Sustainable Investing weekly blog: 4th Feb 2022 (Issue 24)

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.


This weeks top story highlights the decision by the California public utilities regulator to delay voting on a controversial plan to change the rules for residential roof top solar (net metering tariff).  This is one to watch, as this is a challenge other states & countries are heading toward. In Alternatives, we highlight the scale of green hydrogen development taking place in China, in Agetch, we discuss real barriers to the financial viability of vertical farms and on shore fish farms. In Renewables, we follow last weeks pumped hydro story with news of a project due to start up shortly in Portugal, and in Built Environment we report on developments in green buses (its not all buildings, heat pumps & insulation). In Human Rights & Legal, our good friend Kristina Touzenis discusses a possible extension to the recently announced mandatory EU Due Diligence legislation. Finally, we finish with our “one last thought” which highlights a local authority in the UK requiring bee bricks in new buildings.

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 : California delays important roof top solar decision 



Controversial California roof top solar vote postponed (San Diego Union Tribune)

Main points of the story as published

  •  A vote on a controversial proposal that would change the rules for c. 1.3 million rooftop solar customers in California will not be held Feb. 10 as first thought. An email from California Public Utilities Commission  Administrative Law Judge Kelly Hymes, indicates a final determination on what’s colloquially called net energy metering 3.0 is still weeks away, saying that the proposed decision “will not appear on the Commission’s voting meeting agenda until further notice.”
  • The email said that the CPUC’s new president, Alice Busching Reynolds, has “requested additional time to analyze the record and consider revisions to the proposed decision based on party comments.” In addition, Reynolds wants to make sure all five commissioners can participate in a session that will hear oral arguments about the pros and cons of NEM 3.0. A new commissioner, John Reynolds, was recently appointed to the commission by Gov. Gavin Newsom but as of Thursday has not officially been seated.
  • For years, investor-owned utilities in the state have called for changes to the existing NEM rules, saying that the current policy leaves customers who don’t have rooftop solar paying a disproportionate amount of the fixed costs that come with running the electrical system. This “cost-shift,” they contend, means Californians without solar pay more in electric bills per year than customers who have installed solar on their rooftops.
  • By contrast, the solar industry and many customers who have placed installations upon their homes and businesses blasted the proposed decision, saying the higher fees will cripple solar energy businesses in California.

Our take on this

  • We covered the first stages of this process in our weekly of the 20th December 2021, so we don’t plan to rerun the debate, other than to point out that based on 2020 data, California has 6x more small scale solar than the next most important US state (Arizona – as you asked), coming in at 17.4 GWh.
  • Why cover this story twice in just over a month. Its clearly important for companies that install residential solar in California (& maybe in other US states) but surely its not such a big deal for everyone else is it ? Well actually it might be. California might be the first of these cases but as residential solar grows, other jurisdictions and utilities are going to have to sort out the same questions. Of these, South Australia is probably the closest, as they have a lot of residential solar (the highest penetration in the world apparently).  They, and other Australian states, are looking closely at what they call flexible export limits.  This is going to become a big issue, with this study from Imperial College highlighting the massive potential including in India and China
  • So what are the key questions this raises. First, how do we pay for the necessary work on the grid (including battery storage and interconnections), without over loading that portion of the market that cannot fit or afford roof top solar. Second, we need to find ways of allowing a broader range of households to access rooftop/community solar, including those on low incomes or renting.
  • Finally, we need to find ways of  better managing our grids, including the important roles for demand management tools and distributed or local energy. To be clear, these are all growing pains for the industry, rather than terminal barriers, but we expect a whole stack of other jurisdictions will be watching to see what California does next.

Alternatives : Is China going to dominate green hydrogen ?



China starts world’s largest green hydrogen plant (Energy Voice)

Main points of the story as published

  • Chinese chemical producer Baofeng has started production from the world’s largest green hydrogen plant in the Chinese region of Ningxia, raising global installed electrolyser capacity by 50%. The news highlights how China is beating the world on climate technologies. The 150 MW alkaline electrolyzer, powered by a 200 MW solar array, reportedly came online in late December 2021. It is five times larger than the previous record holder, another 30MW plant that Baofeng started up in April last year.
  • Baofeng claims its project can produce 27,000 tons of hydrogen per year. Still, it will not be the biggest green hydrogen plant for long as Chinese national oil company Sinopec broke ground on a 260 MW development last December. This will be the world’s largest when it comes online in mid-2023. It will be powered by an equal amount of solar and wind power. A 300MW solar plant will be built on site with the electrolyzer.

Our take on this

  • Last week we highlighted a contract win for Linde, building a 24MW green hydrogen plant for the fertilizer giant Yara. We talked then about the importance of this contract, the second 24MW contract that Linde has recently won, and about how replacing existing dirty hydrogen use was likely to be the main market for green hydrogen, at least for much of this decade.
  • The two much larger Chinese projects put this in perspective. BNEF analysts already believe that China can produce alkaline electrolysers much cheaper than their western competitors. As they further build scale, its going to get harder to compete on price alone.

Agtech 1 : Economics of indoor farming still look challenged 



Plenty raises $400m from Walmart & others (Agfunder News )

Main points of the story as published 

  • Plenty Inc, a San Francisco based vertical farming pioneer, has raised US$400m in a Series E funding round, the largest raise to date by a vertical farm. Currently operating two farms in California, it plans to expand into the US East Coast. Significantly, Walmart joined this round as a strategic partner. Previous plans to expand into non-leafy categories such as berries and beyond California had been delayed, with former employees suggesting Plenty had exaggerated its capabilities. Expansion plans are now resuming following the appointment of a new CEO. 
  • This week also saw Kalera, a competing US-based vertical farmer, announce a SPAC merger, allowing it to transfer its listing to NASDAQ from the Euronext Growth Oslo exchange. It will also gain access to the SPAC’s US$147m in cash, helping to fund a planned expansion from 4 to 10 farms.

Our take on this

  • The economics of indoor farming remain challenged in our view. With capital intensive business models and otherwise few barriers to entry, indoor farms have focused on high value crops such as leafy greens which despite efforts to brand remain commodity products. Routes to market remain a critical issue hence the significance of Walmart investing in Plenty.
  • Multiple new entrants in indoor farming across a range of geographies suggest that no firm has a clear competitive advantage in either technology (although Plenty claims to be “rewriting the rules of agriculture through its technology platform”) or costs; conventional open field ag and low-tech greenhouses remain strong competitors. Consequently, many indoor farms have adopted a land-grab strategy with consequent implications for funding needs. Unlike data technologies there are however no network effects.

Agtech 2 : Is land based salmon about to ditch salmon ? 



Norway’s 1st land based salmon farmer may ditch salmon (Salmon Business)

  • Currently the only operational land-based salmon farmer in Norway, Nordic Aquafarms is considering switching production from salmon to yellowtail, a fish similar in texture to tuna and popular in sushi. It has applied for regulatory approval.
  • While it claims that the Norwegian salmon business will become profitable in 2022 as volumes scale, yellowtail farming has a clearer business case, selling for c. NOK150/kg, double the price of salmon. It already farms yellowtail at its Danish site.

Our take on this 

  • As with indoor farming, land-based salmon farming is a capital intensive business with uncertain economics, in part a function of complex biology. Similarly, land-based farms face tough competition from established, large-scale traditional sea based farming businesses with lower operating costs.
  • Land-based salmon farming has exploded in interest despite no farm yet achieving multiple, large scale harvest. In 2020, E&Y identified plans for land-based salmon farms with a capacity of 2.3m tonnes, equivalent to the current production of Atlantic salmon globally! In 2019, plans equalled 1.0m tonnes and 2018 a more modest 0.4m tonnes.
  • Land-based salmon farms have advantages over sea-based farms: improved fish welfare, lower environmental impact and the ability to locate near to consumers which, combined with more favourable regulation, offers clearer paths to growth. However, they face two major hurdles. The economics are challenging, with high (and rising) capex and higher operating costs. The technology is also complex; few farms appear to have mastered the water chemistry and microbial conditions on a consistent basis. Atlantic Sapphire has, for example, reported multiple mortality events.

Renewables: Portuguese pumped hydro to go on line soon 



Iberdrola pumped hydro plant to go online in mid 2022  (Energy Storage)

  • Iberdrola expects its 880MW pumped hydro plant at the Tâmega energy storage complex in northern Portugal to become fully operational in the middle of this year. It has already connected the first of four 220-MW turbines. They will work in combination with two run-of-river hydroelectric plants which bring the complex’s total hydoelectric power to 1,158MW. Gouvães and one other will go online in mid-2022 while a third will start in mid-2024.
  • The Tâmega energy storage complex is being built on the Tâmega river with €1.5 billion (US$1.69 billion) of investment by Iberdrola, with the help of a €650 million loan from the European Investment Bank (EIB). It will be able to produce 1,766 GWh per year and will be a hybrid plant with two attached wind farms totalling 300MW. The wind power will partially be used to drive the water back up to the Gouvães reservoir, as well as being fed into the grid.

Our take on this 

  • Having recently flagged the potential of pumped storage hydro, with the caveat that progress seems to be slow, we wanted to add some balance. To be clear, we don’t expect a surge in new build for run of river hydro, even where the geography is supportive. Outside of a small number of countries, we think the political and social opposition will be too great. But as we said before, pumped hydro is different. The environmental impact is much less, its a really good use of surplus renewable electricity and it can materially help with longer duration electricity storage.

Built Environment : why is progress on electric buses so slow



Netherlands leads the way on new electric buses (T&E)

Main points of the story as published

  • 16% of new urban bus purchases in Europe were zero-emission in 2020 compared to 12% in 2019, a new T&E analysis shows. The Netherlands was the clear leader with 81% electric buses, however, progress across the continent is too slow to decarbonise and cut air pollution, says T&E. Luxembourg was the only other country with more than half zero emission bus sales (51%) followed by Norway (32%) and Poland (26%). Lagging behind with less than 5% zero emission bus sales are Spain, Belgium and Austria, while Ireland and Greece bought none at all.
  • Positively, new diesel buses now account for less than half (43%) of new urban bus sales, down from 61% in 2019. This is particularly good news for urbanites who are blighted by heavily polluting diesel. But, the number of gas buses is also on the rise, up to 20% from just 13% the year before. This is despite a T&E study showing that LNG trucks are not a viable solution to reduce emissions, neither in terms of greenhouse gases or air pollutants.

Our take on this

  • Progress on decarbonising the main public transport mode (buses) in Europe remains slow. There is some hope that the   upcoming review of the heavy-duty CO2 emissions standards in the European Union will consider several adjustments to the regulations, including bringing in new standards for buses. Although given how many countries purchased no new electric buses in 2020, its hard to see this move getting the necessary political support.  You will probably be bored with us pointing out that China dominates this market as well, with over 600,000 electric buses. Although its a bit dated, this NREL factsheet separating fact from fiction, gives a useful summary of the pro’s & cons of gas buses.

Human Rights : possible protection for human rights defenders ?



The European Due Diligence Act (CBI)

  • 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 outlines a possible extension of the EU Human Rights Due Diligence Directive to include protections and support for human rights defenders.
  • The UN Special Rapporteur on the situation of Human Rights Defenders has recommended that the EU Human Rights Due Diligence Directive would be greatly strengthened by the inclusion of provisions that ensure the safety of human rights defenders.  This would include 1) The inclusion of human rights defenders as named stakeholders with whom EU companies and those accessing the internal market be obliged to consult in the exercise of their due diligence duty; 2) A negative obligation on EU companies and those accessing the internal market to refrain from retaliation of any sort against human rights defenders and others raising concerns as to the negative human rights and environmental impact, or risk thereof 3) A positive obligation on EU companies and those accessing the internal market to prevent retaliation against human rights defenders and others raising concerns about the negative human rights and environmental impact, or risk thereof,  4) The provision of criminal liability in cases where EU companies and those accessing the internal market have caused, or can reasonably be deemed to have contributed to, severe retaliation against human rights defenders raising concerns about a company’s negative human rights and environmental impact, or the risk thereof, with the burden of proof in discharging claims of retaliation resting with the company in question.
  • Human rights defenders (HRDs) are people who take peaceful action to promote and protect the human rights of others. The right of all people to do so, individually or collectively, was recognised by all UN Member States with the adoption of the UN Declaration on Human Rights Defenders by consensus at the UN General Assembly in December 1998. Support for HRDs is a long-established component of EU foreign policy, as most prominently exemplified in the EU Guidelines on Human Rights Defenders and ProtectDefenders.eu, the EU’s support mechanism for human rights defender
  • Human rights defenders all over the world, including women and indigenous human rights defenders, face retaliation when raising human rights and environmental concerns connected with corporate activity, including within the value chains of EU companies. This has been documented in great detail by international, regional, and national level human rights bodies, including in a report by my predecessor on the mandate, as well as by civil society organisations and human rights defenders themselves. Those defenders most often targeted emerge from communities directly affected by the negative human rights and environmental impact of corporate activities.

One last thought

Bee bricks required in new buildings in Brighton (dezeen)

A planning law introduced in the city of Brighton and Hove, England, calls for new buildings to include special bricks that provide nests for solitary bees.  Brighton & Hove Council’s policy stipulates that all new buildings above five metres should include bee bricks, as well as bird nesting boxes suitable for swifts. These bee bricks are the same size as regular bricks, but integrate a series of narrow openings like those where solitary bees are known to nest. The aim is to increase opportunities for biodiversity. With solitary bees making up nearly 250 of the approximately 270 bee species in Britain, they play an important role in the natural ecosystem. Both Nick & I keep bees, in our case the honey variety. And we both welcome this move, in part because while (semi domesticated ?) honey bees get a lot of attention, its actually all of the other wild bee species that really need the help, and they play just as an important role in pollination.

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