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Power31-Jul-2024
UK government announced a budget boost of
more than £500m for the sixth CfD auction
round, raising the budget to over £1.5bn
This means offshore wind funding has
increased from £800m to £1.1bn, the largest
budget ever
Despite this vast increase, the budget will
not be enough to procure the capacity needed to
meet UK’s 2030 offshore wind target
LONDON (ICIS)–Modelling by ICIS Analytics
indicates that the UK government’s latest £530m
funding increase to its Contracts for
Difference (CfD) scheme is too low to procure
the capacity required to meet its 2030 offshore
wind target.
The UK aims to quadruple offshore wind capacity
by 2030, a target the Labour government first
announced before being elected.
The budget boost was announced on 31 July,
ahead of the sixth auction round of the
Contracts for Difference (CfD) scheme this
summer, and raises the overall budget to over
£1.5bn.
The pot for offshore wind has now increased
from £800m to £1.1bn, the largest ever budget.
But to meet the UK
target, nearly £3.2bn would be needed – if the
auction cleared at a base case scenario strike
price of £60/MWh, ICIS analysis shows.
Furthermore, there are too few auction entrants
to procure the 16.6GW of offshore wind capacity
needed in the first place. This is because only
10.6GW in projects have the required
development consent to proceed to auction.
“Last year’s auction round was a catastrophe,
with zero offshore wind secured,” energy
secretary Ed Miliband said in a statement,
adding that the new budget would support
construction work for the sector.
The
unsuccessful 2023 fifth auction round saw
no offshore wind bids mainly due to a low
strike price in the wake of increasing supply
chain costs.
The previous government had set the maximum
strike price for offshore wind in the sixth
auction at £73/MWh, allocated offshore wind its
own funding pot and set a budget of £800m.
The new government’s aim to quadruple offshore
wind capacity is also an increase on the UK’s
previous target.
OFFSHORE WIND ANALYSIS
To interpret targetted 2030 capacity, ICIS
quadrupled its forecast for installed capacity
by the end of 2024, resulting in 61.08GW by
2030.
Actual intended
capacity may vary, and the government did not
address enquiries that could help specify the
exact date from which it intended to quadruple
capacity.
ICIS Analytics calculated that, in auction
rounds six and seven, offshore wind capacity
needs to average 16.60GW per auction to obtain
the capacity needed to reach the 2030 target.
Calculations show that if the auction cleared
at a strike price of £60/MWh, the £1.1bn budget
could finance 5.8GW of capacity. Similarly, if
the auction cleared at its maximum strike price
of £73/MWh, the budget would only be able to
fund 4.3GW.
Given that only 10.6GW of offshore projects
have development consent to proceed to auction,
this puts
increased pressure to secure further
capacity on the seventh auction in 2025.
For now, ICIS Analytics forecasts only 39GW of
offshore wind capacity will be built by 2030,
under a base case scenario.
BOOST FOR ONSHORE
WIND
The overall budget the CfD scheme is divided
into three pots (see infographic) depending on
the technology it supports. The budget for pot
one, for established technologies like onshore
wind, was increased from £120m to £185m as a
result of the latest £530m injection.
The government has also
removed a de-facto ban on onshore wind in
England this month.
Additional policy tests previously meant that
wind power planning applications had to go
though additional hurdles compared to many
other types of energy development proposals.
The government also plans to consult on
bringing onshore wind back into the nationally
significant infrastructure projects regime,
meaning decisions on large onshore wind
projects would be made by the Secretary of
State instead of local planning authorities.
This could further speed up permitting.
ICIS analyst Robbie Jackson-Stroud
previously stated that onshore wind is
cheaper and quicker to build but has a thin
pipeline of projects due to previous red tape.
“While there is more opportunity for the
technology, it may take until the seventh
auction round for onshore projects to be ready
to bid in the CfD,” Jackson-Stroud said.
FLOATING OFFSHORE WIND
Pot two, which is for emerging technologies
such as floating offshore wind, saw a funding
increase from £105m to £270m. This should help
the UK move closer to its target to deploy up
to 5GW of floating offshore wind capacity by
2030, despite £15m being ringfenced support for
tidal stream projects.
ICIS previously reported that the increase
in maximum strike price to £176/MWh and budget
of £105m for the sixth auction could make the
round more attractive to developers and could
procure more floating offshore wind capacity.
In the fifth auction, there were no bids for
floating offshore wind amid a low strike price
of £116/MWh and a budget of only £37m for the
pot.
Speciality Chemicals31-Jul-2024
LONDON (ICIS)–Eurozone inflation in July is
expected to rise from 2.5% to 2.6%, above
market expectations, with services being the
driving component, according to data from
European Commission statistics body Eurostat.
Looking at the main components, services are
expected to see the highest annual rate in July
(4.0%, falling from 4.1% in June), followed by
food, alcohol and tobacco (2.3%, also falling
from 2.4% in June) and non-energy industrial
goods (0.8%, compared with 0.7% in June) Energy
holds the position of highest growth, growing
to 1.3% from 0.2% in June.
Despite the higher than expected rate of
inflation, the downward overall downward
trajectory remains intact, according to
analysts at banking group ING, but may not be
at a pace to allow for further rate cuts in the
immediate future.
“Survey data still suggests that the downward
trend in inflation is likely to continue. And
keep in mind that, at the current level,
interest rates still imply restrictive monetary
policy,” said ING chief economist for the
eurozone Peter Vanden Houte.
The debate on whether The European Central Bank
should or should not introduce a cut in
September will only be finalised once another
six weeks of remaining economic data is
reviewed. The central bank’s monetary policy
committee convenes on 12 September.
The eurozone inflation flash estimate is issued
at the end of each reference month. The final
figures for July are schedules to be released
for 20th August 2024.
Ethylene31-Jul-2024
SINGAPORE (ICIS)–Ethane is gaining favor as
the feedstock for steam crackers in China, as
its competitive prices make ethane-cracking the
most profitable route for ethylene production
compared to other options.
Join ICIS LPG analysts Lillian Ren and Yan Wang
as they discuss how Chinese steam crackers are
eyeing ethane as a cracking feedstock.
Several steam cracker operators in China
plan to revamp and switch to cracking more or
only ethane instead of propane.
Propane/butane still takes a larger share
than ethane in steam cracker feedstock slates.
The cost advantage of ethane will narrow
with increasing demand and a single global
source.
Global News + ICIS Chemical Business (ICB)
See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.
Ammonia30-Jul-2024
HOUSTON (ICIS)—Chemical company Clariant
Catalysts has announced the expansion of its
strategic cooperation with global engineering
firm KBR regarding ammonia production.
Clariant said the partners will continue
collaborating on traditional ammonia projects
while significantly increasing their focus on
low-carbon and carbon-free green ammonia
applications.
It further said the solutions will combine
Clariant’s outstanding AmoMax ammonia synthesis
catalysts with KBR’s K-GreeN ammonia
technologies to maximize the economics and
energy efficiency of ammonia production.
For the production of carbon-free green
ammonia, KBR’s technology is combined with
Clariant’s catalyst to convert green hydrogen
with nitrogen from an air separation unit.
Clariant said the partners’ complete green
ammonia solution has already been selected for
10 prestigious green ammonia projects around
the world.
“We are proud of our long and successful
history as partners and are delighted to
strengthen our cooperation with KBR. By
extending our collaboration towards sustainable
ammonia solutions, we generate synergies for
innovations supporting fertilizer production
and the energy transition,” said Georg Anfang,
Clariant Catalysts, vice president syngas and
fuels.
“Our state-of-the-art catalysts optimally
complement KBR’s advanced process technologies
to enable economical and reliable large-scale
production of low-carbon and green ammonia.”
KBR has licensed and designed over 250
grassroot ammonia plants worldwide with
Clariant providing catalysts best suited for
the optimum performance of KBR-licensed ammonia
plants.
Ammonia30-Jul-2024
HOUSTON (ICIS)–Although net income and sales
fell year on year, US fertilizer producer CVR
said it had a solid result for Q2 2024, which
was driven in part by a combined ammonia
production rate of 102%.
The producer of ammonia and urea ammonium
nitrate (UAN) announced during the period it
had a net income of $26 million and net sales
of $133 million for Q2 compared to net income
of $60 million and net sales of $183 million
for the second quarter of 2023.
CVR said its facilities remained consistent
compared to this quarter in 2023 as they
produced 221,000 short tons of ammonia, of
which 69,000 net tons were available for sale.
The remaining balance was upgraded to other
products, including 337,000 short tons of urea
ammonia nitrate (UAN).
In Q2 2023, those levels were at 219,000 tons
of ammonia, with 70,000 net tons available to
sale with the remainder upgraded, including
339,000 short tons of UAN.
The average realized gate prices for UAN has
also decreased with it down by 15% to
$268/short ton, while ammonia dropped 26% to
$520/short ton year-on-year.
During this period in 2023 the average realized
gate prices for UAN and ammonia were at
$316/short ton and $707/short ton respectively.
“CVR Partners reported solid operating results
for the second quarter of 2024 driven by safe,
reliable operations and a combined ammonia
production rate of 102%,” said Mark Pytosh, CVR
Partners CEO.
“The spring planting season experienced some
weather interruptions, however, planted acreage
was higher than expected and demand for
nitrogen fertilizer was strong.”
Pytosh added that they expect to see good
demand for nitrogen fertilizer remaining
throughout 2024 even with prices being higher
than experienced in 2023.
“Our focus for the remainder of the year will
continue to be on safe, reliable operations and
maximizing our free cash flow generation,”
Pytosh said.
Power30-Jul-2024
Spanish renewable capacity is set to rise
drastically between 2024 to 2050
In times of surplus supply and low demand
frequent negative prices have occurred, raising
investor concerns
Spain is investing €160 million in energy
storage to stabilize and sustain renewable
growth
LONDON (ICIS)–Spain should prioritize
investing in energy storage to prevent market
volatility and balance surplus supply.
With low Spanish demand levels for power and
ample renewable power production, there needs
to be more storage capacity to ensure negative
prices are managed.
RENEWABLES BOOM
The country aims to achieve national climate
neutrality by 2050, targeting 100% renewable
energy in the electricity mix, the
International Energy Agency shows.
In the Spanish national recovery and resilience
plan the country dedicates 39.7% of its goals
to the ‘green transition,’ funded partly by €58
million from the Brexit adjustment reserve. The
EU’s long-term strategy also supports this
regional goal of achieving net-zero emissions
by 2050.
Renewable capacity in Spain is forecast to grow
from 98.3GW in 2024 to 209.2GW by 2050
according to ICIS Analytics.
MARKET VOLATILITY
Demand is not expected to keep in pace with the
growth in Spanish renewable supply, according
to ICIS Analytics.
If supply of electricity is to continue to
exceed demand levels in coming years, the
likelihood of negative prices occurring could
remain.
A trader active within the Spanish power market
told ICIS that so far in 2024 there have been
671 hours of null or negative prices, of which
a third are negative with minimums reaching
-€2.00/MWh in June. In comparison to 2022,
where the market only had 3 hours of negative
or null prices.
Balancing mechanisms such as storage will play
a key role in managing this imbalance.
ICIS Analytics shows that Spanish battery
storage capacity is expected to rise from 1.2GW
in 2024 to 9.8GW in 2050.
FUTURE FOCUS
Investors are increasingly concerned about
market volatility, as negative prices deter
further investments in renewable projects.
To address these challenges, the Spanish
government is investing €160 million in grants
for energy storage projects, aiming to bring
600MW of storage online by 2026.
ICIS Analytics predicts that batteries will
begin to make a small presence in Spanish
capacity from 2024 with 1.9GW, however total
supply is expected to continue to overpower
demand through till 2050.
Spanish interconnector capacity is set to begin
to grow steadily from 2028 onwards, according
to ICIS Analytics. In 2024, there is an
upcoming project on the connection between
Spain and Portugal, to update capacity to 5GW.
Following this, in 2033 a 1.8GW interconnection
will be join Spain with UK. Both projects will
enable surplus energy to be sent to
neighbouring regions.
A suggested solution is electrification with
the Sanchez government setting a target of
making 34% of the economy reliant on
electricity by 2030 to increase demand.
However, concerns continue to rise due to fear
that the pace of electrification and energy
consumption may not keep up with the growth in
renewable energy generation.
Ethylene30-Jul-2024
LONDON (ICIS)–Germany’s
chemical-pharmaceutical industry is operating
at unsustainably low capacity utilization as it
continues to face severe challenges, raising
doubts over the sector’s long-term prospects,
industry officials said at a webinar hosted by
the chemical producers’ trade group.
Operating rates remain below profitability
threshold
Bureaucracy and other challenges discourage
production and investment
Domestic demand weak as Europe’s growth
engine has stalled
In the second quarter, the operating rate was
only 75.1%, down from 78.1% in the first,
according to the latest industry data.
It was the 11th consecutive quarter when the
rate was below the long-term average of around
82%, which the industry needs to operate its
assets profitably.
(Blue bars: capacity utilization; orange line:
profitability threshold; source: VCI)
The low operating rates reflect the challenges
the industry faces in producing in Germany and
call into question the country’s long-term
outlook for chemical production and
investments. So said Christiane Kellermann, an
economist at the German Chemicals Industry
Association (VCI).
More capacity may need to be removed from the
market as it does not make economic sense to
run plants unprofitably in the long term, she
said.
Meanwhile, companies are holding back on new
domestic investments while shifting more
investments abroad, she noted.
BUREAUCRACY
The burden from bureaucracy is the top
challenge for chemical production in Germany,
according to a recent survey of VCI member
companies.
Bureaucracy is not an abstract concept, but
rather a significant cost factor for companies,
Kellermann said.
According to the survey, chemical companies
estimate that the cost linked to bureaucracy,
as a share of sales, comes to about 5% on
average.
Other challenges are high energy and raw
materials costs, a lack of qualified labor and
geopolitical uncertainties, according to the
survey.
Energy and material costs are down from
2022-2023 peak levels but remain high, with no
significant further relief expected, Kellermann
said.
WEAK DOMESTIC DEMAND
While chemical export demand has stabilized,
domestic demand is weak.
Most of the major domestic customer industries,
with the exception of food and paper, saw
year-on-year sales declines in the first five
months of 2024.
Germany’s GDP is expected to grow only
marginally this year, said Jupp Zenzen,
economist at the German Chamber of commerce,
who also presented at the webinar.
Since early 2022, the country has been in a
stagnation phase, which continues in 2024,
Zenzen said, adding: “We won’t have growth this
year.”
2024 GDP FORECASTS:
Government
+0.3%
Bundesbank
+0.3%
Government export
council
+0.2%
Joint forecast by leading
institutes
+0.1%
Chamber of Commerce
flat
(Compiled by the Chamber of Commerce)
For the second quarter,
GDP fell by 0.1% from the first quarter,
following a 0.2% quarter-on-quarter increase in
the first quarter, according to data from the
country’s federal statistics office on Tuesday.
Overall industrial production remains below
pre-COVID levels and the chamber currently does
not see an upward trend, Zenzen said.
Domestic new orders are trending down as demand
is weak, he said.
Export demand seems to have stabilized as “the
world economy is robust”, but this has yet to
be reflected in the orderbooks of German
industrial producers, he said.
Most of the big domestic industrial sectors are
pessimistic about their business expectations,
and their plans for domestic investments are
largely “negative”, which is dimming the
prospects for growth, he said.
CHEMICAL PRODUCTION
In contrast to overall industrial production,
Germany’s chemical production recovered at the
start of the year but since then has moved
sideways, said Kellermann.
The trade group expects the country’s chemical
production (excluding pharmaceuticals) to rise
by 5.0% in 2024, which, if realized, would come
after a 10.4% decline in 2023.
While at first glance a 5% increase may seem
strong, production remains far from levels
during 2010-2021, she said, and pointed to the
following chart showing Germany’s chemical
production (excluding pharma) since 2008:
Whereas chemical production recovered quickly
after the 2008-2009 global financial crisis and
after the pandemic, it has yet to recover from
its collapse in 2022 in the wake of the Ukraine
war, she said.
Currently, production is “incredibly” low,
meaning that the expected 2024 growth would not
mark a return to past production levels, she
said.
Customer inventories may often be so low that
even if customers produce only a little, they
will have to order some chemicals and other
materials – but this can hardly be described as
a recovery, she noted.
Compared with weak sales in 2023, chemical
producers expect an improvement in sales this
year but are pessimistic about profits because
of their high costs, according to the VCI
survey.
Companies now expect that demand and chemical
production could begin to recover in 2025-2026,
according to the survey. Their previous
expectation was for a recovery to get underway
in the second half of 2024.
Thumbnail photo source: VCI
Focus article by Stefan
Baumgarten
Please also visit Macroeconomics:
Impact on Chemicals
Speciality Chemicals30-Jul-2024
BARCELONA (ICIS)–Collapsing second quarter
financial results show that the industry may
face permanently low growth, driving the need
for radical business model transformation.
Q2 financial results show persistent
downturn in sales, profitability
Europe chemicals still plagued by
China-driven global overcapacity, higher
production costs, poor downstream demand
BASF reports double-digit fall in net
income, weighed by lower prices. Warns of
second half risks from stronger price
reduction, lower volume growth
Dow CFO says consumer durables, building
and construction will likely remain weak
through the rest of the year
Need for widespread closures to balance
supply and demand
Chemical companies need to adopt radical
new business models
End of China’s economic miracle means there
will be no return to strong demand growth
globally
In this Think Tank podcast, Will
Beacham interviews ICIS business
solution specialist Nigel
Davis, ICIS market development
director John
Richardson and Paul
Hodges, chairman of New Normal
Consulting.
Editor’s note: This podcast is an opinion
piece. The views expressed are those of the
presenter and interviewees, and do not
necessarily represent those of ICIS.
ICIS is organising regular updates to help
the industry understand current market trends.
Register here .
Read the latest issue of ICIS
Chemical Business.
Read Paul Hodges and John Richardson’s
ICIS
blogs.
Polyethylene30-Jul-2024
SINGAPORE (ICIS)–Click
here to see the latest blog post on Asian
Chemical Connections by John Richardson.
Warning: Don’t put sustainability in the
equivalent of a broom cupboard in the basement
of your chemicals company HQ because profits
from green and circular chemicals are today
thin on the ground.
Companies in Europe, South Korea and Singapore
etc. should perhaps instead focus on
higher-value chemicals and polymers that
address the challenges of reducing carbon and
circularity.
They may have to in parallel close their
commodity chemicals capacities down in a world
of declining consumption growth.
Everything is connected. Don’t make the mistake
of intellectually compartmentalising
sustainability into, again, a broom cupboard as
the energy and chemicals transitions are
connected to other big picture changes.
In summary, this is how the chemicals world
could look in just a few years’ time:
• Global chemicals demand has peaked and will
from now on decline because of demographics,
the end of the China “growth miracle,” downward
pressures on consumption from sustainability,
the impact of climate change on economies and
maybe artificial intelligence.
• As demand shrinks, the feedstock-advantaged
Middle East and the US continue to add capacity
to gain bigger slices of a shrinking pie. So
does China for self-sufficiency reasons.
• Chemicals companies elsewhere increasingly
focus on niche, smaller-volume higher-value
chemicals and polymers. They shut down
commodities capacities and choose to import the
commodities they need.
• Japan serves as an example of a country that
is already travelling down this path.
Please don’t make the mistake of assuming that
this is just another downcycle. The evidence
instead points to a fundamental realignment of
the chemicals industry.
If you think otherwise, you must believe that
the chemicals industry is divorced from the
rest the world when, of course, it isn’t.
Editor’s note: This blog post is an opinion
piece. The views expressed are those of the
author, and do not necessarily represent those
of ICIS.
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