Net Zero

1. Climate policy’s ‘main event’
2. 🟡 India’s EV revolution
3. 🟡 S. Africans ditch the grid
4. Record profits for CATL
5. Big Oil’s myth
6. Trashy energy credits
7. 🟡 Is ESG illegal?
8. 🟡 Big Wind’s troubles
9. Ending Nigeria’s subsidies
10. Pension plans’ blind spot

The ‘main event’ of US climate policy

The U.S. Energy Department has released $8.5 billion for state governments to provide rebates to consumers purchasing home electrification and energy efficiency upgrades. The money — up to $14,000 for some households — is designed to lower homes’ utility bills and carbon footprints and “are in many ways the main event” of the Inflation Reduction Act, in that they’ll deliver climate cash “to the broadest swath of Americans,” Ari Matusiak, head of the advocacy group Rewiring America, said. But accessing the money requires each state to apply for it, setting up a test of whether Republican governors will be willing to stomach taking a climate-related handout.

India’s three-wheeled EV revolution

Road transport accounts for about 12% of India’s carbon footprint, so electric vehicles are a key element of its climate goals. A new analysis from the International Energy Agency emphasizes that motorcycles and three-wheeled vehicles are poised for the fastest transition, since the savings that electric models offer relative to gasoline models are more significant than for cars. As India’s electric grid incorporates more renewables, the emissions benefit of switching to EVs will grow.

South Africa’s unequal solar boom

By Tim McDonnell

THE NEWS

Installations of solar panels are surging in South Africa as a growing number of households and businesses tire of recurrent power cuts. According to new data from the state-owned utility Eskom, the country added more than one gigawatt of solar in just the last two months, a 31% increase and more than it added in the preceding six months.

“What you’re seeing in these numbers is households and the private sector taking matters in their own hands,” said Wikus Kruger, director of the Power Futures Lab at the University of Cape Town. “It’s being driven not by government policy per se, but by desperation.”

TIM’S VIEW

South Africa’s solar boom shows how the falling costs of renewables have made them more viable as solutions to dysfunctional electric grids — for those who can afford them.

Multi-hour blackouts are still a daily reality for most South Africans, as Eskom’s aging power network, which is heavily dependent on coal, drowns in debt and mismanagement, and can’t keep pace with demand. There were more hours of “load shedding” in the first six months of 2023 than in all of 2022, according to research firm Rystad Energy. The traditional alternative for households, diesel-fuel generators, are extremely expensive, not to mention noisy and polluting. The country’s solar market, on the other hand, has been boosted by record low prices offered by Chinese exporters, new tax credits, and regulatory reforms that made it easier for developers of large solar farms to sell power into the grid. Imports of home batteries are also soaring.

But the solar boom is also a story of inequality. Solar is still unaffordable for a majority of South African households, which means uptake is likely to level off soon, Kruger said.

“What we’re seeing now is the low-hanging fruit,” he said. “But I’m concerned about how sustainable this is.”

At the same time, the mass abandonment of Eskom by higher-income households could subvert the utility’s traditional business model in a way that effectively causes low-income households to subsidize higher-income ones. Electricity bills include variable charges for power consumed, and fixed charges that pay for the use of grid infrastructure. A rich household that installs rooftop solar isn’t “off the grid” (they still need grid power at night, for example). But because solar-equipped households pay less overall, low-income households are stuck paying for a higher proportion of the fixed infrastructure costs.

The upshot, Kruger said, is that the government needs to do more to make solar accessible to all households — potentially via higher taxes on fossil energy sales — in addition to the longstanding need to resolve Eskom’s litany of problems.

For now, the solar boom is actually helping Eskom, which needs to generate that much less power as a result: “They need more generation on the grid, and this way they don’t have to pay for it,” Kruger said. But longer-term, the loss of revenue will only exacerbate the utility’s financial woes, leading to more blackouts and more defections — what experts call a utility “death spiral.”

To read the Room for Disagreement and View from Beirut, click here.

Record profits for CATL

CATL, China’s top battery manufacturer, posted a $2.9 billion profit for the first half of 2023, a record and more than double what it earned in the same period last year. Most of the world’s top automakers rely on CATL for EV batteries, putting it in a dominant position in the energy transition. But its time at the top could be short-lived, once cars with Chinese battery components become disqualified for U.S. tax credits starting next year, which could hand a big advantage to CATL’s Korean rivals, Samsung and LG.

Semafor Stat

Annual spending by global oil and gas companies on upstream production needed to maintain a balance of supply and demand for the next decade, according to a new forecast by Wood Mackenzie. Spending hit $490 billion in 2022 and will likely exceed $500 billion in the next year. The forecast contradicts the increasingly common narrative among industry executives that far more investment is needed in oil and gas drilling.

Trashy energy credits

U.S. federal agencies are increasing their spending on renewable energy credits derived from trash-burning incinerators, The Center for Investigative Reporting found. Agencies routinely buy RECs, which essentially allow the green attributes of electricity to be sold by generators to buyers in different parts of the country, as a way to meet their clean energy procurement mandates. Most of these come from wind farms. But a growing number are being sourced from waste incinerators, which are legally designated as a “renewable” energy source despite causing local air and water pollution.

One Good Text

Denise Hearn, senior fellow at Columbia University’s Center on Sustainable Investment. In a new paper, Hearn details how antitrust laws are being deployed against ESG investing.

Perspectives

THE NEWS

The wind energy sector has been blighted by rising financing and materials costs, fierce competition, and expensive technical problems that have led to heavy losses despite demand for energy soaring.

We’ve gathered reporting and analysis on why the industry is struggling and where it’s succeeding.

• Wind turbine producers have struggled with rising steel prices, inflation, and low quality production. Shares of Siemens Energy plunged by close to 30% last month after the company announced technical faults in its turbine business, affecting some of the world’s biggest wind developers. “Turbine prices fell sharply in 2017, which was then followed by the industry introducing new technology and turning to emerging markets for suppliers to keep costs down,” an analyst at JPMorgan said. “Some of the quality and design issues in the industry now are the result of that.” — Financial Times
• This year, the White House announced plans to deploy 30 gigawatts of offshore wind energy capacity by 2030, enough to power roughly 10 millions homes. Reaching the goal will be a tough task: As of July, there are just two operational wind projects in the U.S. which combined produce 0.14% of the government’s 2030 goal. Developers “look at projects and the agreed upon price and are not seeing a path to profitability,” an expert at the Centre for Strategic and International Studies said. — Heatmap
• Meanwhile, China’s wind industry is buoyant. The country’s total wind capacity — both onshore and offshore — now surpasses 310 gigawatts, double its 2017 level and roughly equivalent to the next seven highest producing countries combined. Its capacity is set to double again before 2025 as it seeks to add another 371 GW by then. — The Guardian

— Jeronimo Gonzalez

The cost of ending Nigeria’s fuel subsidies

Gasoline refineries in Europe are paying the price for Nigeria’s decision to end a longstanding fuel subsidy. After the subsidy was eliminated in May, fuel consumption in Nigeria fell by a third, according to government data. What had once been a thriving black market for subsidized Nigerian fuel flowing into neighboring West African countries has also died off. Most of Nigeria’s gasoline is imported from Europe, and in July exports from the port of Rotterdam were half what they were in that month last year. But the subsidy cut could be a win for refineries in the Gulf, whose products are cheaper than Europe’s and could find a new foothold in West Africa.

For more coverage of the continent, subscribe to Semafor Africa’s newsletter. Sign up here.

Watchdogs

A major disconnect between economic modeling and climate science is leading many pension funds to underplay the financial risk of climate change and over-index on fossil fuel companies, a new report from the think tank Carbon Tracker argues. In the report, author Steve Keen, an economist at University College London, argues that the economic projections investment managers commonly rely on ignore many climate impacts that are well-established in geosciences literature, with the result that they project financial consequences of global warming that are far smaller than what climate science signals.

As an example, Keen cites investment guidance from the consulting firm Mercer that projects only a 17% loss of global GDP in a world that is 4 degrees Celsius warmer than the pre-industrial average, even though that level of warming would lead to a catastrophic increase in sea levels, natural disasters, and other impacts. If pension managers followed climate science more closely, he argues, they would have much less appetite to continue investing in carbon-intensive industries.

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