Ørsted’s halt on hydrogen plant highlights synthetic fuel challenge
ANALYSIS | Ørsted, the world’s largest off-shore wind developer, announced in August that it would no longer build an e-methanol plant to develop sustainable fuel for hard-to-abate industries like aviation and shipping.
Work on the Örnsköldsvik, Sweden, facility began just a year ago and the plant was intended to produce about 55,000 tons of e-methanol per year from hydrogen and carbon dioxide. Mads Nipper, the Ørsted CEO, cited a weak business case as the primary cause for the project’s discontinuation. Lower than anticipated demand for green methanol, high technology costs—even with subsidies—and high interest rates and construction costs all add to the complexity.
For us, the cancellation itself was not the biggest surprise; we have shown before that hydrogen-based fuel is much more expensive than fossil fuel in every sector where it is used. In aviation and shipping, it could be up to 10 times more expensive (see graphs below).
Ørsted is widely considered the greenest energy company in the world. The fact that even this company is struggling to make the investment is the clearest possible sign of the complex business case for synthetic fuel. In July, Shell decided to stop the construction of a bio-diesel plant in Rotterdam. However, Shell CEO Wael Sawan has been very open about the company’s goal to increase shareholder value and get rid of renewable-energy projects that yield low returns.
LESSONS LEARNT
So, what to make of this? The road to sustainable fuel is turning out to be bumpier than many had hoped. This is not just true on the production side, but on the demand side, too, as Boeing CEO David Calhoun made perfectly clear: “There is no cheap way of decarbonising aviation.”
An important lesson for all involved in the transition to a net-zero economy is that the economic viability of the business case is frequently overlooked. This oversight occurs in many transition strategies, both at the sector and corporate levels. Typically, these plans portray the shift as a seamless and rapid progression towards the years 2040 or 2050. However, the actual journey is proving to be more tumultuous than anticipated.
Another lesson is that systemic change towards a greener future is a multistage process.
The first phase is all about inventing an alternative fuel that can replace fossil fuel. The shipping and aviation sectors have passed this stage of developing and testing more sustainable fuel.
The second phase focuses on introducing these solutions to the market, acknowledging and rewarding the companies that succeed in doing so (praise the winners), while also addressing those that fall behind (name and shame the laggards). From our perspective, it’s concerning that even leading companies such as Ørsted are struggling to lead this phase of the transformation.
Fortunately, there are companies like Maersk that are actively forming alliances to expand the use of methanol and ammonia as fuel. Additionally, the previous orders for dual-fuel vessels are now starting to be operational, which is crucial for this stage of the transition.
START OF A TREND?
Consequently, this could postpone the fourth and final stage, wherein sustainable fuel is established as the “new normal” and replace the current fossil-based fuel supported by policies that “hospice the dying activities and companies”. Think of training programmes for workers who lose their jobs in the fossil economy so they can take on green jobs.
These setbacks in the viability of greentech’s business case are not confined to aviation and shipping alone. The Financial Times recently calculated that 40% of the biggest greentech investments under the much-praised US Inflation Reduction Act have been delayed or paused. And that involves projects for electrolysers, electric vehicles, renewables, sustainable fuel and semiconductors. All are important in a low-carbon economy.
The long-term effects of these recent announcements remain to be seen. Should this merely be a routine correction, aligning inflated expectations with reality—a process often ignored—we maintain an optimistic outlook. In fact, this recalibration could be beneficial if it redirects the attention of policymakers and executives from setting higher ambition levels to policies that support tangible action. More emphasis on and supporting policies for viable business cases could act as a welcome relief. However, the possibility that this indicates an emerging, troubling pattern, potentially heralding further adverse developments and setbacks, cannot be dismissed. This is not unprecedented; after all, the initial journey of solar panels and wind turbines was also fraught with challenges.
A business case perspective: hydrogen-based fuel in aviation is up to 10 times more expensive…
Indicative unsubsidised cost of kerosene and synthetic fuel in euro cents per seat per kilometer
…and this is also the case in shipping
Indicative unsubsidised cost of shipping fuel in euro per dead weight tonnage per 1,000 kilometers (euro/DWT/1,000km)
Gerben Hieminga is a senior sector economist focusing on energy with ING
Rico Luman is senior sector economist focusing on transport and logistics with ING
THE BALTIC SEA is evolving into a built seascape. Protecting it requires co-operation and security strategies, alongside the advances in renewable energy and improved digital connectivity that can harmonise innovation with environmental protection.
THE EU AND the circum-Baltic states have made progress connecting the region and increasing prosperity, but Russian political warfare—including the destruction of critical infrastructure and assassinations throughout Europe threatens those objectives.
ESTONIA HAS CAPITALISED on megatrends by developing a digital state and creating a significant and enduring competitive advantage.
OPINION | By 2030, renewable energy is expected to account for half of Latvia’s total energy consumption. Additionally, more than 60% of electricity will need to be generated from renewable energy sources. Latvia has significant potential in renewable energy, particularly through the use of hydropower, wind and solar energy.
OPINION | As a young Air Force lieutenant in the 1980s, I was offered the choice of being stationed on Bornholm or at Skrydstrup, in southern Denmark. Bornholm didn’t say anything to me, so I chose Skrydstrup, which also had the advantage of being closer to my hometown of Esbjerg.
ANALYSIS | By overturning four years of Estonian dominance to become Emerging Europe’s new investment-promotion champion, Latvia confirms that it really is no longer the Baltic laggard.
ANALYSIS | Gotland has been a popular holiday destination for decades, but recently the Swedish commander-in-chief, Micael Bydén, claimed that Russian president Vladmir Putin “has his eyes” on the island. Concern was further ramped up, showing Gotland was just one part of Russia’s ambitions in the Baltics, in the last few days when Russia published a document suggesting that it needed to reassess the maritime borders in the Gulf of Finland.
ANALYSIS | Kremlin-backed attackers are working to influence the upcoming European Parliament elections, according to FireEye, a cybersecurity firm. A hacking campaign has targeted governments and political organisations as well as think tanks and nonprofits, including prominent ones such as the German Council on Foreign Relations, the Aspen Institute and the German Marshall Fund, as Microsoft has reported.