Fuel For Thought - Pace of Change: Energy and mobility, climate and innovation

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This month's theme: Pace of Change: Energy & mobility, climate and innovation

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CERAWeek 2022
Now in its 40th year, S&P Global's CERAWeek is widely considered to be the most prestigious annual gathering of CEOs and ministers from global energy and utilities, as well as automotive, technology, manufacturing, policy, and financial communities. The theme of this year's conference was "Pace of Change: Energy, Climate, and Innovation."

The global energy and mobility industry is at a critical inflection point. Meeting ambitious emissions targets while also delivering energy and mobility for a growing world economy will require new thinking, innovation and a transformation of a system that supports the $90 trillion world economy.

Further complicating this picture are rising geopolitical tensions and nationalism, growing trade friction, supply chain bottlenecks, economic headwinds and the ongoing pandemic.

Energy & mobility

The intrinsic linkage between energy and mobility becomes more obvious when viewed from the perspective of leading energy companies. At CERAWeek, several senior BP executives spoke about this linkage, and it was immediately clear that they have a lot of electrification plans going forward. Intriguingly, they made reference that this represented "non-fossil growth engines" for BP's business overall. In fact, the commitment is of such magnitude that BP is on track to allocate half of all its investments by 2025 into these non-fossil growth engines; the tide has really changed in the energy sector. Overall, the BP key investment focus is initially upon mainland China, the UK, the US and India; especially in the area of fast-charging and fleet activity (such as ride-hailing and fleet operators). However, BP has also earmarked electrification as a huge business opportunity, especially as they foresee 100 million electric vehicles (EVs) on the road by 2030. According to BP, a lot of the away from home charging is done via fast chargers, hence their strategy is aggressively embracing this opportunity. BP also reminded CERAWeek attendees that they own 20,000 fuel stations today, which eventually could all become dedicated EV stations (especially as they remarked that EV fleets today are already competitive with ICE fleets in terms of total cost of ownership [TCO]). Forward looking, the BP view on biofuels is that it will have to play a part in this transition, especially for the marine and aviation sector in the future. While hydrogen is also seen as an opportunity, the company is aware that other sectors (such as cement and steel) need it as well; therefore, from a mobility perspective, perhaps it makes more sense to focus more on the long-haul trucking and industrial sectors for the time being. Finally, BP made indications that no matter what the future holds, markets such as India or mainland China will also still need natural gas for mobility purposes.

Shell also shared its perspective regarding the mobility transition, and interestingly Shell fully supports the EU's proposed ICE phase-out by 2035. This means that the company's strategy is also geared toward providing charging infrastructure. In fact, Shell now even has some dedicated fast-charging forecourts only - supplemented by a retail outlet to further boost revenue prospects. A brief reference was made to Shell's current number of charging stations (90,000), of which 80% appear to be based in Europe; Shell plans to have 2.5 million charging stations globally by 2030. However, at the same time there is also the realization that hydrogen also needs support, especially for the heavy-truck sector, and Shell will facilitate this as well (as already witnessed by their cooperation with Daimler Trucks).

The Renewable Energy Group (REG), now acquired by Chevron, made it clear that multiple clean solutions will be required to support future mobility, and the company sees good opportunities for renewable fuels and other low-carbon fuels - among which they would count bio-based diesel that is well suited for marine, rail, aviation and trucking sectors. Furthermore, REG claimed that the electrification inflection point is already here today, and that the industry is changing before our eyes. However, so far, the changes have been originating from US/CAN/EU, but now they also see huge interest from Japan where demand for lower carbon intensity fuel is high.

Switching to the perspective of a technology company, Schneider Electric claimed that it sees key future opportunities in the collective and individual mobility sector; however, it also recognizes that infrastructure owners will need to be approached for cooperation to enable electrified mobility. Ultimately, what the energy and mobility transitions require is smart, sustainable and efficient technology solutions; Schneider Electric sees huge opportunities in the "Energy-as-a-Service" concept (utilizing renewables, solar, etc.) involving chargers and microgrid combinations, which it sees first occurring in the public bus sector. Schneider Electric also shared its opinion that regulation, economics and customer satisfaction are no longer obstacles (especially for fleets); however, some challenges remain - among which charging is one of the major ones. Ideally, Schneider would like to see a global convergence of regulations; government incentive support in more markets around the world to enable this change to happen.

While Wallbox discussed the possibility of solving one of the biggest questions regarding the future of the transition to electric mobility: "What are we going to do when all these vehicles plug into the grid at the same time?" It argued that "today there already is more storage capacity in the electric cars on the road (around 13 times more) than the entire stationary storage business." Effectively, utilities should be seen as a key partner for domestic charging station providers to store renewable energy and for offsetting the impact on the grid of overnight charging, as well as a go to market and return on investment (ROI) for the bidirectional business model.

Moving on to the charging infrastructure perspective, ABB E-mobility told the CERAWeek audience that there is no longer a question about EVs as the demand is there; however, the sector still faces so-called growing pains. ABB E-mobility has already installed more than 65 megawatts of charging stations for fleets in the US market alone. Another charging infrastructure provider, Electrify America, revealed that it is working to install energy storage and grid support at all its DC fast-charging stations; 150 of their 800 stations are already using energy storage systems today. Although alternatives were also represented at CERAWeek, with wireless charging provider WiTricity stating that it wants "to get to the day when your grandkids ask you what do you mean you used to plug in the car"? Reinforcing the company's vision, WiTricity referred to consumer research indicating that once consumers are aware of wireless charging, their purchase intent for EVs significantly rises (up to 68%). Finally, Ample presented another alternative of battery swapping; with some consensus that indeed this business model is growing in popularity in Asia (especially with 2-wheelers), the main current light vehicle applications appear to remain in the fleet sector, and that future success could depend upon system or technology standardization efforts.

Climate

The CERAWeek audience at the plenary opening heard from US Special Presidential Envoy for Climate John Kerry that, "The real climate measurement is NOT the 2050 net zero goals, but the real measurement should be what companies do in 2020-2030 and will that be enough by 2050?" Kerry also noted, "We have energy infrastructure challenges. Look at our non-existent national grid. We can drive a rover around Mars but can't send an electron from CA to NY." Further supporting this view, Energy Secretary Jennifer Granholm stated that the US Government is here to "extend a hand of partnership" to the oil, gas and automotive industry. "We need to have a full battery supply chain in the US [...] It's a matter of national and economic security." Granholm continued, "We are here to work with anyone and everyone who's serious about taking a leap toward the future [...] by diversifying energy to add clean fuels and technologies."

During the city mayor discussion, the speakers reminded the audience that cities are where emissions happen, be it via transportation, heating, entertainment or others. Hence the role of cities is becoming ever more important in the fight against climate change and the energy and mobility transition globally. It is in cities that we have seen much of the new mobility solutions roll out; however, owing to the online shopping boom, it is anticipated that more needs to be done here to help address this emission growth. Amazon noted that as a company they already made a 2030 climate pledge back in 2019, and this is reflected in the investment and order awarded to Rivian for 100,000 EV delivery trucks. Although Amazon did also indicate that fuel-cell electric vehicles (FCEVs) might be of interest as well (also as an energy carrier for wider Amazon energy requirements). One discussion participant stated, "80% of our global emissions come from the energy sector. We can address this via emissions reduction alone, but perhaps one should also consider consumption reduction? This would have a profound impact on climate change."

Several CERAWeek discussions appeared to recognize that the geographic impact due to climate change differs around the world, which could also mean that the proposed solutions will differ around the world. For some economies, that could include that some degree of fossil fuels (potentially e-fuels) might still make sense in the longer term.

Innovation

The climate challenge ahead is of such magnitude that some energy and mobility companies spoke of linear investments being required; this requires a high degree of planning and confidence into the future and means that we cannot invest in all alternatives. However, this implies that each company looks at its own sector, and this could slow down cooperation between sectors and/or competitors. Hence it is crucial to keep an open mind, as we need all solutions going forward.

Several of the panel discussions and keynotes also touched upon the subject of regulation, and how this could stifle true innovation. Great examples here have been Google Waymo as well as GM Cruise; as vehicle regulation is not up to date with current technology. At the event, Nuro stated that even though its autonomous electric robot delivery vehicle, which has no passenger interior or windows - just room for delivery cargo - had to feature a fake windshield with wipers as well as side view mirrors before it was allowed on the road for testing purposes. However, the company has since made progress via a close liaison with National Highway Traffic Safety Administration (NTHSA) to qualify for exemptions.

Further innovation will continue to be required for some decades to come, among which is the issue of storage of renewable energy. An elegant solution could be a systems approach (or networked business model) where markets utilize the EVs as storage (when not in use), which could provide significantly larger capacity compared to just the local utility supply. However, it also raises the issue of whether this would happen in emerging markets versus developed markets; and would this potentially lead to a 2-tier system?

CERAWeek was used by Ford and Pacific Gas and Electric (PG&E), a large utility In California, to jointly announce a bi-directional charging partnership. Ford CEO Jim Farley discussed that the connections between electric companies and automakers are becoming more important to achieve a smooth rollout of EVs. According to Ford and PG&E "We have to reinvent the grid… ensuring electrons are both clean & resilient, reliable & affordable, that is what grid reinvention is". The partnership will start with 500 systems that will allow F-150 lightning e-trucks to power homes. For now, it's a pilot but PG&E sees it as a step toward using EVs as a source of power during peak hours in California (note that ~20% of US EVs are currently in PG&E's territory). Ford's CEO added "We have to vertically integrate & secure [battery] capacity, those that have access from raw materials to manufacturing will determine the winners & losers. Supply chains become a strategic advantage". Furthermore, he added that the shift to cars becoming "digital products" (with advanced electronic architectures) is a bigger transformation than the move to zero emissions EVs on its own.

Further highlighting the strategic importance of the new EV supply chain was provided by the US Department of State's Kimberly Harrington who argued that "a typical EV requires 6 times the critical minerals than a conventional gasoline vehicle. This is what drives much of the State Dept's investment right now in this area."

The issue of supply chains and critical materials continued to take center stage when JB Straubel, Founder & CEO of Redwood Materials, took to the stage: "We must look at the entire battery chain to address cost and emissions. If you only do recycling, you must export the recovered raw materials, usually to Asia, where battery components are made. Hence, Redwood Materials is building a fully integrated process in the US". Comments which were echoed by the Schlumberger CEO telling the CERAWeek audience that: "The security of supply is becoming critical for many countries". Similarly, the Lithium Americas CEO added that North American lithium production will have to urgently grow over the next 8 years to match current global output. Which he referred to as "unprecedented growth" that will be required. But it's not just all about the usual resources such a lithium, as other panel discussions highlighted that the road to the energy and mobility transition also depends upon copper and others. Listening to commodity miners/traders (like RioTinto and Trafigura) future supply deficits are looming as permitting, approvals and project investments lag global demand.

The CEO of Rivian Automotive, RJ Scaringe, provided further context from a leading EV start-up perspective, by sharing that the constraint for broad scale adoption of EVs is the upstream supply of batteries and raw materials. According to him the challenge ahead represents a "staggering amount of work and investment that is needed to scale this industry quickly"; and that "90% to 95% of the battery capacity supply chain the industry will need over the next 10 years has not been built yet".

Finally, there was also the realization that new skill sets will become necessary in the future to help accommodate this energy/mobility transition. This is something that Korn Ferry referred to as 'employment value proposition' as especially the OEMs and Tier-suppliers need to come to terms that a different workforce will be required in the future, and new skill sets (like software among others - as also referenced by the Ford CEO). But all is not lost for the 'old economy', as highlighted by the International Renewable Energy Agency (IRENA) which stated that the renewables sector could account for 38 million jobs by 2030. Their message was clear, be a part of the future of energy and mobility and let's work together to advance the transition.

Overheard at the conference:

• Vehicle manufacturers are getting worried globally about the Chinese battery giant CATL, as they are getting too powerful and could pose a geopolitical risk to their supply chain. It was also suggested that even Chinese manufacturers have similar concerns, but more from a fair pricing point of view.
• Such is the anticipated anxiety (or angst) regarding sourcing sufficient raw materials and minerals (especially cobalt and nickel) that Volkswagen is considering setting-up its own dedicated supply chain in China via two local Chinese partners (Huayou Cobalt and Tsingshan Group).

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Dive Deeper:

CERAWeek: Autos & Electric Power - Making the connection - Watch Video

CERAWeek: Rivian CEO speaks on the future of mobility - Watch Video

Webinar: Global EV Charging Outlook 2022 - Watch Webinar Replay

CERAWeek Mobility Conversations - Download Whitepaper

Ask the expert: Tom De Vleesschauwer, Global Transport & Mobility Practice Lead

Ask the expert: Claudio Vittori, Research Analyst, Powertrain & E-Mobility

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Posted 27 April 2022 by Claudio Vittori, Sr. Technical Research Analyst, Powertrain & E-Mobility Component Research, S&P Global Mobility and

Tom De Vleesschauwer, Global Transport & Mobility Practice Leader, S&P Global Mobility

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.