Perfect Storm Brewing for Wind Ships
While the year is not over, 2018 has already been a very significant one for wind propulsion and the shipping industry in general. We could say that a perfect storm is brewing for the uptake of primary (wind etc.) and secondary renewable energy (alternative fuels/energy storage) in shipping. Policy, price, perception, providers and people are all starting to align.
The IMO is moving forward with the sulfur cap, MRV and most importantly the initial targets of ‘at least’ 50 percent reduction in CO2 by 2050 (2008 baseline), which opens the door for that to be tightened further.
We have significant upward pressure with heavy fuel oil (HFO) averaging in October around $500/tn, ULSFO ($650/tn) and MGO ($700/tn), already well over the magic $600 that brings ROI’s for many wind propulsion systems into the three year bracket. Of course leasing and rental options will dramatically reduce CAPEX and savings from fuel shared to pay the cost of those installations.
This pressure is set to increase with an expected $100-150/tn increase when the sulfur cap comes into force by the end of next year. An example of carbon price growth is the E.U. ETS, which has seen a huge increase in price, from $7/tn to $20/tn of CO2 in the last 12 months, with a leading German bank predicting that could rise to as much as $100/tn by the end of 2020 (that equates to $62/tn of fuel today, and a potentially game changing $320/tn fuel in 2020). While shipping is currently outside the ETS scheme, this is a good indication of the costs of slow action on decarbonization going forward, and we should remember that many of our customers are included.
With some recent high profile installations of wind propulsion technologies the industry perception of the technology is shifting, but also the IPCC 1.5C report earlier this month was a wake-up call to all of us, indicating we have only 12 years until we reach that seriously challenging and potentially catastrophic benchmark and the report states a minimum of 45 percent CO2 reduction will be required by 2030, so action is needed – deeper and faster.
As an official reviewer of that report, I was very pleased to see that a number of recommendations for key publications were included in the final draft, including the IRENA technical brief on renewable energy in shipping. While somewhat out of date, it still covers this area well, including a significant amount on wind propulsion.
That brings me to our members and other low carbon technology pioneers. The movement in wind propulsion tech and project solutions is picking up pace. While we are a still some way from having large numbers of market ready rigs available, that is moving very quickly and the Flettner rotor technology has already stepped up a gear, with eight rotors installed in the last 12 months and more on order.
Last but not least, our industry is a broad church and shipping has always had highly talented people in sometimes difficult positions, but there is increasingly a shift to a new generation of decision makers that are focused on the triple bottom line, engineers and designers producing ever more innovative designs and customers demanding more action on emissions from shipping.
Wind propulsion is a credible, viable and increasingly profitable option and the industry is taking notice.
Gavin Allwright is Secretary of the International Windship Association.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.