News / Green shipping revolution could be hamstrung, UMAS warns

© Elnur

Global-south countries have great potential for generating the clean fuels shipping needs – but access to financing will pose a major hurdle, concluded a UMAS study this week.

Another study by IFP Energies Nouvelles and CMA CGM explored different scenarios which took into account ‘cradle-to-grave’ CO2 emissions from renewable generation and refining of ship fuels, and transporting them either to bunkering hubs Singapore or Rotterdam. Morocco and Western Sahara, as well as Algeria, benefit from abundant solar and enormous Atlantic coastal wind potential, standing out as eligible locations in both cases. Brazil, too, enjoys a high proportion of renewable grid energy thanks to its supply of river hydropower.

But UMAS and UCL Energy Institute Shipping and Oceans Research Group have expressed concern that stymied access to capital and financing would prevent developing countries from getting a foothold in the supply of ship fuels, however suitable they might be to provide it.

Renewable energy financing requires a great deal of leverage. Green energy may have by far the lowest levelised cost of energy (LCOE), the total lifecycle cost — but the investment horizon is much longer compared with oil and gas, which can pay back soon after beginning production.

The UMAS study compared the Weighted Average Cost of Capital (WACC) in Australia, Brazil, India, and African e-ammonia projects. Taking into account the ease of access to investment capital, Australia was deemed to be the lowest overall cost per tonne of ammonia, at US$952, edging out Brazil with $1,094/tonne. The latter, meanwhile, proved far more expensive, at $1,722/tonne. This cost delta, UMAS said, would “more than compensate for any differential in renewables energy quality, and thus favour the Australian project.”

These findings, said Dr Tristan Smith, professor of energy and transport at the UCL Energy Institute, were “critically important” as shipping approaches the next IMO meeting of the Environment Protection Committee (MEPC) in April. There is agreement that poorly drafted IMO legislation could leave developing and climate-vulnerable nations much worse off.

“Unless IMO agrees measures that can produce stable revenues at a level able to fund both energy transition and just and equitable transition,” Dr Smith said. “The outcome will undermine either, or both of its strategy commitments.”

A proposal by the International Chamber of Shipping would involve a levy-based GHG pricing mechanism which would amass an “IMO GHG Strategy Implementation Fund”. Part of the funds would be used to support developing countries.

“Access to funding and its cost has a huge impact on the comparative competitiveness of e-fuel projects which require large upfront investment over multi-year lead times,” said Deniz Aymer, senior consultant at UMAS.

“As the cost of capital increases, the relative disadvantage compounds and so very quickly you get to point where projects with better-quality renewable resources cannot out-compete projects with low costs of capital.”