ESG Focus: Here Come The EVs

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FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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ESG Focus: Here Come The EVs 

BloombergNEF estimates US$1.9trn in investment in Australia’s energy sector and low-carbon technologies will be required to reach its net-zero ambitions and that EVs will get the lion’s share – a staggering US$1trn.

-Australian power grids to attract US$11bn annually
-The Fossil-fuel and low-carb trade-off 
-Here come the EVs
-Macquarie identifies winners and losers from fuel-efficiency standards
-Blue hydrogen gets the green light
-Strong role for fossil fuels

By Sarah Mills

BloombergNEF aims its sights Down Under in its New Energy Outlook: Australia, estimating investment of US$1.9trn will be needed to meet the country’s 2050 net zero commitments.

Of that, 95% is expected to flow into low-carbon technologies or supportive infrastructure.

The analysis also estimates Australia could supply as much as 6% of expected low-carbon hydrogen demand in 2050, affirming the prospectivity of the nation’s green hydrogen and blue hydrogen export ambitions.

But to do this, the analysis states Australia’s power sector will need to rapidly scale up investment in wind and solar power, while deploying a fleet of low-carbon grid stabilising back-up energy – at least that’s the cheapest option.

Fossil-Fuel And Low-Carb Trade-Off

BloombergNEF frames it as a race against time, observing that for every US$1 Australia invests in fossil fuel supply between 2022 and 2050, it will need to invest US$6 in low-carbon energy sources.

In other words, the more we spend on fossil fuels, the more our transition bill blows out (although it is not clear whether this is 2022 dollars versus 2022 dollars or 2050 dollars).

The analysis stresses there is still a role to play for Australian fossil fuels (most likely to fund global decarbonisation at the expense of Australian industry and consumers).

Here Come The EVs

BloombergNEF identifies the transport sector as one of the primary drivers of decarbonisation, and expects electric vehicles’ share of new passenger vehicles to rise from just under 4% in 2022 to 100% in 2032.

The EV industry is estimated to constitute the single largest investment in Australian low-carbon technologies going forward, totalling US$1trn, out of the total forecast US$1.9trn.

This compares with a forecast US$391bn investment in low-carbon energy generation.

An average of US$11bn in grid investments will also be required, according to the report.

It is difficult to see how Australian consumers and investors will benefit from the EV rollout (outside of critical minerals exports, which is already a given), given the country does not manufacture cars and all fuel prices are high, and one would expect the lack of incentives might stymie adoption.

Bloomberg’s solution is regulatory enforcement to drive adoption, but that is already on the cards.

The Australian Government published its inaugural EV strategy in April, which included a range of initiatives such as a Fuel Efficiency Standard for new light vehicles; recycling reuse and stewardship for EVs; and funding for EV guidance.

Macquarie says Australia is on track to introduce fuel efficiency standards as flagged in the government’s April EV strategy by year-end to rapidly increase the supply and adoption of affordable and accessible EVs and supporting infrastructure.

The broker identifies Fleetpartners Group ((FPR)), McMillan Shakespeare ((MMS)), SG Fleet Group ((SGF)) and Smartgroup Corporation ((SIQ)) as likely beneficiaries; and expects it could prove a net negative for Eagers Automotive ((APE)).

BloombergNEF does identify a solid investment opportunity in the development of new supply chains for sustainable fuels. Downstream markets for spare parts should also offer opportunity.

Hydrogen Gets The Green (And Blue) Light

The BloombergNEF report posits that both green hydrogen and blue hydrogen (via carbon capture storage (CCS)) will be “pivotal” to decarbonising Australia’s hard-to-abate sectors, suggesting it spies no near term competition domestically from nuclear energy or even biomass.

The analysis also concedes hydrogen transport and lack of concrete global demand remain major challenges for the industry’s global ambitions.

There are no surprises here, nor in the Australian Government’s 2022 State of Hydrogen report, published in April, save for the government announcing its support for the blue hydrogen prospect. 

The Climate Change Authority has also published a new Insight Report on Carbon Sequestration that has come out in favour of carbon capture storage, which is likely to benefit blue-hydrogen prospects and fossil fuel stocks.

The report says CCS will be important in accelerating Australia’s decarbonisation and calls for more investment (we examine the CCS prospect in greater detail in a later article).

It has identified cement, waste, agriculture, land and forestry as key sectors that would benefit from CCS.

Macquarie observes companies with CCUS exposures include: Beach Energy ((BPT)), Downer EDI ((DOW)), Santos ((STO)), Woodside Energy ((WDS)) and Worley ((WOR)).

The broker observes Santos’s Moomba CCS project (in which Beach Petroleum holds a 33% stake) is 60% complete and is on track for first carbon dioxide injection in early 2024.

Beach Energy’s feasibility study for the Otway CCS project is expected by year-end.

Woodside, meanwhile, has gained three greenhouse gas licenses in the Bonaparte Basin, Browse Basin and Northern Carnarvon to progress its own CCS.

Global incentives and subsidies remain a major obstacle for the development of the Australian low-carbon hydrogen export market.

Fossil Fuels Remain On Point

At this stage, the prognosis for Australia sharply reducing spending on fossil fuels in favour of low-carb alternatives appears poor given Environment Minister Tanya Plibersek’s approval of several controversial and environmentally dubious onshore fracking projects.

Bloomberg’s head of Australia Research at BNEF, Leonard Quong, while reaffirming the important role fossil fuels will play in the Australian economy on the one hand, calls for policy support in forcing this switch to decarbonisation in the other:

“The country will need to reform existing policies and energy-market design to accelerate investment in both technologies and workforce needed for the transition – if it is to realise the low-carbon opportunities that lay ahead,” says the analyst.

Such statements are a tad disingenuous. 

It is not Australians or the Australian government driving policy in this country but globalised big capital, which essentially benefits from Australia’s quarry status and will continue to use fossil fuels to drive decarbonisation.

So basically, it’s business as usual. 

If anything, the green hydrogen prospect appears the loser out of recent developments as it will now have to compete with blue hydrogen for government favour and hence investment dollars. 

It also makes Australia's claims to achieving green hydrogen superpower status ring hollow.

Green and synthetic methane are also likely to be drawn into the mix.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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