• Steven Bowen

Sustainable Investing weekly blog: 20th August 2021 (Issue 5)


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


The format 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.

This week our top story examines the potential for interconnectors in the US; then we look at decarbonisation routes for heavy goods vehicles, land based salmon farming and our BST-Impact partners examine the implications of the various UK Court of Appeal cases regarding environmental damage.

We also note the UK’s publication of its hydrogen strategy, we don’t have any more to add on this topic than what we have said before … we remain sceptical on the potential of blue hydrogen to reduce GHG emissions, and we expect economically competitive green hydrogen at scale to be an end of decade event.

This week’s top story : Electricity & Energy Production


chart from US National Renewable Energy Laboratory (NREL)  North American renewable integration study


The battle to match Canadian Hydro with US demand (Utility Dive)

  1. This report published in Utility Dive examines the challenge of actually delivering Canadian surplus hydro to potential customers in the US. Canadian provinces produce a surplus of hydropower.  The vast majority of electricity generated in Canada — about 81% — comes from a combination of hydropower, nuclear, wind, solar and other non-carbon-emitting sources. This compares with 39% in its neighbour, the U.S. Hydropower by far is Canada’s largest renewable source of power, accounting for 60% of all electric generation in the country, a number that rises to 90% of the electric market in the hydropower rich provinces of Québec, British Columbia, and Manitoba.

  2. On the other side of the border, state governments are pushing ahead with ambitious plans to decarbonize their power grids. Pairing up surplus Canadian hydropower with demand from utilities in New York, Massachusetts and other northern states would seem to be a pragmatic move. Nor is it a one-way street, with public utility Hydro-Québec interested in buying surplus solar and wind power, storing that power in its reservoirs (pumped hydro). Moves have already been taken to exploit this. A transmission line that went online in June 2020 connected hydropower from Manitoba Hydro to customers at Minnesota Power. This backs up variable wind power (in North Dakota), and also allows Minnesota to send any excess wind power up to Manitoba.

  3. Other similar projects are planned or underway. Central Maine Power has begun work on a 145-mile transmission corridor through the woods of Western Maine (New England Clean Energy Connect  or NECEC). The project, slated for completion in 2022, will transmit Québec hydropower to the electric grid in Massachusetts. Meanwhile, Hydro-Québec has teamed up on another big project, the Champlain Hudson Power Express, which would ferry electricity from Québec to New York City. But the path to grid interconnections does not run smoothly. The $1 billion Maine NECEC project, on which work started earlier in the year, has lined up all its state and federal permits, and has withstood federal court challenges.

  4. But the US legal process is more complex than that. In the most recent setback, Maine Superior Court ruled Aug. 10 that the state’s Bureau of Public Lands had failed to make a required determination before awarding the leases as to the impact on public land (if it would either be “reduced,” or “substantially altered” by the work). Meanwhile, a referendum is set to go before Maine voters in November that could require a two-thirds vote by the Maine Legislature in order to allow construction of any “high-impact transmission lines” in the state, while retroactively extending this requirement back six years to cover the NECEC project.


Our take on this

  1. Strengthening our electricity grid, and making it more resilient, will be a key enabler if we are to add the scale of renewable electricity generation that most countries are targeting. If the grid is not strong enough, in many cases renewable generation could be waiting years before they get connected. There are a number of ways of achieving this, it’s not an either-or question. Solutions range from advanced grid management technologies that better utilise available capacity, through electricity storage and on to interconnectors. This is going to become a massive industry as we move toward 2050, and we think the potential for investors remains poorly understood. This is the first of what will become a regular series of items, digging down into these technologies.

  2. One obvious solution to any mismatch between supply & demand is to bring more electricity in, via long distance interconnectors via an upgraded transmission network. This electricity could be geographically remote (using say West Coast solar for peak demand elsewhere – with an element of time shifting) or as in this case, using Canadian hydro to offset the variability of local solar and wind. This does not just have to be moving point to point loads, it is increasingly possible to create high voltage direct current (HVDC) meshed grids HVDC grid technology is key . It’s hard to understate how important an upgraded transmission grid will be to achieving renewable electricity generation goals.

  3. For instance, a recent report from the US National Renewable Energy Laboratory (NREL)  North American renewable integration study estimated that it is possible for the US to achieve up to c. 80% carbon free electricity by 2050. Their analysis highlighted the importance of inter-regional transmission, so moving electricity around the US, and between Canada, the US and Mexico. They estimated that is could create a net value of up to $180bn, of which the majority comes from interconnectors within the US.

  4. How much could this cost? Or putting it another way, how big could the market be? Sticking with the US, estimates range widely transmission key to decarbonisation , but they indicate total spending of at least $100bn over the next 15 years (2035 decarbonisation study from the University of California, Berkeley and GridLab – 2020) up to $350 billion out to 2050 (Princeton University zero-carbon U.S. economy – 2021). Either way this could become a materially larger market than it is now (on Princeton numbers triple the current size).

  5. Clearly, one of the big barriers, at least in the US, is politics. Transmission lines are, in practice, largely a state matter, meaning that local politics can override the national interest. We understand that while “national interest electric transmission corridors” come under federal government domain, recent Court of Appeal judgements (2010/11) have limited powers to “force” states to allow such projects to approve.  Its going to be really interesting to see what moves the Biden administration makes to break this logjam, with some discussions around the use of section 1222 actions.

  6. Interestingly, Germany has already begun to move  (new stand alone interconnectors regulation) to ensure that the legal framework keeps up with the need for interconnectors. In a draft amendment to their Energy Industry Act (EnWG), published March 2021, they have proposed a new regulatory framework for stand-alone interconnectors. These are cross-border interconnectors that are not operated by the transmission system operator (TSO) but are instead operated by independent companies, including investment funds. The new law shall apply to interconnector between Germany and another EU state but also between Germany and third countries, such as the UK. The proposed model incentives private investment into interconnectors by providing a secure payback and return on investment for developers.

Electrification applications


Energy efficiency from well to wheel in heavy-duty transport technologies. Source: Iberdrola (using renewable electricity)


Decarbonising heavy transport (world economic forum)

  1. Heavy-duty trucking presents a special challenge. While it constitutes only 1% of total global fleet vehicles, it is responsible for a disproportionate 25% share of global road emissions. Heated debates have surrounded the sustainability of electric vehicles. It’s clear that the greatest factor in BEV emissions is not the batteries, but rather the electricity used to charge them. So, our race to decarbonize transportation depends on our success in decarbonizing the electrical grid.

  2. Since fuel is an enormous cost factor for long-haul trucks covering 160,000 km annually, energy efficiency plays a major role in reducing operational costs. And while BEV batteries are already 85% cheaper than 10 years ago, by 2030 it is estimated that battery costs will drop another 50%. At that point, according to the CEO Alliance’s HDT Truck Charging Final Report, published in April 2021, native design electric trucks will reach an economic tipping point, becoming 12% cheaper to purchase and operate than diesel trucks.

  3. Range anxiety is another common deterrent to electrifying fleets, even though both the vehicles and charging stations are capable of delivering long range driving security. In fact, by 2025, increased battery density is forecast to allow a 40-tonne truck to drive 400 km on a single charge. Of course, that assumes the status quo – a battery that fits into a conventional truck head. Most analysts expect BEV-native truck heads with bigger batteries to appear in the next five years, making the average long-haul trip of around 800 km possible on a single charge.

  4. Charging technology is also much faster. It once took 2.5 hours to charge a heavy-duty electric truck. With fast chargers, charging is done over a standard compulsory break (45 minutes for every 4.5 hours of driving). International public funding will also be an important tool in overcoming border barriers. Europe’s NextGenerationEU programme, for example, will dedicate 25% of its €750 billion recovery budget to decarbonization projects, with sustainable infrastructure and electric transport topping its priorities. The CEO Alliance for heavy-duty vehicle charging has recommended allocating €9 billion of that funding to constructing a strategic EV charging network, with 8,000 chargers along nine highways in the Trans-European Transport Network, and another 20,000 chargers at 11 regional hubs, guaranteeing a seamless essential European freight route.


Our take on this

  1. We don’t propose in this comment to get involved in the whole EV vs hydrogen fuel cells debate, other than to highlight a point we have been making for a number of years, outside of the US, most HGV’s do not travel long distances (comparison of hydrogen and battery electric trucks) For instance, trips up to 400km represent 62% of EU truck activity, this range roughly equates to a 60 minute charge time with a rapid charger. When thinking about decarbonising HGV’s, its important to keep range, as well as weight, in mind.

  2. What we want to focus on instead is the charging infrastructure. Again, it appears that the popular image, of trucks trundling long distances along motorways and mainly refuelling at roadside service areas is incorrect. The specific recharging needs of electric trucks are classified in three categories: depot charging, destination charging (typically at distribution centres), and public charging (along highways or at charging hubs in urban areas).

  3. Sticking with the European situation (the particular case study being in and around Amsterdam), research by Transport & Environment (masterplan for truck charging infrastructure) shows that 78% of charging could be done at the depot, with 16% at the destination and 6% via public stations. This suggests that the bulk of near term HGV charging demand (out to c.  2025 and even potentially out to 2030) will be for a large number of slower charges at depots and a smaller number of medium/high powered chargers at distribution centres etc. Next up would be high powered public chargers in urban areas and after that again, very high speed chargers on motorways etc. Food for thought we suggest.

Agriculture & Natural Capital


Nordic Aqua Partners aims for land based salmon in China (salmon business.com)

  1. Nordic Aqua Partners presented its financial report for the second quarter on Friday morning. As the company does not have fish in production, the income statement is of limited interest. What is more interesting is what the company says about growth plans going forward. The long term production target has been raised from 40,000 tonnes to 50,000 tonnes, possibly including new facilities in Beijing and Hong Kong.

  2. The first construction phase is fully financed and construction work in Goatang, near Shanghai, is underway. The second construction phase will be financed by a combination of debt and equity from earnings at construction phase 1. The first and second construction stages will yield 8,000 tonnes of salmon annually, divided into two equal modules. The company is already raising the production plan for the third construction phase, from 8,000 tonnes to 12,000 tonnes in 2027, which means a total of 20,000 tonnes in this plant. The first harvest of fish is expected to take place during the first quarter of 2023. According to the Danish fish farming company, led by ex-Mowi director Ragnar Joensen, the activities are on schedule.


Our take on this

  1. Despite the well reported operational challenges being faced by existing players such as Atlantic Sapphire, including a recent report of a mass mortality event (Atlantic Sapphire suffers mass mortality event) the excitement around land-based salmon farming appears to remain undiminished. The trade off is simple, higher production costs but offset by much lower transport expenses, which come from being located close to large end markets (including the US and China).

  2. However, higher production costs are not the only issue that the Recirculating Aquaculture Systems (RAS) technology needs to overcome.  Mass mortality events are not only a cost issue. The sector has been dogged by periods of bad press (the high price of salmon farming), with an historic focus on fish welfare in shallow or slow water circulation regions such as Chile (Deadly Algae Kill 4,200 Tons Of Chilean Salmon). While the health benefits of salmon seem to be well accepted (five health benefits of salmon), poor fish welfare remains the industries Achilles heal.

  3. Another important question relates to scale. Our analysis has led us to the view that being a large, lowest cost, sea-based operator is probably the best long-term route to sustainable financial success. Land based salmon appears to us to be a higher risk niche, but it’s something we will continue to track.

Social and Legal factors – BST Impact


Photo by Mahosadha Ong on Unsplash

Appeal court reopens Fundao dam collapse case (The Guardian)

  1. Just a reminder. This news story and the views are from our partner BST-Impact. The team at Sustainable Investing is unqualified to discuss the legal implications of cases such as these. Fortunately, the BST-Impact team has many years’ experience with international human rights legislation. The importance of international human rights law to investors is becoming material, both from a risk perspective but also with regard to informed engagement. This blog comment is a short version of a longer article, which we will be publishing shortly as a stand-alone blog.  For follow up, consultancy and training etc, BST-Impact can be found here.

  2. In late July London’s Court of Appeal agreed to reopen a $7 billion lawsuit by 200,000 claimants against Anglo-Australian mining giant BHP – a case regarding dam rupture behind Brazil’s worst environmental disaster in 2015.  The collapse of the Fundao dam, owned by Samarco – a venture between BHP and Brazilian iron mining firm Vale, killed 19 and destroyed a number of villages – which means houses, livelihoods, and futures for inhabitants, as a more than 40 million cubic metres of mining waste swept into the Doce river and subsequently reached the Atlantic Ocean over 600 km away. The case will probably be heard in 2022 and in all likelihood be appealed subsequently to the UK Supreme Court.

  3. In terms of context, in 2019 the UK Supreme Court allowed Zambian villagers to sue miner Vedanta in England for alleged pollution in Africa and in February 2021 it permitted Nigerian farmers and fishermen to pursue Royal Dutch Shell over oil spills in the Niger Delta. In this case Nigerians from the Ogale and Bille communities alleged they had suffered decades of pollution, including the contamination of their water wells with potentially cancer-causing chemicals, as well as the devastation of mangrove vegetation, all of which was documented by the UN in a report in 2011 (following a case against RDS in a New York Court from 2009).

  4. The high court ruled in January 2017 that Shell was not responsible for the harm because it was merely a holding company that did not exercise any control over SPDC who was the company operating in Nigeria. But, the Supreme Court held that the appeal of the claimants – who argued that they could not expect justice in a Nigerian court for this case – “had a real prospect of success” and should be heard in London. The Supreme Court determined that there is a good arguable case that Shell is legally responsible for the systemic pollution affecting the Ogale and Bille communities, overturning the lower Appeals Court’s decision by stating that it had “materially erred in law” when it ruled against the claimants

BST- Impact take on this

  1. This decision has opened the way for parent companies to be held accountable for the acts of their subsidiaries as well as for acts they commit on foreign soil when the justice system in the affected country is deemed to be too lengthy or not effective: their responsibility stems from the significant control they exercise over the subsidiary and operation, towards which they are thus obliged to exercise duty of care. The rulings represent a turning point and could also affect other common law countries such as Canada, Australia, and New Zealand, where it could constitute a precedent to grant access to an effective remedy to the impoverished communities whose rights have been violated by multinational corporations.

  2. The environmental impact of operations and investment is a source of new laws, standards, and case law. Some are very technical and specific regarding e.g. emission data, spillage, waste management – but when harm is done to a community of individuals the link between human rights, and duties of care, and environmental damage becomes not only clear, but a basis for law suits. Specifically, the recognition of a duty of care to protect against the harms associated with environmental impact has given prospective litigants additional choice of grounds and has emboldened the use of existing human rights standards laws.

  3. The upcoming EU regulation on Human Rights Due Diligence (HHDD) will be a further step in this direction, requiring not only EU based companies, but all EU operating companies to identify, prevent, and mitigate – e.g. through the establishment of an oil spill response plan – adverse human rights and environmental impacts on their entire upstream and downstream value chain, and to account for how adverse impacts are addressed, even if such impacts do not take place within EU borders. On the definition of the scope of the HHDD obligations, the UNGPs in Principle 13 state clearly that companies should (also) seek to prevent or mitigate adverse human rights impacts “that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.” This means that extra-territorial obligations will become ever more important (a subject we will be coming back to in future blogs).


One last thought

Stupid thought of the week – UK Cambo oil field  (paywall)

It’s hard to believe that is a real quote, but it is a fairly reputable newspaper so here goes “giving the go-ahead for a contentious North Sea oilfield is not a large climate change risk because the oil could sit in barrels rather than be burnt for fuel, a Scotland Office minister has said”.