How Green Energy is Surging Forward in 2023

On this podcast, we discuss a range of current U.S. green energy developments and take a focused look at the many challenges and efforts underway within automotive and commercial vehicle manufacturing as well as the aviation and maritime industries. 

Transcript

Steve Katz  

Hello, everybody, and thanks for taking time today to listen in on our Hilco Global Smarter Perspectives podcast. I'm your host, Steve Katz. And we're really glad that you could tune in. Because we have a great discussion today, we're gonna be talking about the very latest in the evolution of the green energy market, and how participants in that market are capitalizing on new opportunities and addressing some pretty complex challenges as well. So with us for that conversation, is Marc O'Neill. Marc, welcome back again to the podcast. We're glad to have you we know you're a frequent podcast participant representing cocoa valuation services. So glad to have you on.

Marc O'Neill  

Thank you for having me back on and see. 

Steve Katz  

All right, well, let's jump into it because we got a lot to discuss. I know there's some pretty aggressive timetables set for the adoption of green energy in the US. Everybody's been reading about it. Most notably, we see it as it pertains to automotive, I think, can you talk a little bit about that and what it's going to take to get there.

Marc O'Neill  

I think it's important first of all, to understand the genesis of where we're going to today, and that will take us back to 2016 when the Obama administration became a signer to the Paris agreement. And shortly thereafter, in June of 17, newly elected President Trump announced that the US would exit the agreement indicating that it would undermine the country's economy and place the US at a permanent disadvantage. So in 2019, the Trump administration gave formal notice of withdrawal, and that withdrawal ultimately took place one day following the presidential election in November of 2016. The table's turned again, when a newly elected President Biden signed an executive order in January of 21, rejoining the Paris Agreement. So you may wonder what exactly is the Paris Agreement in summary, it's an addition to the United Nations Framework Convention on Climate Change, agreed to by all 195 member countries in December of 2015. And the main agreements purpose is to limit the global temperature increase during this century to a maximum of two degrees Celsius above what were the pre-industrial levels. So that brings us to today and where we're at. So the President administration has announced plans to eliminate fossil fuels as a form of energy generation in the US by 2035. And the goal has been set to have a target of 80% renewable energy generation by 2030 and 100%, carbon free electricity by 2035, which is aggressive by anyone's standards. So funding to achieve these goals was included in the US Inflation Reduction Act signed into law on August 16, of 2022. And funding for various energy and allied initiatives in the act is estimated to total an excess of $390 billion. As you know, a reliable power generation in the US and something many take for granted. However, various recent power interruptions and supply shortcomings may be foreshadowing the challenges that we're going to face transitioning away from fossil fuels. And adding additional power transmission facilities is not an easy or quickly accomplished task. And it goes beyond power generation to include the whole transmission structure that we have now. new EPA standards will require all coal fired plants to use carbon capture and storage to reduce 90% of greenhouse gas emissions by 2035. And similarly, natural gas plants must adhere to the same standards by that year.

Steve Katz  

All right, well, that's good. I think a good tap line in the background on the Paris Agreement is definitely relevant there. A lot of those mandates are clearly focused on improvements that have to take place across transportation, like I said, as we started the podcast. So I do want to concentrate our discussion on those starting first probably with automotive and commercial vehicles. So what can you tell us specifically about what's been going on with those two and what we can expect to see moving ahead?

Marc O'Neill  

Well, we'll start with automotive with many of us are familiar with. Much of green energy, his focus has been in the evolution and eventual transition to EVs, and expenditures and investments in EVs. Now wide supply chains would include those associated with new entrants, which we have numerous of, they include people like Rivia and Fisker, Lucid, Lordstown motors, which, unfortunately has filed for bankruptcy already. Collectively, though, they've chewed up over $100 billion and then investments in battery replants which there are 10 currently under construction amount to over 40 billion. And just last week, the federal government announced that they were going to give another 12 billion to automakers to help expedite the transit- what I call the transition to EVs and also make up for potential job losses and or plant closures from internal combustion engine plants that really won't be necessary going forward, or at least not as many of them will be as necessary going forward. Right. We saw pace, a big hurdle. And that's consumer acceptance. And at this point in time, I think consumer acceptance could best be described as tepid. And there are a number of reasons for that. Pricing and range continue to be the forefront of consumer attitudes toward these vehicles. And in order to incentivize buyers and improve sales, Tesla, which holds 60% of the market share, has had price cuts between 14% and 28%, depending on the model. And such moves have improved sales, but reduced margins. Ford similarly has also recently announced price cuts on his F150 Lightning pickup truck, they reduced the price there by 17%. And that's also due to increased dealer inventories, which is a problem for them also on the Mustang Mach-e EV. My local dealer, his lot is really full these days. And then, of course Rivian, which most people have thought, were really going somewhere and we see some of them on the road, their market capitalization has been very substantially reduced. It's a fraction now of what its high point had been. And then we look to everyday life if one were to own an EV and charging stations and compatibility there continue to impact consumer demand. And in order to encourage more EV adoption, Tesla has now allowed Ford GM Volvo and Mercedes to use their plug type and charging stations in hopes that it will become the industry standard. But that indicates Tesla leadership may be at the expense of others who are trying but haven't gotten there yet. And I think regardless of consumer adoption, the auto industry is clearly under a mandate to sell more and more EVs as a result of increasing regulation, including much more stringent fuel economy standards, both in the United States and globally. And the current administration recently proposed rules that required two thirds of all new vehicles sold by 2032 to be EVs. And, in fact, California is requiring all new cars sold by 2035 to be zero emission vehicles.

Steve Katz  

It's interesting, too, that Tesla move probably is somewhat, you know, it's a little bit self serving, but it's also, you know, serves the overall growth of the industry because something has to happen infrastructure wise to kind of, you know, sort of put the put the speed under the acceleration for this industry, I think and maybe that's, you know, a piece of that. So all these mandates that you're talking about are not just limited to passenger vehicles, though, right? There's expectations for commercial vehicles as well. So can you just maybe top line some of those quickly?

Marc O'Neill  

Yes, and commercial vehicles are something we might not think about nearly as much but it's just as important aspect of the EV transition. And these mandates are also impacting the medium to heavy duty truck market, such to the extent that leading manufacturers such as Volvo, Mack, Freightliner, they have recently rolled out electric trucks alongside new market entrants such as Ballinger and Nikola. And similar to the California rollin regular vehicles, most all heavy and delivery trucks, there must be zero emission by 2036. And that's the largest market in the country, particularly when we consider all the port traffic. So in late June of this year, the Biden administration announced a $1.7 billion investment to allow for the purchase of low and low emission buses and related transit projects across 46 states and territories. And this is a second bus grant package funded by the government on top of the previous 3.3 billion and transit buses and infrastructure that supports them. And further expenditures for expansion of this investment, are expected to total 5 billion over the next several years. But getting back to the commercial truck market, there really are more hurdles to overcome with commercial trucks and there are with a vehicle that you or I might buy. The first is cost. electric trucks cost three times as much as existing diesel trucks. And that's something that would have some impact and large fleet buyers, but it'd be particularly impactful to independent truckers that might only have one or two rigs. And then we have to think of the infrastructure for charging commercial trucks and you look at the fact that their batteries are many times larger and require More charging than a car would. And we look at where trucks charge and we look at what would happen to truckstops Having to re equip themselves or truck terminals, or ports and docks where trucks are frequently left idling for quite a while burning up energy. And the testing and data on large fleets of electric trucks really isn't there yet. And something to think about too, we could have a change in traffic patterns, because many truckers like to operate at night now. We're in utilities and so forth are encouraging people to charge at night, when there's less power use. So if more trucks were out during the day, it could cause a lot of traffic issues that people haven't thought. And then lastly, on the electric trucks, their batteries typically weigh 8000 pounds apiece and large class eight over the road, need two batteries. So we would have a reduction in payload too that people might not have thought through.

Steve Katz  

Yeah, yeah. So lots of investment, lots of factors, as you said, you know, costs on the commercial vehicles are much higher to make that sort of conversion. So let's shift over now to aviation and maritime, as we said, we were going to at the beginning of the podcast, how aggressive are the mandates there? And how are the players in those two segments responding?

Marc O'Neill  

Well, at this point, the technology to do any sort of electric replacement in aviation is pretty minimal. But as far as emissions reductions, there have been a number of initiatives that have been undertaken, and I'll go over a few of them. As you know, as we all know, the aviation industry is dependent on jet fuel, which is essentially kerosene. And although progress has been made on electric and hydrogen options for aviation, really we have engineering limitation situation we'll have that going forward, much more so than we have ready ground based transit. And so therefore, a more environmentally friendly fuel, called SAF is beginning to see utilization and SAF stands for Sustainable aviation fuel. And it can come from natural sources other than petroleum including used cooking oils, and so many things that could be used for it include also forestry waste, food packaging, and various biomass. So we have a number of airlines that have already pledged to adopt SAF. British Airways, for example, is committed to powering 10% of its flights. With SAF by 2030. United Airlines has agreed to buy up to 2.5 million gallons of the fuel primarily to use in its European flights annually. And interestingly, the company's chief sustainability officer Lauren Riley, was recently quoted as saying the demand from customers to limit their flying emissions is growing exponentially. So the aviation industry will have to do what they can to move forward to green energy initiatives also. And then, shipping is something most of us probably don't pay a whole lot of attention to maybe those of us that would go on a cruise or ocean voyage, think of it from time to time, but shipping via ocean transport in his area that is not really thought of as a carbon emitter, because we really don't think of it too often. But studies have shown that it contributes over 3% of the world's carbon emissions and for comparison purposes. This is equivalent to the emissions of a country the size of Germany. And also most people don't realize it that ships carry 90% of the world's commerce and as commerce increases, it is expected that carbon emissions generated by shipping would increase in tandem. So the International Maritime Organization, a specialized UN agency has a global mandate to regulate greenhouse gas emissions from ships and the agency has established a mandate to reduce emissions by 50% by 2050. A timeframe those receive a lot of pushback from environmental organizations who think it could be accomplished sooner. So you may ask what have shipping companies done to try to move toward these goals? Well as a variety of things that they have come up with Royal Caribbean, the big cruise line, recently has announced its intention to send a science based target to achieve zero emissions by 2050. Carnival plans to reduce emissions by 40%. And what both these lines are doing is primarily switching to liquefied natural gas as a fuel for their ships. And then on the freight side. Mayor's which is the world's largest container line, plans to achieve net zero emissions across the business by 2040 through various measures, including methanol and LNG. And in America the Matson Navigation Company, the largest US flag line, has an ambitious new decarbonisation inspired build program that will replace some of their older ships with five new container ships running on liquefied natural gas, costing the company over a billion dollars.

Steve Katz  

All right, Mark, listen, great info as always, we're pretty much right on the edge of our time limit here anything else that you wanted to add quickly just to wrap us up?

Marc O'Neill  

Well, I just like to say that the grain landscape is rapidly evolving, which makes it absolutely essential for lenders and investors to possess a solid understanding of the current regulatory environment and the competitive landscape facing a variety of their portfolio borrowers. So we'd really encourage lenders to reach out to our team right now for some added perspective if they think it could be a benefit.

Steve Katz  

All right, well, I'm sure we're gonna have some people who do want to reach out to you so thanks for all your comments mark. If if people do want to get in touch How should they reach you? They can

Marc O'Neill  

reach me by email which is MO'Neill@Hilcoglobal.com or on my mobile number, which is 412-613-6739.

Steve Katz  

Okay, sounds good. I'm just gonna emphasize until obviously, HilcoGlobal.com. And, Mark, thanks again for joining us. Really great to have you on.

Marc O'Neill  

Thank you for inviting me back on Steve. Yeah, you bet.

Steve Katz  

Hope to have you on again soon. Perfect. Guys, we got a roll here. As always, we hope this smarter perspective podcast provided you with at least one key takeaway that you could put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. And remember, you can always check out more great podcasts and articles featuring timely insights from Hilco experts like Marc at HilcoGlobal.com/smarter-perspectives. So until next time for Hilco Global I'm Steve Katz.