Sustainable Investing weekly blog: 22nd Feb 2022 (Issue 26)

This blog does not constitute Investment Research as defined in COBS 12.2.17 of the FCA’s Handbook of Rules and Guidance (“FCA Rules”). See the end of this blog for links to important information and disclaimers.

Our weekly summary of the key news stories, developments, and reports that are impacting investing in the wider transition to net zero carbon and a greener/fairer society.


Apologies for the very delayed weekly, storm Eunice took out the electricity for most of the team as it passed over the UK and we are still getting fully back up & running.  This weeks top story highlights the salmon industry, an important driver of alternative proteins.  Salmar, Norway’s lowest cost operator & the company most advanced in offshore farming, has made an offer for its smaller rival NTS.  We see this as having an interesting read through for the industry. We published a new research report on the investment case for the salmon industry last week.  If you are a professional investor and you would like a copy of our research, or you would like to discuss the industry investment case in detail, please get in touch (dan@sustainableinvesting.co.uk). In the Electricity Grid, we discuss pressure from the European Parliament to increase spending on offshore wind and associated grid enhancement, in Renewable Generation, we highlight research that identifies technological factors and improved site quality, not higher wind speeds, as the key factors in the improvement in wind farm capacity factors in the US.  In Alternatives, we are watching an RWE supported project to use off shore wind to create green hydrogen for industry, and in Human Rights & Legal, our good friend Kristina Touzenis discusses another legal case involving human rights & environmental “defenders”, this time in Honduras . Finally, we finish with our “one last thought” which highlights the real danger that the US faces from climate change related flooding .

The format of the blog is simple, first our summary of the key points of the story (click on the green link to read the original) and then what we think it means for investors. The focus is on news flow that we think should change the markets perception of the investment case of individual stocks and sub sectors. So not the place to come to for news that has already been well covered in say the FT. Our approach is unashamedly long term, so we ignore short term noise.

If you would like to subscribe, please contact Dan at dan@sustainableinvesting.co.uk. For the next few weeks, we will focus on just four key stories, and then we will ramp up coverage. For now, the blog will be freely available but at some point we will shift to a public blog and a more detailed client ie subscription version.

Top story : Salmon – low costs & new technology 



Salmar launches offer for NTS  (Company announcement)

Main points of the story as published

  • On Monday, Norway’s second largest salmon farmer, SalMar, launched a NOK120 per share offer for NTS equal to NOK15.1bn. NTS has three main assets: 100% of salmon farmer SalmoNor; a 68% stake in listed salmon farmer Norway Royal Salmon; and a 72% stake in listed aquaservice provider Froy.
  • SalMar expects to realise “significant synergies” through “improved capacity utilization of the combined [Maximum Allowable Biomass] and site portfolio, as well as the implementation of operational excellence, which in total are expected to provide even better biological results and lower production costs”.
  • SalMar is one of the lowest cost salmon producers globally. In Norway, consistently one of the cheapest places to farm salmon, SalMar’s costs per kg have averaged 7% less than peers in the 10 years to 2020, resulting in an EBIT per kg 35% higher. As an indication of the potential deal synergies, over the last three years its EBIT per kg in Norway has averaged NOK22.3 compared to NOK15.6 for NTS’s farming operations, SalmoNor and NRS. SalMar’s sustained cost leadership in the industry is driven by its continual focus on the “best biological results”, a culture of continual learning, and quick decision making.
  • Two days after launching the offer, SalMar announced that it had received irrevocable acceptances for 50.1% of NTS’s outstanding shares.

Our take on this

  • Growth in the traditional coastal zones for salmon farming is close to its limits globally due to a combination of pressures on fish welfare and environmental constraints. As a result, farmers are looking both to M&A as well as new technologies and new locations to maintain growth.
  • Norway saw NTS acquire Norway Royal Salmon last summer (despite SalMar offering a higher counter bid) but is now itself subject to a bid having been put into play by a majority of the shareholders in January. Last summer also saw Brazilian meat giant JBS acquire Australia’s Huon Aquaculture.
  • Last week, we published a new report on salmon farming, which looked at the organic growth options from using new technologies in more detail. Of the five farming system technologies reviewed, the two most critical to future growth are offshore (or ocean) farming and land-based farming. We argued that ocean farming is the most credible option. Like the other technologies it addresses the key sustainability challenges around fish health and environmental pollution but, unlike the others, it represents less complex technology, better economics, lower capex requirements and, critically, there is already a successful working example (SalMar’s Ocean Farm 1).
  • We believe that SalMar is the best placed salmon farmer to profitably capture future industry growth; it is a long-term winner in an attractive industry segment. Not only has its successful embrace of offshore farming technology given it the most attractive growth options, it has consistently been one of the lowest cost producers globally. Cost leadership is critical in what is ultimately a commodity business.
  • If you are a professional investor and you would like a copy of our research, or you would like to discuss the industry investment case in detail, please get in touch (dan@sustainableinvesting.co.uk)

Electricity grid : EU Parliament pushes offshore wind & grid upgrades 



EU Parliament votes for E530bn for offshore grid infrastructure (Supernode)

Main points of the story as published

  • At its Plenary session last week in Strasbourg, the European Parliament voted (by 518 votes to 88) to support an acceleration of the development of offshore wind energy in Europe, including investing €530 billion in offshore grid infrastructure over the coming three decades. They called upon “the European Commission and the Member States to ensure there is adequate infrastructure in the EU to ensure a cost-effective deployment of offshore renewable energy”. 
  • They also stressed “that Member State collaboration is vital,” but “the current legal framework should be improved in order to facilitate such collaboration” and the UK should be included. The European Parliament “strongly believes that failure to enhance collaboration between Member States and inter-connected non-EU countries will inhibit the roll-out of offshore energy the resolution warns.
  • Adding up the EU (300 GW by 2050), UK and Norwegian offshore wind targets takes us well beyond 500 GW of offshore wind in Europe. That’s equivalent to building a 300 MW wind farm every week between now and 2050. We need to start planning a pan-European offshore power grid to support offshore renewables now. 

Our take on this

  • Regular readers will know that this has been one of our big focuses & a topic we published on back in Oct last year. Its all well & good to encourage the building of more renewables,  but without the right grid infrastructure they are unlikely to come on stream fast enough, and even if they do, the electricity grid will rapidly reach the point where it struggles to cope. Grid investment might not be glamorous but its essential.
  • The European Parliament is also right to highlight permitting as a barrier. This is one of the reasons why cheaper onshore wind in Europe is slower to develop that it potentially could, although other factors such as politics (Le Pen promises to take down wind turbines) also play a part.
  • The bottom line though is that without material spending on the electricity grid, only some of the hoped for renewable investment will happen. A number of European countries, including Germany, Ireland, The UK, Spain & Greece are at or close to the key 30% level (renewable generation as a % of total). Above this level, material extra investment is needed to maintain grid stability and resilience, with a recent Monitor Deloitte study for eurelectric suggesting the total grid investment requirement to 2030 of E375-425bn.
  • A big chunk of this requirement is for interconnectors. Europe is in the last stages of updating its priorities for the Trans-European Networks for Energy (TEN-E) programme. The next 6th Projects of Common Interest (PCI) list, expected in autumn 2023, will focus on areas such as the North Seas offshore grid, the Baltic Energy Market Interconnection Plan & a number of North South connectors.

Renewables: its not just about wind speed



Wind speeds & wind energy output  (Wind Energy)

Main points of the story as published 

  • The past decade of wind power growth was supported by capacity factor improvements and associated cost reductions. This study examines the question – are higher capacity factors a technology success story or, as suggested by recent research, has the influence of technology been overstated by ignoring positive surface wind speed trends?
  • The answer could influence estimates of wind energy’s cost and even future deployment rates. The study finds that US surface wind speed observations imply a 2.6% improvement in capacity factors from 2010 to 2019. Yet newer vintages of wind plants have recorded capacity factors that are ~25% larger than plants built close to 2010. It follows that technological factors and improved site quality, not higher wind speeds, drove most of the improvement in capacity factors

Our take on this

  • It might seem odd to be talking about higher wind speeds at a time when companies such as Orsted are reporting the negative financial impacts of low wind speeds in Europe last year.   However, we need to look beyond short term variations, as fascinating as they might be for journalists. Its important from a financial perspective to understand what has driven the material improvement in wind farm capacity factors over the last decade, as this could impact just how much the LCOE might fall further in the future.
  • This study supports the view that its technology, including better site selection, which is encouraging in terms of a continuing improvement. The site selection aspect is interesting – with the analysis suggesting that the use of publicly available wind speed data is a poor proxy for the performance of sites  only a few km away from the weather stations. The flip side could be a continuing trend to higher towers and larger blades (leading to more local opposition ?).

Alternatives : can offshore wind be used to produce green hydrogen ?



Green hydrogen in the North Sea (RWE press release)

Main points of the story as published

  • RWE and Neptune Energy announced last week that they have signed a Joint Development Agreement for the offshore green hydrogen demonstration project “H2opZee”. H2opZee is a demonstration project which aims to build electrolyser capacity far out in the Dutch North Sea, in order to produce green hydrogen by using offshore wind. The hydrogen will then be transported to land through an existing pipeline to serve existing industrial hydrogen users . The pipeline has a capacity of 10 to 12 gigawatts (GW), so it is already suitable for the further roll-out of green hydrogen production to gigawatt scale in the North Sea. The intention is to start the feasibility study in the second quarter 2022. Its not clear when target start up date would be, assuming the feasibility study goes well.

Our take on this

  • While we may seem to sit in the green hydrogen skeptic camp, this is not because we cannot see a path to cost competitiveness or a lack of applications.  To us its more about how investors seem to have got over optimistic about how quickly the first might happen (we estimate later this decade is when green hydrogen will be consistently cost competitive in some markets) and massively over optimistic about how big the end market might be (we agree with PWC, who expect demand growth will grow at only a moderate, steady pace through niche applications until 2030 & its only post 2030 that demand growth will start to accelerate).
  • So given this, why highlight this project. Because the end use makes sense. Replacing the existing 70m tonnes of (pure) hydrogen use in industry (mainly fertilizer & oil refining) is to us the application that stands the best chance of success. Yes, there are a lot of questions about the financial viability of using offshore wind, and of the complexity of locating the hydrogen electrolyers in the much more challenging environment of the North Sea, but that is what the pilot project aims to answer. Unlike many projects that seem to rely on being able to transport hydrogen (or ammonia) long distances, this looks like one that is worth watching. 

Human Rights : Honduras & water “defenders”



  • This week our good friend Kristina Touzenis, who has many years experience in the human rights field (LinkedIn profile here), has again kindly guest written the human rights, social & legal section of the weekly. Thank you Kristina. Just a reminder, this section is not written and prepared by Sustainable Investing LLP. Quite frankly, we are not experts in this field, so we leave the topic to those that are. This week she reviews the recent decision of the Honduras’ Supreme Court, which ordered the release of six activists, originally arrested for protesting against a mining project. This comes around a similar time to the assassination of Francisco Vázquez, a water activist in Mexico. 
  • On the 12th of Feb 2022 Honduras’ Supreme Court frees Honduras water defenders. The six people in question had been arrested for their activism against a mining project in a national park and had just been found guilty on multiple charges, and they reportedly faced up to 14 years in prison. Barely 24 hours later, the Honduran Supreme Court on Thursday last week ordered them set free. According to defence lawyer Rodolfo Zamora, the Supreme Court’s order was based on an appeal filed many months earlier to challenge the constitutionality of the activists’ detention. The men were accused of criminal damage and illegally detaining the mining company’s security chief. The top court ultimately found the judge who initially ordered the men’s detention did not have the jurisdiction to do so, rendering void the case against them. Several other water defenders, mine workers and military police have been killed in communities surrounding the mine since the project began, although the circumstances of those deaths remain unclear. This case clearly shows the need to include protection for human rights and environmental defenders in legislation around company accountability and responsibility.

One last thought

US coastline to see 1 ft of sea level rise by 2050 (US National Oceanic & Atmospheric Administration)

One foot might not sound much, but try this tool sea level rise viewer, to get a practical feel for what it might mean. A team member has family who have recently moved to the Florida coast, on a mid term view that might not have been a great move. “By 2050, moderate flooding ⁠— which is typically disruptive and damaging by today’s weather, sea level and infrastructure standards ⁠— is expected to occur more than 10 times as often as it does today,” said Nicole LeBoeuf, NOAA National Ocean Service Director. “These numbers mean a change from a single event every 2-5 years to multiple events each year, in some places.” Maybe flooding becomes the next “natural disaster” to inflict material costs on the US economy (US disaster costs doubled in 2020)

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