Could you provide an overview of Wärtsilä’s business and its strategic focus on decarbonization?
Wärtsilä's business is equally divided between services and equipment, and our overarching strategy is centered on decarbonization. This involves transforming two heavily capital-intensive industries: marine and energy. It's important to recognize that this transition will take decades because assets like vessels and power plants have lifespans of 30 to 40 years. So transitioning to net zero emissions in the entire marine sector by 2050 is like decarbonizing the automobile industry within the lifecycle of a single car, in 12 years - a significant and extensive change.
This transition is driven by regulatory pressures and an emerging market for green transport, spurred by lifestyle companies like IKEA and Nike, as well as industrial companies committed to science-based targets and decarbonization pledges. These companies are now looking at their supply chains and transportation methods to fulfill their commitments, indicating a growing but gradual shift towards greener solutions. Although the transition is underway, it will take time to fully materialize.
In the interplay between regulatory and market forces, how do you see the balance evolving, and are they working together coherently?
Currently, regulatory forces are the primary drivers of this transition. Many green solutions, particularly green fuels, are more expensive than fossil fuels—potentially two to four times higher. Therefore, regulations are crucial to creating a level playing field. Europe is advancing with initiatives like the EU's Fit for 55 package, which includes the marine industry, and discussions within the International Maritime Organization (IMO) are ongoing to further these efforts.
For example, maritime fuel costs in Europe are expected to double by 2030 due to taxes and levies for fossil fuels. By 2035, this could lead to cost parity between green and fossil fuels in Europe, making green options more competitive. However, this also means higher fuel costs in total for marine. To ensure a sustainable transition, both environmentally and financially, a level playing field is essential. Regulations should focus on reducing carbon emissions without prescribing specific technologies, allowing for flexibility and innovation in achieving these goals.
However, one major challenge in Europe is permitting, which slows down the deployment of renewables. Compared to other regions, Europe lags in this regard. Accelerating the permitting process is crucial to maintaining momentum in the renewable energy transition.
How is Wärtsilä making this transition economically sustainable, particularly through partnerships and technology?
Partnerships are vital for transforming these ecosystems. While we provide crucial technology for carbon-neutral and zero-carbon fuels, other players in the ecosystem must also develop viable solutions. This includes vessel architecture to accommodate new fuels and the widespread availability of these fuels, which requires significant infrastructure investments.
Collaboration within the ecosystem is essential. By working together, each party can contribute a piece of the puzzle, making the transition more feasible. Regulatory certainty is also critical, providing a stable backdrop for the transition. Supporting frameworks for piloting and demonstrating new technologies are helpful but insufficient on their own. Efficient and consistent regulations are necessary to guide this transition effectively.
What improvements are needed in current regulations to support the transition to green technologies?
Regulations should be technology-agnostic, focusing on the ultimate goal of reducing carbon emissions rather than prescribing specific technologies. This approach allows for multiple solutions to emerge, recognizing that decarbonization is complex and requires a variety of strategies over time.
The transition will involve a mix of fuels and technologies. Fossil fuels will still be part of the energy mix for decades, with LNG serving as a transition fuel. Carbon-neutral fuels like methanol and biofuels will ramp up, followed by zero-carbon fuels such as ammonia and hydrogen. Different regions and applications will adopt different solutions, so it is crucial not to look for a single silver bullet but to encourage a diversity of approaches.
How advanced is the integration of energy storage with renewable energy sources, and what are the challenges?
Energy storage is critical for balancing power systems, given the intermittent nature of renewables like solar and wind: the sun isn’t always shining, the wind doesn’t always blow. While renewables need to scale significantly to decarbonize energy systems, their variability necessitates balancing power to stabilize the grid and avoid curtailing excess power generation.
Battery storage and thermal power plants are complementary solutions. Battery storage handles short-term fluctuations, while thermal plants address longer swings, including seasonal variations. Today, thermal plants often use LNG, but in the future, they will transition to green fuels. Battery storage is growing rapidly and is essential for balancing grids, but it will not be the sole solution.
How has the energy landscape in Europe been affected by recent geopolitical events, and what are the prospects for renewable energy?
The Russian invasion of Ukraine and subsequent energy crisis have led to setbacks, with some countries reverting to less ideal energy methods. While this is a short-term challenge, the long-term trend is still towards increasing renewable energy installations. The need to accelerate decarbonization remains urgent.
One major challenge in Europe is permitting, which slows down the deployment of renewables. Compared to other regions, Europe lags in this regard. Accelerating the permitting process is crucial to maintaining momentum in the renewable energy transition.
Is the current approach to decarbonization, particularly the Paris Agreement, justified and efficient?
The Paris Agreement is based on the best available science, primarily from the IPCC. While science evolves and there are varying viewpoints, the consensus is that we need to avoid reaching climate tipping points that could lead to irreversible damage. Although we've missed some targets, the focus should be on preventing further overshoot and mitigating the impact.
Short-term steps need more discussion on the efficient allocation of capital, especially in supporting developing countries and addressing the social dimension of decarbonization. This involves balancing costs and affordability, impacting people's lives and political decisions. The key is to make science-based, socially considerate, and economically viable decisions to drive the transition forward.
How can the industry and policymakers rebuild trust and effectively communicate progress in sustainability?
Rebuilding trust starts with a clear, science-based foundation, such as the IPCC, and making this information accessible and understandable for both policymakers and the general public. Simplifying complex messages and demonstrating tangible solutions can help restore confidence.
The industry should showcase existing, feasible solutions and communicate them effectively to demonstrate progress. For example, the technology already exists for engines to run on future fuels like hydrogen and ammonia. Now we need to work on making the technology and the fuels available – along with all the infrastructure that goes with them - and economically sustainable. Additionally, acknowledging and addressing the social dimensions of decarbonization is crucial. A shared understanding of the fundamentals and a commitment to transparent, consistent communication can help rebuild trust and drive collective action towards sustainability.
