Future of Fuel: 2020 in Review
December 28, 2020
Electrification. Renewable Natural Gas. Hydrogen. Policy. Sustainability Reporting. ESG Investments. … it’s obvious the transportation sector as we know it is transforming. With so much news, staying current is a tall order, that is, until now. U.S. Gain is excited to bring you the Future of Fuel, a new blog series devoted to summarizing key insights and implications to shippers, organizations and fleets across industries.
To begin the Future of Fuel series, we’ll reflect on 2020, which undoubtedly will be a year few forget. Amid the chaos, sadness and uncertainty, the commercial transportation market continued to evolve. We noticed three key themes emerge throughout the year, centered around electrification, policy and sustainability.
Theme #1: Electrification
This year, countless automakers, organizations and fleets moved beyond the standard internal combustion engines in pursuit of alternative powertrains: a change that is happening across vehicle classes and market segments.
Commercial battery electric vehicle (BEV) development has expanded to include ~170 models: a growth primarily driven within medium-duty and bus segments. A few notable announcements include the following: Amazon unveiled its fleet of Rivian electric delivery vans that should hit the roads in 2022, Proterra sold its 1,000th electric bus and Freightliner’s eCascadia class 8 truck continued pilot testing with several fleets across regions. Although adoption and development of BEVs continue, battery pricing is still the issue to solve for. Manufacturers are racing to provide a battery with more density and less cost, targeting a price point of $100/kWh which is thought to be achieved in the early 2020s. Cost reductions will alleviate substantial incremental costs associated with commercial BEVs.
Additionally, fuel cell electric vehicles (FCEV), progressed in terms of development stage and applications. Busses are certainly the most common types of commercial FCEVs, but both Hyundai, Toyota/Hino and Daimler announced their efforts to commercialize a class 8 FCEV. Additionally, stock prices for fuel cell and hydrogen providers made headlines numerous times – showcasing market interest around this technology. However, much like batteries, for FCEVs to be competitive, pricing declines must happen within fuel cell stacks (seeking ~$30/kW) and hydrogen costs (seeking ~$4/kg). There’s still work to be done, but with many automakers and fuel suppliers engaged in this technology, we anticipate progress toward lower prices in the mid-late 2020s.
Electrification even made its way into the natural gas sector. Hyliion will bring a hybrid class 8 truck to market in 2022, one that marries the torque of an electric generator with proven performance of a natural gas engine. Hyliion trucks will be able to leverage renewable natural gas, boasting negative lifecycle emissions and having over 1,600 natural gas fueling stations already established. This technology is very exciting for the natural gas industry and renewable natural gas developers alike.
Theme #2: Policies expanding alternative fuel adoption
Policy has been another key driver in 2020 that has promoted the expansion of low carbon fuels across the globe. While there isn’t a federal emissions standard, that hasn’t stopped states, countries, and organizations from forming collaborations to drive change.
In the United States, 23 states have established GHG targets focused on the energy and transportation sectors. Also, 15 states have signed a memorandum of understanding: committing to a 30% commercial zero emission vehicle (ZEV) target by 2030 and a 100% target by 2050. Then, this past September, California’s Governor Gavin Newsom’s Advanced Clean Truck ruling mandated passenger vehicles be zero emission by 2035 and commercial vehicles by 2045. Further, CALSTART launched their global Drive to Zero campaign in September to help increase the adoption of zero emission technology. This campaign received the backing of nine nations, Canada, China, Chile, Japan and five European nations, and is encouraging countries work together towards a common decarbonization strategy.
The biofuels sector also benefitted from established policy. Federally, the Renewable Fuel Standard (RFS) experienced incredibly strong RIN pricing at the tail end of 2020. This, along with signals for another strong Required Volume Obligation (RVO) heading into 2021 creates certainty for renewable fuel developers, benefitting fleets seeking fuels like renewable natural gas (RNG) and renewable diesel, for example. California’s Low Carbon Fuel Standard (LCFS) and Oregon’s Clean Fuels Program (CFP) markets also performed strongly, showcasing attractive credit values for most of 2020.
Lastly, although COVID-19 impacted our economy from a multitude of angles, governments remained focused on offering fleets options to expand use of alternative fuel vehicles and infrastructure through various grant funding programs. For instance, the LCFS program enabled not only alternative fuel based vehicles to be eligible for credit generation, but electric and hydrogen forklifts as well – which you can read more about in this blog. Comprehensively, throughout 2020, funding remained strong from a national perspective, which helps offset the incremental costs of a switch from diesel.
Theme #3: Prioritization of sustainability
In conjunction with the above two drivers, sustainability has been paving the way for the future of fuel. Society and two generational groups, Millennials and Gen Z, are demanding sustainable change be taken now and are ready to act. Eager to be a part of the solution, 73% of Millennials expressed their willingness to invest in sustainable products. However, these generations also acknowledged they need buy in from other stakeholders. The 87% of Gen Z that’s concerned about the current and future state of the environment is looking to corporate America for change: seeking mandates, policy and voluntary adoption of alternative fuels.
These demands from consumers have begun to affect how organizations carry out their operations. At the corporate level, businesses have begun to leverage sustainability to resonate with these customer groups as well as serve as a differentiator for their recruitment – enabling them to attract top talent by improving their company’s energy resilience. However, 2020 has also taught many corporations that even if they adopt sustainable practices, they must be accurate and transparent in their reporting because customers are watching and looking for these reports to guide their buying decisions.
Aside from customers, investors are also watching these corporations closely. Environmental, social and governance (ESG) investing has quadrupled in growth over the past year, and asset management leaders have placed more pressure on corporations to improve their sustainability targets – targets that can be met and exceeded using alternative fuels. Further, platforms such as NASDAQ and the S&P Global have established criteria to make it easier for venture capitalists and customers to identify environmentally friendly investments.
Finally, we have also seen the Big Oil companies deepening their commitment to environmentalism in 2020 by using narratives of a renewable energy future. BP and Shell are two of these companies who have committed to net zero emission targets by 2050 and plan to accomplish this by investing in renewable energy and building a low carbon business model.
As these primary drivers broaden their reach in 2021, the demand and need for advancements within the alternative fuel space will continue to grow and diversify. But, no need to worry because U.S. Gain, is ready – to plan for your future of fuel, from renewables to electrification and beyond. Reach out to learn more. And be sure to opt-in to our blog to catch the next issue of the Future of Fuel.