OCTOBER 25, 2023

Hello,

In today’s edition: Bill writes about coal’s staying power in the latest story in our climate finance series, while his Data Dive notes a contrasting trend from IEA’s annual outlook. Plus: Amena finds a blind spot in U.S. cleantech subsidies.

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

In poorer nations, coal persists despite energy transition efforts

BY: BILL SPINDLE

Wealthy countries pursuing financial partnerships to help wean lower income countries off coal, the dirtiest of fossil fuels, are running into a host of hurdles despite the general popularity of their approach.

The effort grew out of the United Nations climate conference in Glasgow, Scotland in 2021, where industrialized countries calling for the end of coal faced criticism for failing to help poorer countries quit what was often their main source of energy and economic livelihood.

Thus, partnerships whereby richer nations help fund the energy transitions of poorer nations were born and given the name Just Energy Transition Partnerships — JET-Ps for short. South Africa, whose energy consumption is roughly 70% coal, is the first and has become a cautionary tale for future JET-P's.

The partnership included an $8.5 billion offer: the United Kingdom, the United States, France, Germany and the wider European Union would help pay to close coal-fired power plants in South Africa and to build renewable energy as a replacement while addressing wider social costs such as lost jobs and disappearing tax revenues.

Two years on, this JET-P has been a tough slog for all sides. Little money has flowed so far, and coal use hasn’t lessened. Among other sticking points, the country’s powerful Minister of Mineral Resources and Energy, Gwede Mantashe, openly opposes phasing out coal and is accused of hamstringing renewable energy development.

“They call me a coal fundamentalist. I don’t have a problem with that,” Mantashe, a former coal miner and one-time head of the national mining labor union, told reporters earlier this year.

Despite the headwinds in South Africa, JET-Ps have become one of the primary ways wealthy countries are attempting to help finance energy transitions in low- and middle-income countries.

This is the third in a series of stories Cipher is running ahead of the United Nations climate conference in December about clean energy investment gaps between rich and poor countries.

Other JET-Ps in the works but in earlier stages than South Africa’s include:

• A $20.5 billion deal with Indonesia led by the U.S. and Japan, with contributions from other Group of 7 industrialized countries.
• A potential $15 billion deal with Vietnam.
• A tentative $2.7 billion deal with Senegal, an emerging oil and gas producer.
• India, the world’s second-largest user of coal, is often floated as a candidate for a future partnership (though no formal process has begun).

“One of the really valuable parts of the JET-P model is that it recognizes this isn’t something we can roll out instantly across the world. It has to be a country specific package of assistance,” said Katie Auth, policy director for the Energy for Growth Hub, a Washington D.C.-based group that advocates for energy access in the developing world. “That’s the only way to do this.”

South Africa’s JET-P and the prospective partnerships include a mix of below market-rate loans from multilateral development banks (such as the World Bank and Asian Development Bank), loans from private banks and a controversially small sum of government-to-government grants that do not need to be repaid.

Backers see the partnerships as critical in countries where coal mining and use are deeply entrenched in the economy and political systems. Indonesia, for example, has a young fleet of coal-fired generation plants that are locked into contracts with decades of payment obligations that must be paid whether the plants close or not. Meanwhile, the government caps coal prices, protecting generators from market swings and competition from renewables.

“What are the alternatives in a country like Indonesia, where the market basically does not function?” said Putra Adhiguna, a Jakarta-based energy analyst.

South Africa has drafted a national energy strategy and investment plan as part of its JET-P deal. Many on both sides say that sort of planning — which has focused the government on the country’s energy transition — is critical and may not have happened as quickly without the deal.

Hurdles abound. In August, Indonesia delayed the release of its national energy transition plan, delaying implementation of the JET-P. Vietnam has announced plans to build new coal-fired power plants and recently jailed a climate activist on tax evasion charges, even as it discusses ways to phase down coal with funders. Although India would welcome assistance for it to build renewable energy, it refuses to commit to phasing down coal, which has stymied a partnership deal so far, according to people familiar with India’s discussions with the G7 countries.

Read the full article on Cipher’s website.

Lunchtime Reads and Hot Takes

Carbon Capture Desperately Needs a Reality Check After Lost Decade — Bloomberg
Amy’s take: Could the economics change enough to make carbon capture more successful?

Lithium wars: Japan moves late while the EU leads in recycling — Nikkei Asia
Bill’s take: China dominates the mining and processing of this key mineral for battery manufacturing, but the U.S., Japan and the EU are countering.

EU announces plan to support struggling wind farm industry — Reuters
Anca’s take: You know industry is happy if the main wind lobby group described the plan as a "game-changer."

Biden-Backed Battery Firm Plunges After Pausing Construction — Bloomberg
Amena’s take: The article doesn't say whether work on the lithium-ion battery recycling plant is to resume. I wonder how many other cleantech firms will be forced to shelve their plans for similar reasons.

California looks to add solar and transmission along highways — Canary Media
Amy’s take: This article looks at the potential of building clean energy infrastructure along highway corridors. Why aren’t we already doing this!? Doh.

Chevron buys Hess for $53 billion, 2nd megadeal in the oil patch this month as energy prices soar — AP News
Amy’s take: As the crude game of musical chairs goes on in a world with (eventually) less oil, fewer chairs = fewer companies.

Lack of port infrastructure threatens Scotland’s offshore wind boom — Financial Times (paywall)
Anca’s take: This story, albeit local, sheds light on a bigger global issue emerging as a missing piece of the clean energy puzzle: the need for infrastructure.

Where Malaria Is Spreading — The Washington Post
Amena’s take: The rise in malarial cases is a very real and scary consequence of global warming that cannot be ignored especially in the U.S., where it was supposedly eradicated.

Climate fund talks collapse as rich and developing countries clash — Financial Times (paywall)
Bill’s take: Failing to find a path to finance the loss and damage fund is one of the issues that could upend hopes for a successful COP28 in Dubai later this year.

Pope Francis may attend global climate talks in Dubai — Reuters
Amy’s take: Such a visit, which would up the ante significantly on the already high-profile talks, would be the first such visit since 1995.

More of what we're reading:

• Oil dips as economic concerns offset Middle East supply worries — Reuters
• China imposes export curbs on graphite — Financial Times (paywall)
• The World Has Already Crossed a ‘Tipping Point’ on Solar Power — Bloomberg
• The Great Cash-for-Carbon Hustle — The New Yorker

Cleantech startups spot government funding gap

Photo credit: HadelProductions via iStock

BY: AMENA H. SAIYID

Proponents of clean steel say they have identified a gap in tax credits that affects makers of a wide range of sustainable materials.

Such companies can reap indirect tax benefits from the 2022 Inflation Reduction Act by using renewable energy, clean hydrogen and capturing and storing carbon dioxide. But no direct tax credits exist for producing the products themselves in the law, which otherwise provides some $369 billion in subsidies over 10 years to other types of cleantech.

The lack of direct credits in the law could hamper startups like Colorado-based Electra as they try to scale up novel approaches to steelmaking and compete against other clean steel manufacturers implementing more mature technologies.

Companies trying to cleanly produce other emissions-intensive products, like fertilizer, chemicals or cement, also cannot claim direct tax credits for producing those materials, experts say.

“If we want to get these technologies to market very quickly then these companies will need additional support, something that covers their operational costs, not just their capital costs,” said Julio Friedmann, chief scientist with Carbon Direct, a carbon management firm. “So, something like a production tax credit for green steel or clean fertilizer or low-carbon cement would actually help.”

All of these materials are often overlooked but essential to our modern lives. Making steel and cement, for example collectively accounts for roughly 15% of global carbon dioxide emissions.

Decarbonizing these sectors is a priority for the United States and the European Union to help meet their net-zero carbon goals by midcentury. Cleaning up industrial pollution will likely be a priority if President Biden wins a second term, The New York Times recently reported.

Read the full article on Cipher’s website.

IEA saw massive shift in energy landscape in past two years

Source: International Energy Agency • Figures for 2023 are estimates. Clean energy includes renewable energy sources, nuclear power, fossil fuels with carbon capture, hydrogen and ammonia, energy efficiency improvements, end-use electrification, grids and storage.

BY: BILL SPINDLE

The recent global energy crisis may “usher in the beginning of the end of the fossil fuel era,” the International Energy Agency said in its annual report on the outlook for global energy released on Tuesday.

The events of the past two years, including a rebound from the Covid pandemic and Russia’s invasion of Ukraine, have spurred an expansion of clean energy technologies and could push coal, oil and even natural gas into decline by the end of the decade.

The agency, which is backed by the major industrialized countries that consume much of the world’s energy, said existing national policies will shave the share of fossil fuels in the global energy supply to 73% by 2030 from the 80% it has hovered at for decades.

The forecast underscored the acceleration of clean energy technologies over the past two years, as evidenced by the rapid shift in investments in the above chart, which has compelled IEA to drastically change its forecasts.

In 2021, for example, the IEA said existing policies in the United States would have led electric vehicles to make up 12% of new car sales in 2030. After the Biden administration introduced hefty subsidies for electric vehicles in the 2022 Inflation Reduction Act, the IEA now forecasts fully half of vehicle registrations will be electric by 2030 (if the act’s provisions remain in place).

Similarly, in the European Union, price spikes in natural gas markets have bolstered the installation of highly efficient heat pumps in buildings. The EU is now on track to install two thirds of the heat pumps it needs to reach the bloc’s ambitious 2030 decarbonization goals. Two years ago, the EU was on track to install just one third of the pumps needed by the end of the decade, the agency said.

Even in China, the world’s biggest greenhouse gas emitter and number one coal consumer, solar and offshore wind power installations are proceeding at triple the pace they were in the IEA’s estimates two years ago.

Still, major challenges remain, according to the agency, particularly when it comes to building out transmission networks to handle the huge expected rise in electricity demand. Obtaining sufficient supplies of minerals such as lithium, nickel and cobalt critical for making batteries will also require stepped up investment and new policies, the IEA said.

AND FINALLY...
Power hills

Cipher reader Harry Katz snapped this photo of wind turbines peeking up above the ridgeline in the background and powerlines in the foreground while on the road between Walla Walla and Kennewick in Washington state.

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.