Energy Transition Digest: 17-23 June 2024

1. Adaptation Needs More Innovation and Funding

Climate adaptation is the next wave of climate investment, according to Paul Bodnar , Director of Sustainable Finance, Industry, and Diplomacy at the Bezos Earth Fund .

So what? Adaptation is the underdog of climate finance – less than 10% of money goes to making livelihoods and economies more resilient (vs climate mitigation). This needs to shift as the negative impacts of climate change become more frequent and severe.

Details:

• Of the $1.27 trillion average annual climate finance flow, only up to $114 billion (9%) is used for adaptation. Besides, adaptation finance is geographically concentrated mostly in developed countries and dominated by public actors.
• The distribution is quite similar if we zoom in on climate tech (venture funding and deals in private climate tech companies) – innovation in the sector is lagging compared to other environmental objectives and is concentrated almost entirely in Europe and North America.
• Spotted at the HackSummit : Catalyst Fund is an example of a VC specifically focused on adaptation; they support ventures working on climate resilience in Africa – impressive!

"Unfortunately, climate-proofing life on earth is a growth industry in the 21st century. <...> This should be at least as interesting to investors as decarbonization." – Paul Bodnar, Director of Sustainable Finance, Industry, and Diplomacy at the Bezos Earth Fund (source).

2. World Energy Stats Show Challenges in Transition

Energy Institute published the 2024 Statistical Review of World Energy.

So what? The key message seems to be that energy transition remains a massive challenge. Despite years of rapid growth, renewables (including hydro) still account for only 14.5% of global primary energy consumption, and this share grew only 0.4 p.p. last year. Fossil fuel use and energy-related emissions reached new record highs in 2023.

Details:

• Global primary energy consumption reached 620 exajoules last year (+2% vs 2022), of which 81.5% was met by fossil fuels, 14.5% by renewables, and 4% by nuclear.
• Energy-related GHG emissions reached a record 40 Gt CO2e, driven by the increased use of oil and coal, while natural gas consumption remained relatively flat. Emissions in Europe and the US decreased, while in China and India, they rose significantly, mostly due to coal use.
• There are stark regional differences in almost any indicator. For example, the average per capita energy consumption in North America, CIS, and the Middle East is six times higher than in Africa, South Asia, and South & Central America.
• The report has many more insightful data points and graphs – check it out for yourself!

3. New Lithium Projects Developed in Europe

Serbia plans to approve Rio Tinto 's Jadar lithium mining and refining project in the country.

So what? At present, European OEMs using lithium are fully dependent on imported material. However, there is a pipeline of projects that can build up domestic processing capacity. Jadar project adds to this pipeline and can strengthen the European supply chain.

Details:

• Jadar is a $2.4bn mine and processing plant with a 58,000 t per year capacity. It was stopped in 2022 following environmental protests, but if approved now, could be completed by 2028.
• Lithium mining is virtually nonexistent in Europe today, but there are 21 projects in the EU and the UK (except Jadar) that can collectively add 650,000 t of lithium processing capacity by 2028 if implemented.
• Building up domestic lithium mining and processing capacities aligns with the EU Critical Raw Materials Act, which sets EU self-sufficiency targets in key minerals. It also helps OEMs straighten their supply chains and improve transparency, which is important in the context of the recently adopted EU Corporate Sustainability Due Diligence Directive.

4. Record Low Prices in Kazakhstan Wind Auction

100 MW of onshore wind was allocated to two bidders in Kazakhstan renewable energy support auctions with a price of ~$0.02/kWh.

So what? This is an incredibly low price, not only for Kazakhstan but compared to global benchmarks, too. What also raises eyebrows is the relatively small scale of the projects. But if they are legit, it reaffirms the competitiveness of renewable energy in the country.

Details:

• 90 MW was allocated to "Neptune Wind" LLP at KZT 10.37/kWh (~$0.021/kWh), and 10 MW to "Shual" LLP at KZT 9/kWh (~$0.019/kWh). Both projects will be built in East Kazakhstan.
• At least Neptune Wind is affiliated with Universal Energy Co., Ltd. , a Chinese company present in Kazakhstan with 380 MW across six wind and solar projects. This suggests that the new project will use wind turbines from China, potentially explaining the low price point.
• Saudi Arabia recently achieved record low prices (below $0.02/kWh) in two onshore wind auctions, but these projects were of much larger scale: 500 and 600 MW.

5. Alternative Solution for Scope 3 Emission Reduction

Scope 3 Impact Delta and 年利达 proposed STAC – a new contract framework to enable emission reduction in corporate supply chains, as an alternative to carbon credits.

So what? As companies are putting more effort into reducing their Scope 3 emissions, voluntary carbon markets have unclear prospects because of controversies and regulatory limitations. STAC is designed as an emission reduction contract between a company and its supplier, compared to a book-and-claim system in the case of carbon offsets.

Details:

• STAC (sector-transition acceleration contract) represents a direct deal between a company and its supplier whereby payment is linked to a measurable emission reduction target.
• STAC is designed as a standardized and financeable instrument – to allow suppliers to finance upfront decarbonization investments using STAC to attract, e.g., bank financing.
• The vision is for STAC to be integrated into globally recognized frameworks like the Greenhouse Gas Protocol (GHG Protocol) and Science Based Targets initiative .