In today’s Exponential Investor:
- UK wind power to double in just four years
- The chemical reaction that is crucial to making steel
- The way to play the wind power boom that no one is talking about…
Net zero. Decarbonisation. Carbon neutral.
Perhaps it’s just me and the pits in which I dwell in within the depths of the internet, but I see the above words in almost everything I read when it comes to mining and commodities.
That tells you just how much the industry is focused on the Green Energy Transition.
These taglines roughly mean the same thing too. They describe the goal of major economies to have carbon neutrality by 2050. The aim is for the amount of carbon dioxide (CO2) emitted into the atmosphere to be balanced by emissions that are removed, or not produced at all.
Or more simply, we add no more CO2 than we create.
As was explained to me a few months ago, decarbonisation of the grid – decreasing the emissions per unit of electricity generated – isn’t the most effective nor the most efficient way to meet these carbon neutral targets… however, it is the cheapest.
This is why people are keen to move us from fossil fuel-based energy and on to renewables.
The goal of moving households away from so-called dirty fossil fuels, has – perhaps – been nowhere more apparent than in the UK.
Combing both onshore and offshore windfarms, the UK has some 2,647 wind farms containing more than 11,500 wind turbines. Together they produced more than 21% of the UK’s energy in 2021 (well, it was higher in 2020… but there wasn’t a lot of wind last year). The number of UK homes running on wind power alone is set to double by 2026.
Those numbers are enough to give you the warm and fuzzy feelings that you are indeed “doing your bit” when it comes to net zero targets.
Based on the number of projects in the planning or construction pipeline, wind power is going to play a key role in the fulfilment of former Prime Minister Boris Johnson’s pledge to have all UK homes running on renewable energy by 2035.
As more and more UK homes are run on renewable energy, investors may think the only way to invest in tomorrow is to load up on wind power electricity companies.
Now, that is one way to play the trend.
But before the wind turbines are sunk thirty feet into the ground, they’ve got to be built.
And that’s where the most immediate opportunity is…
When the enemy is the crucial ingredient
For every emission-saving wind turbine that is sunk into the sandy ocean floor or gley soils of Britain, more than 86% of the emissions that are associated with wind power generation come from the manufacturing process. And that’s largely because of the raw materials required to make the wind turbines. Every single wind turbine comprises steel, concrete, and specialised plastics.
Your average 1 megawatt (MW) capacity wind turbine is comprised of 103 tonnes of stainless steel, 402 tonnes of concrete, 6.8 tonnes of fibre glass and 20 tonnes of cast iron.
Broken down to its elements, that means these energy emission reduction devices require natural gas, salt, crude oil, sulphur and nitrogen just to make the plastic components.
Then there’s the silicon, manganese and carbon in the cast iron, along with trace element of sulphur and phosphorus.
You’ll find aluminium and chromium in the steel alloys, and small amounts of molybdenum, titanium and niobium too.
And while all the “ium’s” are good at strengthening the steel or aiding it to become corrosion resistant, they are like the icing on the cake. Thanks to these elements, steel is better, stronger, lighter and lasts longer than any steel made a century ago.
Yet the crucial materials for steel are some of the oldest known elements to humankind: iron ore and coal.
Modern buildings rely on 18th century chemistry
Any time you mention the importance of coal, you will get nothing but eye rolls and lectures about the damaging gases that it produces.
While a lot of the bad news is true, not all coal is created equal. But more to the point, for this edition of Exponential Investor, there is a particular type of coal that we can’t do without.
Lignite or brown coal has a bad reputation for a reason. It’s the lowest grade, with a low heating value, high polluting content and the least amount of carbon. This is the form of coal the world is rightly trying to move away from.
Moving up the quality rung, there’s subbituminous coal. Again, mainly used in electricity generation, its carbon rating is only slightly higher than that of lignite. Nevertheless, because of its lower sulphur content relative to lignite, it produces less greenhouses gases.
The highest rank of coal is anthracite, which is almost pure carbon. With its high heating value and its extremely low sulphur content, it produces far less emissions than any other type of coal.
Then there’s bituminous coal, a middle rank coal that sits between subbituminous and anthracite. Furthermore, bituminous is broken into two groups, thermal and metallurgical coal.
Thermal coal is used for heating, and is one that we are trying to move away from.
Metallurgical coal – or coking coal – is of a higher purity, has a much higher heating value, and lower sulphur content. Crucially, it’s the only coal that’s suitable for steel making.
More to the point, you absolutely can’t make steel without coal.
“Met coal” as it’s often called, is baked to over 1,000 degrees Celsius to remove the oxygen and other volatile material (like sulphur, moisture, ash, phosphorus and other impurities) from the coal.
The result is a lump called coke. It’s strong, porous and now chemical reactive, which is what makes it critical for steel making.
Met coal’s role in producing steel is twofold. First, the “coke” provides enough heat to smelt the iron (extract the metal from the ore) in the blast furnace (that is a brick-lined cuboid which uses pre- heated hot air to raise the temperature high enough to melt iron ore). Secondly, once the coke is burnt, it effectively “steals” the oxygen from the iron ore, leaving only pure iron.
Can’t build wind turbines without coal
At present 70% of the world’s steel produced is via a blast furnace. To do this, 770 kilograms of coking coal is needed to make one tonne of steel.
The coking process was first developed in England in the 18th century, and while the method has been streamlined and less coke is used today, there is still no scalable replacement for metallurgical coal to produce the one billion tonnes of steel we consume annually.
In addition, metallurgical coal is crucial to trigger the chemical reaction to remove oxygen from the ore to leave the iron as pure as possible.
Alternative elements to activate the process are being developed. But it will be another decade or two before green steel is a viable – and affordable – option for mass construction.
So, what is the main insight that you can take away from all this? The ultimate contrarian play on the UK’s push to build more wind turbines are mining companies that are producing metallurgical coal right now.
Until next time,
Co-editor, Exponential Investor