OCTOBER 4, 2023

Good morning,

Listen up! I enjoyed talking about Cipher's story on the Path to Zero podcast while I was in NYC for Climate Week. I'll also be on The Energy Gang podcast airing this Friday.

In today’s edition: Anca has the latest in our climate finance series, a Voices article looks at new and old energy in Colorado and Amena parses where the U.S. is getting its wind turbine parts in our latest Data Dive.

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Send your energy photos, story tips and more to news@ciphernews.com.

Climate cash hopes hang on development bank reforms

BY: ANCA GURZU

When the World Bank holds its annual meeting later this month, the leadership will home in on how the world’s biggest multilateral lending institution can play a larger role addressing climate change.

Much of the discussion will center on ways the bank can leverage its existing capital more effectively to lend more and remove financial risk to encourage private lending in low- and middle-income countries. But experts warn adding fresh money to bank coffers must be part of the plan to have the impact many hope to see.

Debate over reforming multilateral development banks so they can contribute more climate finance has swirled for more than a year. Critics want these large lending institutions to vastly increase their support for the energy transition in poorer climate-vulnerable countries.

Low- and middle-income countries will need an estimated $1.7 trillion a year in clean energy investments; last year, those countries received about a third of that amount.

This is the second in a series of stories Cipher is publishing ahead of the United Nations climate summit (COP28) in December to explain the clean energy investment gaps between rich and poor countries.

“There is a broad agreement that multilateral development banks can and should be playing a much bigger role in climate change financing because they can provide loans with a much longer duration compared to banks on the ground and with better or more concessional interest rates,” said Rishikesh Ram Bhandary, assistant director of the Global Economic Governance Initiative at Boston University’s Global Development Policy Center.

The focus so far has mainly been on how to stretch the existing balance sheets of major lenders like the World Bank. Through a series of accounting tweaks, they would lend more money without asking for additional cash from shareholders, predominantly the United States and other major industrialized countries.

The World Bank has been the largest single global provider of climate finance in recent years, providing almost $32 billion or more than one third of its overall lending. Any changes to how it operates is expected to rewire the workings of similar regional multilateral lenders such as the Asian Development Bank or the African Development Bank.

But even small-scale change comes gradually. While some adjustments are already under way, others are still being mulled.

“There has been a huge political energy around these reforms,” said Alex Scott, who leads climate diplomacy and geopolitics at the environmental think tank E3G. “The decisions that need to be taken to reimagine the international financial system are taken in small doses and in various venues.”

Following a push from shareholders, including its largest, the U.S., the World Bank came out last year with a roadmap meant to re-envision its mission, operations and resources. Barbados Prime Minister Mia Mottley also elevated the issue last year with the Bridgetown Initiative, calling for ambitious multilateral bank reform to supercharge climate lending.

At the annual World Bank meeting, which starts October 9 in Marrakech, Morocco, the board of governors, together with finance ministers, private sector executives and others, will discuss progress in tweaking the rules that govern financial operations — known as capital adequacy frameworks — to free up more capital for loans.

As part of that effort, they’ll also consider progress in lowering the equity-to-loans ratio, which refers to how much money the bank needs to hold in relation to how much it loans out. This accounting adjustment is set to allow the World Bank’s concessional lending arm, the International Bank for Reconstruction and Development, to take more risks and free up an additional $50 billion over the next 10 years.

Regional banks, like the Asian Development Bank, are also tweaking their own rules to free up more lending capital.

Other accounting adjustments are still up for debate. One is how so-called “callable capital” might be leveraged. When a country pledges a sum of money, it actually only sends a portion of that pledge in cash, making the rest “callable” in case it is needed. The idea is that if banks count this callable capital, their final balance sheet would be much bigger.

Other reforms look at how to boost blended finance, which aims to mobilize private sector capital for projects those investors would otherwise deem too risky.

Critics say the banks are too conservative and sit on too much money out of fear of losing their triple A rating. But there are limits to how much banks can achieve by tweaking accounting rules. Bank leaders are deeply wary of ratings agencies downgrading them for lending too much against their existing capital.

Read the full article on Cipher’s website.

Lunchtime Reads and Hot Takes

Americans don’t hate living near solar and wind farms as much as you might think — The Washington Post
Amy’s take: This is encouraging, but I wonder if this is a case of people being supportive of something in the abstract, but not so much in reality.

Biden’s Signature Achievement Needs to Go Global — Foreign Policy

Bill’s take: The Inflation Reduction Act’s impact is still reverberating around the world. To maximize impact, and avoid more backlash, the U.S. needs to actively support the spread of the technologies the law accelerates.
 
A New Nimbyism Blocks Carbon Pipelines — The Wall Street Journal
Amy’s take: One farmer makes an interesting argument about why fuel pipelines are more useful than these kinds. I wish the article would have addressed the safety concerns at least briefly.
 
The UAE holds a major oil and gas conference just ahead of hosting UN climate talks in Dubai — AP News
Bill’s take: Al Jaber has strained to straddle a chasm between climate activists and the industry whose products are responsible for about 80% of emissions.

EU launches first phase of world’s first carbon border tariff — Reuters
Anca’s take: At stake here is Europe's ability to encourage a worldwide shift to greener production while protecting its competitiveness back home.

India Energy Storage Plans Need Subsidies, US Executive Says — Bloomberg
Bill’s take: Finding ways to store renewable energy, for periods of hours and days, is critical to begin trimming coal consumption in the world’s third-largest greenhouse gas emitter.

A Futuristic Plan to Make Steel With Nuclear Fusion — The Wall Street Journal
Amy’s take: The partnership between U.S. steel giant Nucor and fusion startup Helion Energy shows early, key demand for Helion’s product. Also, fun fact: Nucor used to be called Nuclear Corporation before pivoting away from the fuel.

Why the Rush to Mine Lithium Could Dry Up the High Andes — Yale Environment360
Amena’s take: The article raises serious concerns about how we must balance our need for these minerals without imperiling ecosystems and water supplies for locals.

The Climate Sleuth Uncovering Methane Leaks for the United Nations — Bloomberg
Anca’s take: It's so important to know about these people and the work they do. They work 'behind the scenes,' yet make a huge difference.

Chinese battery makers brace for price war to supply EV producers — Nikkei Asia
Bill’s take: As with solar panels, cut throat competition between Chinese battery makers will drive prices lower — a boon for EV buyers but a major challenge for battery manufacturers everywhere.

Capturing Industrial Carbon Is All About Managing Volatile Costs — Bloomberg
Amy’s take: I find this a helpful explainer as we consider whether costs will ever significantly decline for this tech—or whether it will always stay a bit too high for most applications.

More of what we're reading:

• COP28 chief urges energy groups to prepare for fossil fuel ‘phase down’ — Financial Times (paywall)
• September shattered global heat record — and by a record margin — The Washington Post
• European leaders’ dilemma: Keeping voters sweet while still tackling climate change — POLITICO
• Infographic: How are carbon offsets supposed to work? — Carbon Brief

Iron batteries offer an energy transition lesson

BY: SIMON LOMAX

Simon Lomax is a visiting fellow with The Western Way, a conservative nonprofit that seeks pro-market solutions to environmental challenges, and a program manager with the Payne Institute for Public Policy at the Colorado School of Mines. You can reach him at slomax@mines.edu.

To build a zero-carbon economy, we need technologies that can store large amounts of energy for a long time.

With better energy storage, we can generate more electricity from wind turbines and solar panels, and then put that electricity to work whenever it’s needed and not just when weather conditions are favorable.

So far, the field of energy storage has been dominated by large batteries, and lithium-ion batteries in particular. These are the types of batteries found in cell phones, laptop computers and, on a bigger scale, electric cars.

But in Colorado, a promising new battery technology is being prepared for use by the state’s largest utility, Xcel Energy. It’s called an “iron-air” battery and, quite fittingly, it will be built in the iron and steel town of Pueblo.

Iron smelting and steel production first started in Pueblo in the 1880s. The city later became known as the “Pittsburgh of the West.” While Pueblo’s steel industry may be smaller now, rails, pipes and other steel products are still made there today.

The iron-air battery, developed by Boston-based startup Form Energy, is slated for construction on the same site as Xcel’s Comanche coal-fired power plant, which is due for retirement by 2031. The 10-megawatt (MW) battery will hold electricity for 100 hours (just over four days) and will take advantage of the existing transmission infrastructure at the site to connect to the power grid.

Read the full article on Cipher’s website.

Federal subsidies poised to ease U.S. reliance on imported wind parts

Source: Land-Based Wind Market Report: 2023 Edition, U.S. Energy Department. • Figures are in 2022 dollars. Components include four different categories encompassing the entire wind turbine structure.

BY: AMENA H. SAIYID

The United States relied on Mexico, India and Spain for key onshore wind energy parts in 2022, but government analysts say that dependency may ease up as federal subsidies to boost domestic manufacturing take effect.

Those three countries together provided nearly 80% of the wind blades installed across the country last year, according to a recent report from the U.S. Energy Department.

President Joe Biden has made decarbonizing the power sector by 2035 and boosting domestic cleantech manufacturing key aspects of his climate agenda. Wind energy — both onshore and offshore — has a critical role to play in meeting the 2035 goal.

Wind projects have recently been buffeted by a series of economic setbacks, including soaring steel prices and interest rates. But analysts say the onshore wind industry may start growing again as the newly expanded production and clean manufacturing tax credits from the 2022 Inflation Reduction Act kick in.

The prospects for wind energy in the longer term will be influenced by the implementation of the 2022 law, which not only provides extensions and expansions of existing tax credits for deploying clean technologies but also includes new incentives for the buildout of domestic cleantech supply chains.

The U.S. has made strides in boosting some parts of wind turbines, but not others, according to the Energy Department report.

For instance, over 85% of nacelle assemblies (the large white boxes that house all the energy generating components like gearboxes at the top of wind towers) and 70% to 85% of tower manufacturing for wind power installed in the U.S. in 2022 occurred in the country. In contrast, the domestic manufacture of blades and hubs has “declined precipitously” in recent years to just 5% to 25% in 2022, according to the report.

The U.S. will see less reliance on imports going forward as more domestic factories taking advantage of IRA tax credits come online in the next three or four years, said Ryan Wiser, report author and senior scientist with the U.S. Lawrence Berkeley National Laboratory.

Despite a lag between the time companies make announcements, begin construction and bring factories online, Wiser said he expects to see a resurgence in the domestic wind supply chain in the years ahead.

AND FINALLY...
Art power

This interactive art installation shows global electricity transmission and distribution. The lines move based on where you move your hands. Although it’s labeled "global power grid," Cipher readers know technically no single power grid exists! The Cipher team spotted this recently at ArtecHouse NYC, a digital art museum.

Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.

Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.