The Sustainable Investor weekly (issue 42)
30th September 2022
Topics - Do we really understand the best way EV charging should work, Dengue in France - is this climate impact already and what are the possible implications, how worried should we be about fires in tall timber buildings (spoiler alert, not as much as we think), and new power electronics being developed to make renewable dominated and decentralised grids easier to manage.
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This week’s blog has a bit of a regulatory theme, although maybe not regulation as its commonly thought of. In our top story we look at how our “charge your EV at night” approach could end up costing us billions in extra electricity grid spending, and how to fix it we need to change the rules around time-of-day pricing. We then look at the increase in Dengue fever cases in France, and what this might mean for our thinking about longer term risks in our investment portfolios. Then we shift back to regulation, this time in our built environment, and how a lack of enforcement of building regulations is limiting the contribution that timber framing could make in decarbonising the construction industry. And then we finish with the role of power electronics in changing how we manage the flows of electricity in our grids. It might sound geeky, but we are very excited about the potential of these technologies to create the electricity grids of the future.
Transport: are we thinking correctly about EV charging ?
Should we be charging EV's during the day (Stanford University)
In a nutshell - what does the story say
Researchers from Stanford University, in a research paper snappily titled, “Scalable probabilistic estimates of electric vehicle charging given observed driver behavior” looked at how EV driver charging behaviour could increase future stress on the Western United States electricity grid. In a little over a decade, they found that rapid EV growth alone could increase peak electricity demand by up to 25%, assuming a continued dominance of residential, night time charging.
Shifting current EV charging from home to work, and night to day, could cut costs and help the grid. How does this work, put simply, California has excess electricity during late mornings and early afternoons, thanks mainly to its solar capacity. If most EVs were to charge during these times, then the cheap power would be used instead of wasted (curtailed). If most EVs continue to charge at night, then the state will need to build more generators – likely powered by natural gas – or expensive energy storage on a large scale.
Our take on this
Why is this important ?
Investing in the infrastructure required to charge the growing number of EV’s should be a massive opportunity, allowing investors to earn a fair financial return and to make a real difference. We see two challenges, the first is that it’s not obvious which charging approach will be successful, and the second is how can you make a profit, regardless of the operating model that becomes the eventual winner. The first challenge is one we are used to, it’s all about making investment decisions under uncertainty, something we have to do all the time.
But the second one, will the business models generate a profit, is a tougher one, especially if we start to factor in the extra costs of strengthening the electricity grid. There are a number of companies doing well supplying “at home” chargers, a growing market. And there is some demand for fast chargers, often partly funded by the auto OEM’s or via governments. But one question we regularly ponder is - what if the big long-term opportunity wasn’t at home EV chargers or fast chargers, but actually mid-sized, mid-speed chargers that can be used at workplaces and at travel and/or shopping destinations! Maybe bundled with onsite renewables or set up as charging as a service (CAAS).
This question is driven in a large part by thinking about when people will want to charge their EV’s and how we can best provide the electricity to enable this. We should be using the cheapest, and greenest, source of electricity generation we have available for use in EV charging. The logic of charging at night might make sense in a few markets, which have high levels of low carbon base load that can/has to run constantly, so hydro and/or nuclear. But as the article highlights for most markets “current time-of-use rates (ie cheaper at night) reflects the time before significant solar and wind power supplies”, which have dramatically changed the supply/demand balance.
This analysis relates to a grid (California) where renewable generation is mostly solar, with clear midday peaks. However, just as a sense check, we looked at the generation mix in the UK this week (so with winter approaching) and it shows a similar (although smaller) midday solar peak (the darker brown in the chart below).
The growth in EV’s is a key element in most countries efforts to decarbonise transport. And integral to delivering this is charging availability. According to McKinsey research, potential EV drivers put the lack of charging infrastructure at the top of the list of barriers to expanded EV adoption, above cost of vehicle purchase
Politically, there is a lot of focus placed on residential and public charging, with the assumption that most drivers will charge at night, when the EV is parked up. But what if that route was the one that imposed the greatest cost on the grid ?
The Stanford report estimates that once 50% of cars on the road are powered by electricity in the Western U.S., more than 5.4 gigawatts of energy storage would be needed if charging habits follow their current course. That’s the capacity equivalent of 5 large nuclear power reactors.
And a recent report from ACEA and others on the situation in Europe estimated that “Grid upgrades due to EVs will cost €41 bn by 2030 – 11% of total DSO investments into upgrades for electrification of buildings and mobility and the transition to fossil-free electricity generation by 2030”. On top of this they estimated Europe needs to spend “E69bn for the required deployment of renewables, some 18% of total renewable investments until 2030, to generate the additional electricity needed for EV charging with new green energy capacity”.
The other question that is worth asking is “are at home chargers what most consumers actually want?” A recent presentation from ChargeUp Europe estimated that, measured in terms of total units, residential charging is more than twice as large as workplace charging. But this does not tell the full story. Workplace charging units are used twice as often (>8 charging sessions per charging point per week on average), and drivers’ consumer 4x as much electricity (400 kWh charged per week on average) when they charge at work.
There are a number of barriers, mostly around time-of-day tariffs and regulation, that need to be changed if this alternative approach can be made to work financially. Such change will likely need lobbying by investors and asset owners, pushing change. This is a new form of engagement, but one that we can see becoming more important over time.
What other issues does this raise you need to be aware of
This is not the only approach to challenge conventional EV charging wisdom. Some early adopters of heavy-duty electric trucks are turning misconceptions about range and charging speed on their head. The European company Rockwool provides an interesting example.
They have been using an early version of the Volvo FM heavy duty electric truck, which has a load capacity of up to 44 tonnes, and range of 300kms. In the application used by Rockwool, the range didn’t matter. It has been operating 24/7, through three different shifts, without any downtime.
The reason the electric truck can do this is simple. It has a 540kWh battery, and it’s running on a 14km loop ferrying goods between the distribution centre and its destination. It uses 1.4kWh each kilometre and every time it comes back to base to be loaded, it uses the opportunity to charge up at the same time – using a relatively small 40kW charger.
Climate Change: Tropical diseases beyond the Tropics
Dengue found locally in France (The Conversation)
In a nutshell - what does the story say
Native cases of dengue have been found in several French regions including Provence-Alpes-Cote d’Azur and Occitanie. Whilst there are a number of imported cases every year (brought back by people who have travelled to at-risk countries), local dengue transmission (where someone is bitten by a mosquito having not travelled to an at-risk country) has risen markedly. Since 2010 annual cases of local dengue transmission have averaged 12 per year, but there have been nearly 40 since July 2022.
It is believed that climate change is creating new habitats for mosquitoes such as Aedes albopictus and Aedes aegypti which are a vector for flaviviruses such as dengue, yellow fever and Zika.
There have been over 570 cases of West Nile Virus in Europe this year, most of which have been in Veneto whose lowlands are proving to be an ideal habitat for the Culex mosquito, which carries the West Nile Virus.
Our take on this
Why is this important ?
Obviously, this is an interesting story in its own right. But it also suggests some useful lines of thought for us as investors. First thought - we need to expand how we think about the potential longer-term impacts on our investments. Increased incidents of disease, in humans, animals and plants, are not going to just take place in economies around the equator. We need to be much more aware of the risk that previously “hot climate” diseases such as dengue fever will spread into previously “cooler climate” regions. And second, we are likely to need a lot more testing, with a consequential increase in the need for vaccines etc.
We’ve probably all been bitten by insects at one point in our lives, but now the type of insect that could bite us is changing, potentially bringing tropical diseases beyond the tropics. According to the WHO the rapid growth in dengue incidence has put almost half of the world’s population at risk. Before 1970 only 9 countries had experienced severe dengue epidemics. Globally an estimated 100-400 million cases occur and whilst more than 80% are mild and asymptomatic, there is no specific treatment for severe dengue. There are effective vaccines for yellow fever but availability, particularly in tropical areas of Africa and Central and South America, mean that the virus is endemic. By contrast, malaria is seeing great advances with recent successful trials of potentially game changing vaccines providing hope.
The establishment of Aedes invasive mosquitoes has grown through Europe. The maps below show that movement (in red) from October 2020 until March 2022. Look especially at Spain and France !
Unsurprisingly, the UK Health Security Agency is actively scanning the Thames Estuary looking for mosquitos exhibiting signs of malaria and even West Nile Virus.
What other issues does this raise you need to be aware of
Climate change impacts health in a number of ways, both directly and indirectly. Extremes of temperature causing hypo- and hyperthermia as well as extreme weather events leading to injury or displacement are examples of direct impacts. However, changing climate can also impact human immune response due to air pollution, triggering mutations that can cause disease and altering water courses can bring microbes into environments where they can be pathogenic.
Changing climates can lead to changes in the migration of animals, birds and insects that can carry with them infectious diseases to areas where there may not be any natural protection such as herd immunity or even basic prevention methods such as mosquito nets. In addition, that migration as well as changes to the landscape, both natural and by humans, can bring species into closer contact than they would normally be and risk the development of zoonotic diseases - we are sadly all too familiar with one of those in recent years. A modelling study predicts that climate change will drive more than 15,000 new cases of mammals transmitting viruses to other mammals.
The migratory patterns of wildlife including birds has a number of other implications most notably on biodiversity. Almost 90% of plant species are dependent on birds to disperse their seeds, making it harder for those plants to adjust to climate change as migratory patterns and fruiting patterns fall out of sync.
Additionally, the impact of changing insect populations can impact pest control in agriculture potentially impacting food production. Inappropriate use of pesticides has in some cases bred resistance but also climate change is also impacting how various insect and ‘pest species’ interact resulting in the same effect: reduced crop yields.
Of course, globalisation and the increase in travel that comes with that also brings an increased risk of ‘non-vector transmission’ where individuals bring back diseases from countries with a prevalence of those diseases. Often basic precautions such as vaccination, consuming safe food and water and taking measures to avoid insect bites can minimise the risk and whilst an increase in monitoring measures as a result of the covid19 pandemic have improved the ability to detect potential carriers, incubation periods mean that some will always get through. Rapid testing technologies will continue to play an important role in disease control.
Built environment : why woodn’t you?
The future of buildings: Finland's wood city (BBC)
In a nutshell - what does the story say
With 75 percent of Finland covered by forests, wood is a readily available material for construction. Finland is aiming to reach carbon neutrality by 2035 and given that wood has 20 to 30 percent lower GHG emissions than concrete/steel/brick buildings, its usage will likely grow.
Developers are increasingly swapping concrete and steel for wood. The Federation of Finnish Working Industries’ data suggests wood is a key material in 4 percent of apartments and 16 percent of commercial buildings. Wood City in the city centre of Helsinki comprises hundreds of wooden apartments, the wood lined headquarters of gaming company Supercell, as well as a number of buildings under construction including the new offices of WithSecure which will be constructed of engineered wood.
Our take on this
Why is this important ?
One part of the solution to some of our hard to decarbonise sectors, so cement and steel, could be to use different materials in construction. Timber is a material we have used for hundreds of years, and technological improvements, such as gulam (glued and laminated) beams, mean that it can be used as a structural element, allowing the construction of taller timber commercial and office buildings. Coming from New Zealand, where timber is a commonly used building material, its application is obvious. So, what are the opportunities and the barriers to a wider adoption?
First, opportunity. The built environment is an important area of focus for sustainability investing. It represents over one third of global final energy use, generates nearly 40% of energy-related Green House Gas (GHG) emissions (which in themselves are 75.6% of total GHG emissions) and consumes 40% of global raw materials. It is now estimated that over 56% of the world’s population lives in cities and that by 2050 more than two-thirds of the world population will live in urban areas putting upward pressure on the contribution of the built environment to resource consumption, GHG emissions and ultimately anthropogenic global warming.
A 2019 study published in the Journal of Building Engineering found that replacing concrete and steel with a hybrid CLT in the building structure presents significant environmental benefits including “an average of 26.5% reduction in global warming potential.” Other countries in addition to Finland are pushing ahead. For instance, France requires new publicly funded buildings to comprise 50% timber or natural materials by 2022.
Finland’s Climate Change Act which was approved earlier this year has them aiming to be carbon negative by 2040, joining Bhutan, Suriname and Panama that have already been declared carbon negative. Finland’s forests will be an important part of their toolkit as will reducing emissions from agriculture, transport, building and waste industries, and changing their power generation mix. However, as more trees are removed for building, as well as for other purposes such as paper, then replanting logged areas needs to be carefully managed. In 2021, the land use sector was for the first time a net source of emissions at 2.1 million tonnes of CO2 equivalent, which Statistics Finland believe was due to “... fellings implemented at a high level and the falling trend of annual increment of growing stock.”
There are a number of other natural resources that could be used in place of wood including hemp, cork (ok so that is from a tree but the bark rather than the core), kokoboard (made from otherwise discarded peanut shells, rice straw, husk and coconut dust) and bamboo. As a building material, bamboo is an interesting one, although not without its own controversies. On the plus side it shows comparable strength by comparison to engineered wood products and it grows much faster than wood (one millimetre every ninety seconds). It also has good thermal performance owing to its naturally cross-laminated fibre structure.
What other issues does this raise you need to be aware of
We tend to think of timber as mainly being used in residential buildings, but it’s also used in commercial premises. 80 M Street SE in Washington DC was opened in September comprising three floors and 108,000 sq ft of commercial office space - built using over 1,300 tons of mass timber. The Ascent MKE in Milwaukee, Wisconsin is 87 metres high, pipping Norway’s Mjosa Tower to be the tallest timber building. So, it’s not just a material we can use to build our homes.
Timber use in low rise residential buildings is already increasing. Here it’s relatively uncontroversial (we will talk about sustainable sourcing in another blog) and its advantages are largely about speed of construction and hence cost. It has been estimated that using this approach can take 10 weeks off the normal 26 week build time. Being able to assemble the timber components in a controlled factory environment and then truck them to site for quick erection is a major advantage.
Where the use of timber becomes more problematic is in multi-story structures, where it needs to retain higher levels of structural strength. Here the main concern is safety, particularly as it relates to fire. The aftermath of the Grenfell disaster saw the UK government impose limits on the use of combustible materials in residential buildings higher than 18m, which was subsequently extended to 11m high buildings in June of this year.
Let’s start with the challenges to an increased use of timber in tall buildings. The main ones are out of date building standards to allow for charring in fires (timber members are designed such that the undamaged timber remaining beneath the char layer is able to support the required loads), the possible delamination of engineered timber in serious fires (destroying structural strength), and the risk of external fires spreading faster (fires in buildings with large amounts of exposed timber surfaces lead to larger and more extensive external flames projecting from window openings etc).
All of these challenges are technically solvable. There is a major international effort underway to develop a state-of-the-art guide for the fire design of tall timber buildings. This is due to report back this year, and it will enable global best practice to be included in national building codes and standards.
But this only gets us part of the way there. The real problem, as exposed by the UK Grenfell disaster and others, is the gap between standards and what actually gets built. Put simply, engineers and architects cannot control the detail of construction quality (we argue they should, but that is another debate). To illustrate the harm that poor build quality on site and compliance with codes can cause, let’s use a real example.
Timber frame buildings are supposed to contain cavity barriers – typically small rolls of mineral wool insulation which prevent hot gases from a fire entering a cavity and limit it from spreading if it does. For these to work, they must be fitted correctly on site. Following concerns about quality, one of the UK’s largest house builders, Persimmon, commissioned Stephanie Barwise QC to carry out a review of its operations. She concluded the builder had “a nationwide problem of missing and/or incorrectly installed cavity barriers in its timber-frame properties”. This was said to be “a manifestation of a lack of supervision and inspection of the way in which building work is carried out”. If this is not done properly, all of the work done on building standards and codes is wasted. And timber framing will not deliver the benefits, both in terms of building cost and environmental impact, that it can.
What is the solution. It’s complicated but at the same time simple. We need to spend more on skilled and trained builders and inspectors. and we need to ensure standards are being followed. What can we do as investors - demand action from the management teams and boards of the companies we are, or want to be, invested in. This is potentially a real engagement win, get involved in understanding the problem and then push to make the solutions happen. And keep monitoring.
Electricity grids: managing two way flows
Managing two-way power flow to commercial buildings (Tech Explore)
In a nutshell - what does the story say
Researchers at Oak Ridge National Laboratory (ORNL) recently demonstrated a new technology to better control how power flows to and from commercial buildings equipped with solar, wind or other renewable energy generation. The team designed a hybrid AC/DC power electronics hub to act as a gatekeeper between the larger grid and subsystems including renewables, generators and battery storage. The technology was developed and tested in the Department of Energy's Grid Research Integration and Deployment Center, or GRID-C, at ORNL.
As part of the project, emulators were set up to mimic the electrical draw and generation of a solar array, a storage battery, an emergency generator and a critical data center with high electrical demand. The power electronics hub was programmed to autonomously manage the power flow of all these electrical loads, helping prevent fluctuations in supply and demand on the wider electrical grid.
Our take on this
Why is this important ?
Regular readers will know we are big fans of the investment potential for power electronics on our electricity grids. The future we see is a very decentralised grid. While this offers massive benefits in terms of say electricity decarbonisation potential, it also creates new challenges, put simply the job of the grid operator is getting a lot more complicated (this is going to be the topic for a new long blog shortly). And we need to find solutions to these challenges, or we will not get close to our targets in terms of electrification (EV’s, building heating and cooling etc) and decarbonising electricity generation. Put simply, if we cannot ensure that a grid dominated by variable renewable based generation can be made stable, then many countries will hit a massive barrier soon to adding more wind and solar.
One part of the solution is power electronics. In an earlier blog we discussed the application for a form of power electronics called grid forming invertors. These allow renewable generation sources such as solar, to act to stabilise the electricity grid in times of stress. This solution is slightly different. It addresses the challenge for the grid operator of trying to manage potentially millions of different electricity generators and users, which is what happens when we move to decentralised grids. From a utility perspective, all of the equipment managed by the new hub would be seen as a single connection point, potentially massively reducing complexity.
This is an advantage for power companies faced with incorporating distributed and intermittent energy from solar, wind, geothermal and other renewable sources into a century-old grid that was designed instead to push steady flows of energy out from centralized power plants. Similar concepts have been tested by some utilities, but these approaches use a single vendor's proprietary products in a prescribed way. Because ORNL constructed the power electronic converters and many of the components, the resulting technology is openly available and can be customised to achieve specific goals.
This blog has already got too long (a common problem we face) and so we will leave it here, but it’s an opportunity we will come back to later in a long format blog.
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