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On prepurchase agreements, Al Gore, and Norway’s EVs
Current conditions: Ecuador’s government-enforced blackouts will begin tomorrow night as drought threatens hydroelectric plants • Storm Boris is causing flooding in parts of Italy • Montana could see very heavy rainfall and flash flooding today.
Frontier, a coalition of carbon removal buyers, announced this morning a fourth round of prepurchase agreements, worth $4.5 million. The coalition facilitated agreements with nine suppliers to remove carbon from the atmosphere on behalf of five of Frontier’s buyers: Stripe, Shopify, Alphabet, H&M Group, and Match. The removal projects are located across six countries and utilize a range of techniques, including rock weathering, direct air capture, and ocean alkalinity enhancement. In a press release, Frontier said “a significant number of companies in this purchase cycle are integrating carbon removal into existing large-scale industries. This strategy can reduce costs and accelerate scale-up relative to standalone carbon removal projects.”
Frontier
Brazil’s worst drought on record, now in its second year, has caused water levels in the rivers that run through the Amazon to fall to historic lows, and some have even dried up entirely. One key tributary that supplies the mighty Amazon River, the Solimoes, has water levels that are 14 feet below average for the first half of September. The drought is fueling numerous large fires, many of which were started by humans but have plenty of dry vegetation to keep them going.
Plumes of wildfire smoke hang over South America.NASA
According to data from Brazil’s National Institute for Space Research, almost half of the Amazon fires are burning pristine forest. This is unusual, The New York Timesreported, and “means fighting deforestation in the Amazon is no longer enough to stop fires.” The Amazon rainforest is one of the world’s most important carbon sinks. If it collapses, it could release huge amounts of carbon into the atmosphere, exacerbating the climate crisis. Researchers with World Weather Attribution say climate change is the main driver of the Amazon’s ongoing drought. “Climate change is no longer something to worry about in the future, 10 or 20 years from now,” Greenpeace spokesperson Romulo Batista toldReuters. “It’s here and it’s here with much more force than we expected.”
A coalition of some of the world’s most prominent shipping and carrier companies is piloting the “first-ever U.S. over-the-road electrified corridor.” Participants include AIT Worldwide Logistics, DB Schenker, Maersk, Microsoft, and PepsiCo, who will drive their long-haul heavy-duty electric trucks along the I-10 corridor between L.A. and El Paso to identify pain points and share learnings in an effort to hasten the decarbonization of land freight. Terawatt Infrastructure will provide the charging infrastructure for the corridor with six of its own charging hubs. Terawatt’s website says it has 14 sites under development, four of which are expected to come online this year. Heavy-duty vehicles account for a quarter of transport-related greenhouse gas emissions in the U.S. The new coalition is supported by the global nonprofit Smart Freight Centre.
Former U.S. Vice President Al Gore’s green asset management business, Generation Investment Management, put out its eighth annual Sustainability Trends Report this week. The paper is packed full of interesting insights (both uplifting and depressing), but one stands out. It says upgrading the power grid is “the critical issue to get the energy transition moving faster in the big, developed economies.” It includes this graphic showing the cumulative backlog of renewable-energy projects wanting to connect to the grid in the U.S.:
Generation Investment Management
Gore has been doing the media rounds this week. He told the Financial Times that a Trump victory in November “would be very bad.” “Most climate activists that I know in the United States believe that the single most important near-term decision America can make with regard to climate is who is the next president. It’s a bit of a Manichaean choice.” But, he added that the energy transition was, at this point, “unstoppable.”
In case you missed it: Norway has become the first country in the world to have more electric vehicles on the road than gas-powered cars. Diesel still reigns supreme in terms of registered vehicles, but the share of fully electric cars registered is now larger than the share of cars that run on gasoline. The director of the Norwegian road federation said he expects EVs will overtake diesel cars, too, by 2026. EVs already make up the vast majority (94%!) of new vehicle sales in Norway, and could very well approach 100% sometime next year.
A recent study finds that most people have a tendency to grossly underestimate the average carbon footprint of the richest individuals in society, while overestimating the carbon footprint of the poorest individuals.
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Current conditions: Shanghai, still recovering from the strongest storm to hit the city in 75 years, is bracing for Typhoon Pulasan • Extreme flooding in the north of Italy has forced some 1,000 people to evacuate • It’s looking unlikely that this month will break last year’s record for warmest September ever.
The explosive growth in solar power shows no signs of stopping this year. New analysis from energy think tank Ember forecasts the world is on track to add 593 gigawatts of solar power in 2024, nearly 30% more than last year’s installations and nearly 200 GW more than the International Energy Agency predicted at the start of the year. The report underscores how a handful of countries are responsible for most of the world’s new solar capacity. China leads, followed by the U.S., India, Germany, and Brazil. These five countries are on track to account for 75% of new global installations in 2024. And they are sustaining their growth year after year.
Ember
Here’s the most important takeaway from the Ember report: “This now puts ambitious climate pledges within reach.” It’s very possible – and indeed likely – that the world will triple solar capacity by 2030. In this scenario, solar power would generate a quarter of the world’s electricity. “Countries need to plan ahead to make the most of the high levels of solar capacity being built today and ensure the continued build-out of capacity in the coming years,” the report says.
The Federal Reserve announced yesterday that it would reduce the benchmark federal funds rate by half a percentage point, from just over 5% to just below. What does this mean for renewable energy? Well, it just became a much more enticing investment, wrote Heatmap’s Matthew Zeitlin. High interest rates have an outsize effect on renewable energy projects, because the cost of building and operating a renewable energy generator like a wind farm is highly concentrated in its construction. Wood Mackenzie estimates that a 2% increase in interest rates pushes up the cost of energy produced by a renewables project by around 20%, compared to just over 10% for conventional power plants. “As rates fall, projects become increasingly financially viable,” said Advait Arun, senior associate of energy finance at the Center for Public Enterprise and Heatmap contributor.
The European Union’s head office has warned that the extreme weather devastating parts of the continent are proof that “climate breakdown” is “fast becoming the norm,” The Associated Pressreported. Parts of Europe are experiencing some of the worst flooding in at least two decades, while Portugal has declared a “state of calamity” as enormous wildfires rage out of control and threaten the homes of more than 200,000 people. “We face a Europe that is simultaneously flooding and burning. These extreme weather events ... are now an almost annual occurrence,” said EU Crisis Management Commissioner Janez Lenarcic. “The global reality of the climate breakdown has moved into the everyday lives of Europeans.” Europe is the fastest warming continent on Earth.
Today the startup Brightband emerged from stealth with $10 million in Series A funding and a unique plan to commercialize generative AI weather modeling. Instead of trying to go up against Weather.com, Brightband is tailoring models to specific industries such as insurance, finance, agriculture, energy, and transportation. The round was led by Prelude Ventures. AI models like Brightband’s are trained on decades worth of past weather data, and when fed a snapshot of current conditions, can predict what will come next, much like ChatGPT does with text. Brightband’s CEO Julian Green told Heatmap’s Katie Brigham that customizing forecasts for particular industries will also be as simple as querying a large language model. A wind farm operator could, for example, “just take an attached file of historical wind energy production, and throw it in there and say, hey, tell me what the wind energy is going to be like next week.” Brightband says it hopes to publish a paper by year’s end with an open-source version of its forecast model, alongside evaluation tools to assess its performance.
Truck drivers seem to really like Tesla’s Semi electric truck. PepsiCo is Tesla’s first customer for the trucks, and has 89 of them deployed across various fleets. Speaking at the IAA Transportation event, PepsiCo’s electrification program manager Dejan Antunović said some veteran drivers are reporting that they never want to go back to driving diesel after having handled the Tesla Semi. “Based on its history of delivering efficient electric vehicles in volume profitably, I think Tesla is the one to make commercial electric trucks happen at scale,” wroteElectrek’s Fred Lambert.
Researchers were pleasantly surprised to discover that 90% of young corals that were bred using in vitro fertilization and deposited in reefs across the Caribbean survived last year’s marine heatwave.
Brightband emerges from stealth to commercialize AI-weather forecasting.
The weather has never been hotter.
The past few years have seen a boom in the weather prediction industry, with AI-based weather models from the likes of Google DeepMind, Huawei, and Nvidia consistently outperforming traditional models. Most of that work has been research-oriented, but today the startup Brightband emerged from stealth with $10 million in Series A funding and a unique plan to commercialize generative AI weather modeling. Instead of trying to go up against Weather.com, Brightband is tailoring models to specific industries such as insurance, finance, agriculture, energy, and transportation. The round was led by Prelude Ventures.
Weather forecasting has traditionally been the domain of the public sector, with the most widely used models coming from the U.S. National Weather Service and the European Center for Medium-Range Weather Forecasts. Brightband’s CEO Julian Green told me that private companies haven’t been able to break in “because it has cost so much to have billion dollar supercomputers,” which are required to run today’s so-called “numerical” weather models.
These models rely on complex atmospheric equations based on the laws of physics to predict future weather patterns, and because of their computational intensity, are usually only updated four times daily. It’s possible then that AI-based weather prediction could thus actually reduce energy demand — because while it takes a lot of energy to train an AI model, after that’s done, generating forecasts is simple. “So instead of six hours to have a forecast, it takes under a second. Instead of using a billion dollar supercomputer, you’re using a laptop,” Green told me.
AI models like Brightband’s are trained on decades worth of past weather data, and when fed a snapshot of current conditions, can predict what will come next, much like ChatGPT does with text. “Think about the weather AI prediction problem as predicting the next frame in a radar sequence,” Green told me.
He said that customizing forecasts for particular industries will also be as simple as querying a large language model. A wind farm operator could, for example, “just take an attached file of historical wind energy production, and throw it in there and say, hey, tell me what the wind energy is going to be like next week.” Likewise folks in the aviation industry could have the model tell them if their plane’s wings are likely to ice up, utilities could get detailed insight into expected energy demand and generation, and finance companies could get up-to-the-minute information about weather-sensitive commodities. Previously, companies would’ve had to build their own forecasting teams or hire third-party advisors to get such specific predictions.
Brightband wants to further differentiate itself from the types of models that tech companies have already built by using only raw data inputs to generate its forecasts, from sources such as satellites, weather balloons, and radar systems. Perhaps surprisingly, this is not the way that most models currently work. Because there are data gaps, such as over oceans and in the developing world, the datasets used to train today’s AI weather models, Green explained, “smear the available data over a three-dimensional grid of the globe,” diluting the accuracy of both the real-time weather and presumably the resulting forecasts.
It’s hard to say how much more accurate using only raw data inputs will be, because “that’s what nobody has done yet,” Green told me. Data gaps are still an issue of course, but Green told me that Brightband’s approach will also allow the company to better analyze when and where filling these gaps would add the most value.
Brightband says it hopes to publish a paper by year’s end with an open-source version of its forecast model, alongside evaluation tools to assess its performance.
Renewable energy just became a much more enticing investment.
That’s thanks to the Federal Reserve, which announced today that it would reduce the benchmark federal funds rate by half a percentage point, from just over 5% to just below. It’s the beginning of an unwinding of years of high interest rates that have weighed on the global economy and especially renewable energy.
The Federal Reserve’s economic projections also indicated that the federal funds rate could fall another half point by the end of the year and a full point in 2025. The Federal Reserve began hiking interest rates from their near-zero levels in March 2022 in response to high inflation.
High interest rates, which drive up the cost of borrowing money, have an outsize effect on renewable energy projects. That’s because the cost of building and operating a renewable energy generator like a wind farm is highly concentrated in its construction, as opposed to operations, thanks to the fact that it doesn’t have to pay for fuel in the same way that a natural gas or coal-fired power plant does. This leaves developers highly exposed to the cost of borrowing money, which is directly tied to interest rates. “Our fuel is free, we say, but our fuel is really the cost of capital because we put so much capital out upfront,” Orsted Americas chief executive David Hardy said in June.
So what does that mean in practice? Let’s look at some numbers.
Wood Mackenzie estimates that a 2% increase in interest rates pushes up the cost of energy produced by a renewables project by around 20%, compared to just over 10% for conventional power plants.
Meanwhile the investment bank Lazard estimates that reducing the cost of capital (the combined cost of borrowing money and selling equity in a project, both of which can be affected by interest rates) from 7.7% — the bank’s rough assumption over the summer — to 5.4% would lower the levelized cost of energy for an offshore wind system from $118 to $97 — around 17% — and for a utility solar project from $76 to $54 — roughly 28%. While there's not a one-to-one relationship between interest rates and the cost of capital, they move in the same direction.
Reductions in cost of capital also make more renewables project viable to finance. According to a model developed by the Center for Public Enterprise, a typical renewable energy project with a weighted average cost of capital of 7.75% will have a debt service coverage ratio (a project’s cash flow compared to its loan payments)of 1.16. Investors consider projects to be roughly viable at 1.25.
So at the cost of capital assumed by Lazard, many projects will not get funded because investors don't see them as viable. If the weighted average cost of capital were to fall one percentage point to 6.75%, a project’s debt service coverage ratio would rise to 1.28, just above the viability threshold. If it fell by another percentage point, the debt ratio would hit a likely compelling 1.43.
“As rates fall, projects become increasingly financially viable,” Advait Arun, senior associate of energy finance at the Center for Public Enterprise and Heatmap contributor, told me matter-of-factly.