10 Exciting Energy Transition Themes

A cornerstone of the ARIA GLobal Impact Income Fund's investment process is to identify themes that have significant 'environmental impact' by their potential to remove CO2 from the atmosphere. We continually search for new ideas and breakthroughs that will do just that, but the below identifies 10 themes which are particularly exciting and feature in the portfolio.

The process of identifying such oportunites is to consider the Technological Readiness of certain themes, and then their 'Carbon Offset Curves'. These curves consider the total potential tonnes that a given technology can remove from the environment, but critically at what expense. (The cost of the tonne removed below is referred to as the CO2 Abatement Cost - all measured per tonne.)

Technological Readiness Levels:

The Fund' portfolio also generates attractive income streams. In doing so, many of the companies are likely to be more mature - in that respect, even though the scoring below ranges from 0 - 9, most investee companies by definition sit between the 7-9 level when considered by their TRL metric.

Technology Readiness Levels (TRLs)

Within the investment process, each theme in is own right is considered from the perspective of 'how ready' it is to make a material impact in the transition to net zero. The portfolio is heavily weighted towards those more mature, commercialised technologies that's to say TRL's 8 and 9.

TRL Stage Sub-Stage Produced Key Tests
0 Concept Idea Nothing Very little work has taken place yet
1 Concept Research Nothing "Basic scientific principles are tested
Research begins into the opportunity"
2 Concept Formulation Nothing "A concept is formulated
Practical applications are suggested"
3 Design Design A lab "Analytical studies have been conducted
Design work commences for components"
4 Design Components Components "Components have been designed
Lab-scale components have been tested
Lab-scale components can integrate"
5 Development Prototype Prototype "A lab-scale prototype is being built.
Components are tested
Testing is under simulated conditions"
6 Development Pilot Advanced Prototype "A more advanced prototype is built
It is tested under operating conditions"
7 Development Validation Demonstration Plant "An advanced prototype is built.
It is tested under operating conditions
It is stress-tested to improve robustness"
8 Production Commercialisation Final product "Extensive testing and demonstration
Technology is proven
A final product has been designed"
9 Production Mature Orders The technology is in operation

Source: Academic Studies, TSE, Rob West

Understanding 'carbon economics' - CO2 Offset Cost Curve

Whilst a technology may already be commercialised, we need to determine at how economically it can mitigate carbon in the environment. In that respect we then consider the total potential Co2 that a given theme may remove from the environment, but critically cross referenced against what cost. For example, batteries have the ability to make a major contribution to the energy transition, the cost per ton of carbon removed is very expensive, just as hydrogen powered projects are.

We're constantly looking for new themes which have the potential to feature in the Fund - the following table shows just how we seek to target very surgical exposures that mean our investment makes a genuine contribution towards achieving the world's net zero aims. Investing in lesser carbon intensive companies is not enough we seek out companies that are genuinely 'moving the dial'.

Theme Detail Process Theme Technological Readiness Benefitting Downside for?
Mass Timber Cross laminated timber allows 15-85% lower CO2 in construction at zero incremental cost. Demand Decarbonisation 9 Forestry industry, CLT producers Conventional concrete, cement and steel
Biochar Miracle material sequesters 3kg of CO2 per kg of material, while paying for itself in lower water intensity and 10% higher crop yields in ag. Demand Decarbonisation 9 Farming industry, CO2 credit availability Biofuels and biomass power that compete for same biomass
Silicon Carbide Semi-conductor material, which improves the efficiency of inverters, power electornics and electric vehicles by 1-10% Demand Decarbonisation 9 Power electronic capital goods, semi-conductors Conventional energy industry?
Clean Methanol Blue methanol and bio-methanol are logistically simple, 65-75% lower CO2 than oil products and make 10% IRRs at $3/gallon Oil Decarbonisation 8 Gas industry, bio-methanol industry, decarbonization Green hydrogen, higher-cost transition technologies
Plastic Pyrolysis Thermal cracking to turn waste plastics back into oil, feedstock and waxes. Strong economics and growth outlook. Petrochemicals Plastics 7 Investors, consumers, pyrolysers, ESG Petrochemical incumbents, oil demand
Small-Scale LNG (Galileo) Novel, modular small-scale LNG technology, capable of $10/mcf LNG down to 4kTpa plant sizes Gas LNG 8 Investors, environment, shipping industry Fuel oil, simple refiners, incumbent LNG Services
Ocean carbon Seaweed cultivation can sequester 3GTpa at $20-140/ton CO2 prices, in the ocean a 45x larger carbon sink than the atmosphere Renewables Decarbonisation 8 Marine industries generating own carbon offsets Higher cost transition technologies, hydrogen
Eco-Labelling Two-thirds confess no visibility on the CO2-intensity of their purchasing decisions; offering it can stoke 8% efficiency gains Demand Efficiency 8 Lower-carbon producers Higher-carbon producers, energy demand, hydrogen
Bio-plastics Around 1.8MTpa of bio-plastics are produced today, across 17 categories. Bio-degradable and bio-based are 2x more expensive. Petrochemicals Biofuels 7 Some bioplastics, chemicals Majors Minimal impact on conventional industry
Hydrogen Cars We estimate c90c/mile costs for hydrogen cars (c85% more than US, 45% more than Europe), and sensitivity to impurities Gas Hydrogen 8 Gas industry, fossil-fuel decarbonisation Hydrogen cars

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