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INTERVIEW: Transition 'needs careful sequencing' to avoid price shocks: Wartsila CEO

Highlights

100% renewables with balancing cheapest option

Convertible gas engines avoid stranding assets

Utility scale battery demand rising strongly

The energy transition needs to be carefully sequenced to avoid the cost risks associated with a depleted conventional fossil fuel system, Wartsila's new president and CEO, Hakan Agnevall, told S&P Global Platts.

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"Without sufficient balancing power, you will not achieve your goals," Agnevall said of the necessary race to install wind and solar.

Under Agnevall, Wartsila's strategy is focused on decarbonization via flexibility and balancing.

"To meet the Paris Agreement we need to reduce CO2 emissions by 50% by 2030. Energy is 30%-35% of that equation. The technology is available -- and we see in our power simulations that mid- to long-term, renewable energy is less costly to the consumer per kWh than fossil fuels," he said.

In its marine propulsion business Wartsila sees a gradual shift to green fuels -- methanol, ammonia, hydrogen blends -- driven by regulatory forces and a growing demand for green transport.

On the energy side the climate challenge is about the shift to 100% renewables with balancing solutions, "where we think our combustion engines and battery storage systems will be major solutions."

Installing thermal generating capacity today would entail gas burn, "but you should have the opportunity to convert to green gas, removing the risk of stranded assets," he said.

The big unknown was when green fuels would be available in sufficient volume and at an affordable price.

"Significant investments are needed, and a carbon tax needs to drive that. But this should not stop us in the meantime, because the shift to wind and solar is driving decarbonization, reducing the volume of thermal backup running on natural gas," he said.

Some, not all, of Wartsila's operational fleet of engines could be upgraded to fire on green fuels "but all our new engines will be convertible," Agnevall said.

Wartsila already has methanol-compatible engines available. "We'll have a technical concept for ammonia engines ready by 2023, and for 100% hydrogen by 2025," he said, noting up to 25% hydrogen could already be fired in existing engines.

Deploying capital

More generally, Agnevall pointed to the massive financing challenge in delivering material global decarbonization.

"There are estimates of $380 billion per year needed [to meet Paris targets], growing to $1.6 trillion by 2030. These are staggering amounts -- but look at India. Twinning renewables with balancing power can reduce energy costs by 50% by 2050, but you have to get the capex in."

Booming batteries

While green fuels offered seasonal balancing potential, batteries provided short-term options numbered in hours, Agnevall said.

"Battery costs are coming down but beyond three or four hours of storage, they just get too big and costly. Lithium-based technology is proven on cost and lifecycle. Other technologies have higher energy density but I think lithium-ion will be the dominant chemistry for energy applications for some years to come," he said.

Current constraints on raw materials, and rising metals costs, would be resolved in the longer run, "and, based on increasing scale, the price of batteries will continue to fall," he said.

Wartsila ranks alongside Tesla and Fluence among the largest providers of utility-scale, front-of-meter battery storage systems.

"This is the fastest growing and the biggest segment of the market, with greatest activity in the US, Australia and the UK," Agnevall said.

"In Q1 and Q2 this year we had order intakes between 500 MWh and 800 MWh. Go back a year, it was a tenth of that."

Capacity markets

Growing renewable energy output in Europe was still to some extent being balanced by ageing, amortized coal plants. In future, flexible gas engines and storage would be lower-carbon providers of balancing, but their run rates would be low.

"We'll need a market mechanism that puts the right price on that flexibility in Europe," Agnevall said in reference to capacity markets.

More broadly, there were autonomous power systems in the world where renewables and balancing would be integrated to produce stable production profiles, with read-across for industrial systems in green mining, cement and steel, he said.

Finally, Agnevall was realistic on what technology alone could achieve in meeting the Paris Agreement.

"We're currently not on track to achieve the necessary reduction in greenhouse gas emissions. We have to grasp every tool we have, on the supply side and the demand side, to make this happen. There are critical decisions to be made in the next few years and I would not rule anything out," he said.

Net zero report

Agnevall was speaking to Platts on the launch of a new Wartsila report, Front-Loading Net Zero, which calls for "taking the most action in the next five to eight years."

"If we front-load action on emissions this decade, we increase our chances of meeting climate goals, and allow greater flexibility down the road as we decarbonize difficult-to-abate sectors, such as heavy industry and transport," it said.

Phasing out coal in Germany by 2030, for instance, "unlocks myriad system-level benefits for Germany, from cutting power production costs; supporting energy independence; to producing sustainable fuels to decarbonize other sectors, namely district heating."

Tellingly, however, the report advocates closure of coal only after sufficient renewable output, battery storage and balancing power plant capacity is in the system.