Bloomberg New Energy Finance - Week In Review

This Week In Review was sent on Tuesday 5 August.

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TESLA’S GIGAFACTORY CHARGES UP AS UK OFFSHORE WIND TAKES A BLOW

The electric vehicle market showed signs of revving up last week, while the growth of the UK offshore wind industry took a step back.

Panasonic, the main supplier of lithium-ion cells for Tesla Motors electric cars, signed a deal on 31 July to help build a battery factory that the former's chairman, Elon Musk, needs to lower the prices of his vehicles.

Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools, while Tesla will prepare, provide and manage the land, buildings and utilities, the Osaka, Japan-based company said in a joint statement with Tesla.

The so-called gigafactory will produce cells, modules and packs for Tesla's electric vehicles and for the stationary storage market. The gigafactory is planned to produce 35GWh of cells and 50GWh of packs per year by 2020.

The announcement last week shows Panasonic’s commitment to the battery plant is solid. Responsibilities for the project have now been assigned. Yet, there are still no specifics on the total sum that Panasonic intends to commit. It has been reported that the company would spend between USD 200m and USD 300m initially and could then step up the investment to USD 1bn.

Panasonic is moving cautiously, according to Bloomberg New Energy Finance, given bad experience with past investments and the fact that it would face considerable risk if Tesla’s Model III did not sell as expected. It plans to commit gigafactory investment in phases, taking actual market developments into account.

Recently there has been positive news for both the electric vehicle and energy storage markets, Bloomberg New Energy Finance’s Logan Goldie-Scot told Bloomberg TV 29 July.

“Typically we’ve looked at stationary and electric vehicles as separate markets,” he said. “What’s really important now is looking at them together. When we talk of batteries, there are so many synergies between the two markets, and USD 2.5bn was invested in those two markets in H1 2014 alone.”

Meanwhile, Centrica and Dong Energy last week abandoned plans to develop as much as 4.2GW of offshore wind farms in the Irish Sea, citing challenging conditions that made it too expensive to develop.

The partners relinquished the right to develop the 2,200-square-kilometre Irish Sea zone, according to a statement posted on the website of their Celtic Array venture. UK developers have cancelled more than 9.5GW of potential offshore wind farms since November.

The announcement confirms developers’ concern over offshore wind budget availability under the UK government's Levy Control Framework. The announced budget allocation will only allow for up to 500MW of offshore wind in the first allocation round in 2014, and competition will be high among the 5-6 projects totalling 2GW that are expected to apply in the coming rounds. Bloomberg New Energy Finance covers the details in the Analyst Reaction: UK fog clears for first CfD round, biomass left out.

Affordability and cost reduction potential are crucial in going ahead with project planning. Under these circumstances, Bloomberg New Energy Finance says it is not surprising that developers decide to shelve projects that are not competitive in such a tight budget.

The challenge facing governments in encouraging renewable energy deployment at minimum cost were also on display last week as the Brazilian state of Pernambuco said that it is on the hook to buy power from 96MW of solar projects that won an auction, after other buyers for the electricity did not come forward.

Last October, the Climatescope study from the Inter-American Development Bank's Multilateral Investment Fund and Bloomberg New Energy Finance found that Latin American countries are increasing their share of global clean energy investment, thanks to strengthening policy support. That analysis is currently being updated in a new study, also covering African and Asian emerging economies.

Back to the events of last week, and on 29 July, the European Union agreed “Stage III” sanctions against Russia, in reaction to its continued destabilisation of Ukraine. The sanctions were triggered by the alleged shooting-down of the MH17 passenger plane and continuing obstruction to international teams leading the salvage and rescue effort in eastern Ukraine.

The impact of these Stage III sanctions on the energy sector is likely to be felt long-term, as Russian energy firms must now procure certain specialist equipment from elsewhere and potentially deal with limits on their ability to finance their operations and investment programmes. Several western oil and gas majors have project partnerships with, and equity stakes in, their Russian counterparts, and these may now be under threat as the legal complexities of doing business in Russia limits the value of these investments.

Bloomberg New Energy Finance’s note EU energy sanctions on Russia – not as harsh as feared assesses the full impact the latest measures will have on Europe’s gas market.

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Mexico has already surpassed $1 billion in new clean energy investments this year

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Q&A of the week

Plug Power ‘Quietly’ Builds Hydrogen Empire

Plug Power, the maker of fuel cells for powering forklift trucks, says it’s “quietly” becoming a significant builder of hydrogen infrastructure. Andy Marsh, president and chief executive of the New York-based company, said Plug Power is building 10 hydrogen stations this year at customer sites and greater market opportunities could emerge in the future as carmakers roll out fuel-cell vehicles. 

“Eighty percent of the industrial hydrogen stations being built in the United States today are being built by Plug Power,” he said. “We’re not involved in building retail stations, but we’re certainly giving it some thought.” Marsh spoke with Clean Energy & Carbon Brief over the phone on July 25. 

Q: Plug Power’s share price skyrocketed 200 percent in the first half of this year. It would appear that investors like what they see. What does your order book look like right now? 
A: The company will do $75 million in revenue this year and book over $150 million. On the booking side, that will be a five-time improvement over last year and, on the revenue side, it will be a 2.5-times improvement. Next year we expect to shift between $120 and $130 million. I think one thing is large bookings with [companies] like Wal-Mart, and Kroger and VW, and customers of that nature, are beginning to turn into revenue for Plug Power. 

Q: What’s driving demand?
A: So with Wal-Mart: Wal-Mart is a 24-hour, seven-day a week operation. About every six hours the batteries [in fork-lift trucks] run out of energy, and those batteries have to be replaced and removed and new batteries placed in the truck. That process can take up to 15 minutes. A fuel cell can be refueled in two minutes and back in operation. 

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