Energy: the Building Block of Modern Supply Chains
This edition covers the counterproductive green policies pursued in the EU and electic vehicles' inadequacy for emergency management - counterintuitively something extremely relevant for businesses
I’ve been writing extensively over the past few months about energy – electricity, gas, LNG, etc. – and I’ve focused less on supply chains and technology. Although there are interesting things happening in both sectors, which I try to cover when they happen, energy has been my main concern. The main reason is that energy security is currently threatened in much of the Western world and, without energy, neither modern supply chains nor the latest digital technologies exist.
Mass production and economies of scale are possible because of energy, oftentimes fossil fuel powered machinery. Without energy, most modern supply chains cease – nor production, nor logistics (unless horse-powered, but who knows when manure will become a threat to climate), nor warehousing function. Similarly, digital tools work exclusively with energy. Digital tools have comparatively fewer energy requirements than production processes (as long as you’re not operating a data centre) but cease to function without electricity (an IPhone without charge is nothing more than a well-designed brick). Hence issues around port congestion, truck driver classification as contractors or employees, data breaches (see the latest leak of 1 billion Chinese citizens’ data) fade in importance in comparison with the prospects of the partial or total disruption of global supply chains due to an energy crisis. Worryingly, evidence for the potential impacts of the failure of green policies is increasingly piling up and increasingly being ignored by policymakers and, oftentimes, business leaders.
Europe’s Energy Policy: The Train to Nowhere
The past two years have shown that tampering with energy supply chains has further reaching impacts than most people envision (fertilizer shortages, raw material shortages – magnesium is just one example, price increases, etc.). And, as the Saudi Arabia's Crown Prince Mohammed bin Salman recently pointed out in his meeting with the U.S. president, much of the Western World seems determined to pursue ‘green’ transition policies which are not only ineffective but counterproductive – measures which INCREASE carbon emissions while DECREASING energy availability, security, and affordability including:
Germany’s, Austria’s, France’s and the Netherlands’ reactivation of coal power plants while at the same time opposing nuclear power or gas extraction from the Groeningen gas field (both nuclear and gas are considered ‘green’ energy sources under the EU’s framework). Hard coal typically emits double the CO2-e per MWh of electricity generated than natural gas and 8 times more CO2-e than nuclear power.
The EU’s vote on banning fossil fuel car sales from 2035 while simultaneously failing to reduce the carbon intensity of the energy required to power the vehicles. The decision is phrased as reducing CO2 emissions by 100%! However, notice a disconnect: while increasing electricity carbon intensity, possibly beyond the carbon intensity of existing internal combustion engine (ICE) vehicles, electric vehicles (EVs) will shortly become the only personal mobility option. Talk about planned obsolescence! Of course, this decision, along with other factors contributed to the massive increase in Lithium prices of about 600% since the start of the year (the metric tonne of Lithium currently trades over US$ 60,000) which will inevitably decrease EVs’ affordability.
The European Commission’s draft regulation on hydrogen manufacturing only recognises as hydrogen as ‘green’ if produced by renewable energy generated in the same region in which hydrogen is produced. In essence, this framework creates local/regional monopolies (just like airport shops after the security check) where hydrogen manufacturers will be forced to either negotiate for scarce renewable energy or initiate and finance projects which include renewables generation capacity – significantly increasing the cost of any hydrogen manufacturing project and, therefore, hydrogen viability as an option to power mobility.
Green or Useful but not Both
Gloucestershire Constabulary in the U.K. recently made the news with a piece about their police (electric) vehicle fleet which has failed to support the county’s police force in their crime-fighting activities. Gloucestershire Constabulary currently operates the largest electric vehicle fleet in the UK – around 90 vehicles. The county’s Police and Crime Commissioner Chris Nelson said “he was concerned about the operational impact electric vehicles were having on the force”. While somewhat entertaining, this news piece isn’t, at first sight, relevant for modern supply chains. A second look reveals useful insights.
Many companies, Governments and agencies which operate vehicles have announced plans to electrify their vehicle fleet partially or totally. Unlike private car owners which typically use their vehicles for relatively few kilometres per day, company and police vehicles see significantly more use. In France for example, a typical personal vehicle saw around 12-13,000 kilometres of use per year (in 2018-19, pre-pandemic). During the same years, a light commercial vehicles (vans) saw an average of over 17,000 kilometres per year – 41% more than cars. Similarly, police vehicles typically see high usage – in the UK, the average patrol car travels up to 24,000 kilometres per year. While electric vehicles may be suitable for personal, infrequent use, this news piece on the UK’s police EV fleet highlights major challenges and the lack of research on EV’s suitability for high intensity uses.
The key challenge in using EVs in business environments is charge management - ensuring that a sufficient charge is available for maximum vehicle and labor force utilisation. The longer vehicles wait to charge and the more frequent charging is required, the less time vehicles are available for use. The sparser the charging infrastructure, the more repositioning kilometres are required. While all of these issues may somewhat affect private vehicle users, they have a major impact on vehicles used for commercial use, or for emergency management.
Charge management is complicated further for EV users because not all vehicle use is planned. The police force can’t plan when and how long the car chase will be. The ambulance service can’t accurately foresee where the next call will come from. Commercial vehicle operators can’t (accurately) foresee how much they’ll spend in congestion (I should know a bit about this, I wrote a PhD thesis on congestion). While the typical EV range is higher than the average vehicle utilisation, it is the exceptions – the days when the vehicles need to run much more than the average utilisation – when true costs and some of the key disadvantages of EVs emerge.