Since the Paris Agreement made at COP21 in December 2015, commitments have been made to avoid the worst impacts of climate change by limiting global warming to 1.5°C above pre-industrial levels. But what does it mean for the glass industry, which has historically been mostly reliant on carbon emitting fossil fuels for the melting process? Will container glass customers move towards paper, bio-plastics or aluminium? What about flat glass and tableware? Is there a low carbon glass melting process that can secure its usage in decarbonised economies?
Considering the decarbonisation trajectory defined by the Paris agreement, the Intergovernmental Panel on Climate Change (IPCC) stated that in order to limit global warming to 1.5°C, the world must be carbon neutral by around 2050. Global emissions projections show how that with current efforts, global warming is likely to reach 1.5°C between 2030 and 2050 (1). Owens-Illinois, NSG and Saint-Gobain have all made public commitments towards this goal by engaging with the Science Based Targets initiative, which demands an individual trajectory towards carbon neutrality in line with the global goal. This suggests that the biggest players in the glass industry are committed to completely decarbonising their melting processes – likely eliminating fossil fuels altogether.
What are the options today?
There are potentially many fuel options and methods from a sustainable energy standpoint but this article will focus on the four most potential sources today: Natural gas – the business as usual case; hydrogen – perceived as similar to natural gas but a big step, as it lacks established infrastructure and technology; hybrid electric with natural gas or hydrogen – another big step as also technically unestablished; all-electric (2) – redesigning and scaling up a 100+ year old technology to meet the needs of today’s industry.
Why think differently?
Historically, energy cost was relegated to a single line or two in the business case presented to management for a new furnace. The same business case devoted 200 lines or more to the capex breakdown. It can be surmised that with only one fuel to choose from, it made no sense to model this out further, as competitors were exposed to the same future market conditions.
Now there are multiple different variables in the equation; natural gas, power, carbon and renewable electricity. Each of these has different fundamentals and is independently impacted by sovereign risk that varies between countries.
Consider now that tweaking that energy cost figure by just 10% can make a bigger $/tonne difference than a 50% change in capex. Said another way, one could work incredibly hard to reduce the capex of a natural gas furnace design only to have those savings completely wiped out by a 10% gas price increase, compared to a competitor who chose an all-electric furnace driven by fixed price renewable electricity. Complex and hard to quantify in just one line of a spreadsheet, right?
Can the options be carbon-neutral?
Start with the three most challenging fuel sources to decarbonise: Natural gas, hybrid electric/natural gas and steam methane reforming (SMR) originated hydrogen. All of these need a breakthrough in Carbon Capture and Storage or Usage technologies (CCS/CCU). Many attempts have been made to get CCS/CCU pilot projects off the ground in this space, yet only a handful managed to get government subsidy and even fewer have shown potential for commercial application.
Hydrogen from electrolysis can indeed be carbon neutral when powered by renewable energy but according to approximate calculations, hydrogen from electrolysis consumes nearly twice the energy to melt glass than using the electricity directly. Despite this, a scenario could also be envisaged whereby the extra energy and technology cost of a hybrid approach versus all-electric could be worth it due to technical advantages – or at least worth considering. Breakthroughs in technology such as new electrode surfaces made from lower cost abundant metals and electrolysis improvements that reduce energy efficiency by nearly 50% may help if they are proved commercially viable.
An all-electric furnace can certainly be powered by renewable electricity from many grids across the world and therefore can be considered carbon neutral. Especially if matching a new 200 GWh of annual demand with 200 GWh from a new renewable energy installation on the grid – even though the grid is far from carbon neutral today.
What are the supply risks?
Can the energy be delivered in a safe and reliable form, like everyone has come to expect from natural gas? In fact, will natural gas still be available? Not just physically but will the world allow it? More than 60 countries have or are already considering putting carbon neutrality into law. Recently, the EU presented the European Green Deal, aiming to be the first climate neutral continent by 2050. The Commission wants to leave no stone unturned and plans to review every EU law and regulation in order to align them with the new climate goals. This will start with the Renewable Energy Directive and the Energy Efficiency Directive but also the Emissions Trading Directive. Most likely fossil fuel will soon become economically punitive in the EU, which represents 22% of the global economy.
This would result in huge demand for green hydrogen, a massive ramp up from the approximately 4% it occupies today. Also, the International Energy Agency’s report on the future of hydrogen shows current government policy support for industry a long way down the queue. This supply/demand crunch makes green hydrogen solutions appear challenging at best.
The other option is all-electric. Even though electricity grids are well established, due to increased electrification demands from industry, households and electric vehicles, significant investment is required to ensure that power can be delivered and demand balanced with supply. The International Renewable Energy Agency (IRENA) report on Global Energy Transformation estimates $18 trillion would need to be invested in the power grid and energy flexibility before 2050. The growth in renewables, however, is significant, with investment over $2.5 trillion per annum and this presents opportunities.
Quantifying risks and finding opportunities
With all these varying fundamentals at play, it is crucial that senior managers of glass manufacturing companies are well informed and understand where the risks and opportunities lie. Solid 10+ year outlooks related to carbon, gas and power from professional organisations are key to building potential scenarios. Multiple scenarios coupled with rigorous sensitivity analysis show what can happen and therefore, what the most realistic outcomes might be. Only then can management teams move with confidence into this brave new world.
One lever to reduce these market risks is using renewable energy, as it has essentially zero marginal production cost and no fuel costs, so can therefore decouple itself financially from the energy market. Renewable electricity from technologies like wind and solar are also dropping in cost and rising in corporate implementation. Australia, the USA and increasingly, Europe (see image) are hotbeds for so-called corporate Power Purchasing Agreements (PPAs), because commercial and industrial buyers are seeing them as lower cost and lower risk alternatives to the wholesale market outlook. It is not just the business to consumer (B2C) or telecommunications sectors who want to green their image either. BlueScope Steel, Ball Corp and Cummins are just a few examples of industrial players taking advantage of the opportunities.
Unfortunately, it is not easy to predict the future but steps can be taken to understand the possibilities. Take the time to look ahead and get a good understanding of future energy costs and availability to build solid scenarios for the management team using credible, 10 year energy market outlooks. Consider supply risks when choosing the energy source by finding out where investments are being made in relevant technologies and infrastructure.
It is important to research this in advance, otherwise the fact that a chosen energy supply is technically unavailable may be discovered too late down the line in a project. And last but not least, look at de-risking and greening the portfolio with renewable energy. More information about these subjects will be presented in a free Webinar at the end of April, which readers can sign up for by contacting the author.
1. Climate Action Tracker, ‘2100 Warming Projections - Dec 2019 update’, climateactiontracker.org/global/temperatures/ Copyright 2019 by Climate Analytics and NewClimate Institute. All rights reserved.
2. Schneider Electric Energy & Sustainability Services, ‘Electrifying of Glass Production’, perspectives.se.com/latest-perspectives/electrifying-of-glass-production-a-case-study-of-supply-chain-innovation ©2019 Schneider Electric. All rights reserved.
3. Schneider Electric Energy & Sustainability Services, ‘State of the European Renewable Energy Market Report’, perspectives.se.com/renewable-energy/ ©2019 Schneider Electric. All rights reserved.