation travel.

At the same time, China, the overwhelming leader of EV usage and production, contributes massive emissions because the power used to charge the EVs comes from coal fired plants. In fact, China derives 60% of its power from dirty coal, making ICEs cleaner in comparison when viewed holistically.

Will EVs truly be the planet’s saving grace or are expectations unrealistic? This series of articles aims to educate and uncover where the really promising work is happening and the resulting market gains that can be achieved.

In every major city around the globe, industrial parks and factories form an integral part the landscape. In fact, industry consumes more energy than any other sector. Proportionately, coal and natural gas make up over 30% each, with oil and bio fuels generating the balance of energy consumption.

As of 2017, a meagre 20% of the energy used by industry was electric. Jurisdictions are encouraging carbon conversion by either:

  • Placing a higher price on emissions; or
  •  Offering cheaper hydro pricing.

While industry provides the best opportunity for improvement, the interesting takeaway is that manufacturing and logistical processes don’t necessarily have to be changed or disrupted to a significant degree. Simply changing a piece of equipment will often generate the desired result.

Most industrial processes involve the generation of high heat between 100° C to 1,000° C to transform raw materials to value-added products. The integration of new processes is already evident in a number of industries such as the production of glass and fertilizers. Far more challenging are cement, steel and iron production, as well as HVAC/ refrigeration and petrochemical businesses. The German petrochemical behemoth BASF, is currently developing petrochemical cracking furnaces that can reach 850° C with a target date for integration in 2027. Ongoing innovation in the development of clean energy and hydrogen will be critical to these sub-sectors.

Consequently, a keen eye must look to the short, medium and long-term views. The long-term outlook concentrates on opportunities attached to the “high temperature” needs of sub-sector industries and focuses on leading edge companies moving the needle in more complex areas that will take time to bear fruit. Meanwhile, there is an obvious short to mid-term opportunity for the 100° C to 800° C energy-need sectors even if they adopted a hybrid approach to conversion. The food and beverage industry, construction, manufacturing and less advanced textile sectors could easily accelerate their existing operations to electrification in less than 10 years.

In many ways, (for those old enough to remember) the current proposals for combatting climate change are like the dial-up modems used when the World Wide Web was invented. The true power of the internet was only realized when complementary technologies were developed (such as Wifi and Bluetooth) to enable a multitude of applications.

Solutions to monumental problems beyond our generation will take years to refine and optimize and there is a long a long way to go. Now imagine the potential of superior mobile and scalable energy storage systems or revamped machinery in mines using hot swap battery technology. All of these marvels are about to become commonplace and can potentially be used as complementary technologies contributing to the reduction in global emissions.

At Exponent, I have recently added a global leader in battery technology to clients’ portfolios. In 2022, I am monitoring another specialist who could provide exposure to 25% of Europe’s top developers. These types of selections will be the game changers of coming decades.
Stay tuned for the next instalment as I explore upcoming changes/challenges facing the agricultural sector.

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