Vale Ltd. announced a $49- million investment in a demonstration plant Friday that could be the next big thing in mining -- and cut the mining company's electricity costs in half.
The Copper Cliff Mine 114 Orebody Demonstration Plant will allow the company to test new and innovative mining technologies that could "dramatically improve mining processes across our operations," said Vale's Alex Henderson, general manager of mines and mill technology for the North Atlantic Region.
New technology developed in Sudbury by Rail-Veyor Technologies will be installed at the plant later this year. It will be the first underground application of the technology in North America.
The 114 Orebody Demonstration Plant is a new facility that will be built at the ore body in Copper Cliff, near Copper Cliff Mine and Clarabelle Mill, said Vale spokeswoman Angie Robson.
The purpose of the demonstration plant will be to "prove the technology" and prove that it can be applied underground, she said.
"It really could be the next big step change in mining and, from a safety, health and environment perspective, this really has some enormous benefits going forward."
Vale is estimating it could cut its energy consumption in half "because, as we go deeper, we require more ventilation. Right now, we use diesel equipment, which requires large drifts and requires a lot of ventilation to make sure the working environment is healthy," said Robson.
The Rail-Veyor system is essentially a small train. "It's electric so there is no diesel, there is no gas. From an energy reduction and carbon reduction point of view, it's very, very significant," said Robson.
The technology would also improve safety by reducing the risk of vehicle collision and increasing ground support.
"As you go deeper, the ground becomes more unstable and there's more ground support needed. With the Rail- Veyor, because it's quite literally like a small train, our drifts would have to be much smaller than they are now, so that would lend to increased ground support.
The Rail-Veyor would replace the large diesel equipment that Vale is using now.
Robson quotes Henderson as saying: "Right now, we bring the ore to the shaft, to then be brought up to surface. This would essentially bring the shaft to the ore.
"It's a much more efficient way of mining."
The system will lead to quicker development of ore bodies and make it profitable for Vale to mine ore bodies that might not have been economical before, "which is important for the ongoing sustainability" of Vale's operations, said Robson.
Mike Romaniuk is president and chief executive officer of Rail-Veyor Technologies in Sudbury.
At a news conference Friday, he said he looked forward to "advancing the commercialization of the technology in underground mines on a global basis."
Greater Sudbury Mayor Marianne Matichuk attended the news event, and said with projects such as Rail-Veyor, the city will continue to bring innovation and technology to new heights.
"Vale continues to be a key contributor to the mining industry, not only here at home, but around the world," said Matichuk. "Technology of this magnitude means sustainable income in a city where growing the job market is of the highest importance."
Robson said the project is expected to create about 100 jobs until it is complete in the first quarter of 2013.
The $49-million pricetag for the demonstration plant is part of the $3.4 billion in investments Vale will make in Sudbury operations in the next few years.
COVID-19 Impact on U.S. Electricity Consumption shows commercial and industrial demand dropped as residential use rose, with flattened peak loads, weekday-weekend convergence, Texas hourly data, and energy demand as a real-time economic indicator.
Key Points
It reduced commercial and industrial demand while raising residential use, shifting peaks and weekday patterns.
✅ Commercial electricity down 12%; industrial down 14% in Q2 2020
✅ Residential use up 10% amid work-from-home and lockdowns
✅ Peaks flattened; weekday-weekend loads converged in Texas
This is an important turning point for the United States. We have a long road ahead. But one of the reasons I’m optimistic about Biden-Harris is that we will once again have an administration that believes in science.
To embrace this return to science, I want to write today about a fascinating new working paper by Tufts economist Steve Cicala.
Professor Cicala has been studying the effect of Covid on electricity consumption since back in March, when the Wall Street Journal picked up his work documenting an 18% decrease in electricity consumption in Italy.
The new work, focused on the United States, is particularly compelling because it uses data that allows him to distinguish between residential, commercial, and industrial sectors, against a backdrop of declining U.S. electricity sales over recent years.
Fact #1: Firms Are Using Less U.S. commercial electricity consumption fell 12% during the second quarter of 2020. U.S. industrial electricity consumption fell 14% over the same period.
This makes sense. The second quarter was by some measures, the worst quarter for the U.S. economy in over 145 years!
Economic activity shrank. Schools closed. Offices closed. Factories closed. Restaurants closed. Malls closed. Even health care offices closed as patients delayed going to the dentist and other routine care. All this means less heating and cooling, less lighting, less refrigeration, less power for computers and other office equipment, less everything.
The decrease in the industrial sector is a little more surprising. My impression had been that the industrial sector had not fallen as far as commercial, but amid broader disruptions in coal and nuclear power that strained parts of the energy economy, the patterns for both sectors are quite similar with the decline peaking in May and then partially rebounding by July. The paper also shows that areas with higher unemployment rates experienced larger declines in both sectors.
Fact #2: Households Are Using More While firms are using less, households are using more. U.S. residential electricity consumption increased 10% during the second quarter of 2020. Consumption surged during March, April, and May, a reflection of the lockdown lifestyle many adopted, and then leveled off in June and July – with much less of the rebound observed on the commercial/industrial side.
This pattern makes sense, too. In Professor Cicala’s words, “people are spending an inordinate amount of time at home”. Many of us switched over to working from home almost immediately, and haven’t looked back. This means more air conditioning, more running the dishwasher, more CNN (especially last week), more Zoom, and so on.
The paper also examines the correlates of the decline. Areas in the U.S. where more people can work from home experienced larger increases. Unemployment rates, however, are almost completely uncorrelated with the increase.
Fact #3: Firms are Less Peaky The paper next turns to a novel dataset from Texas, where Texas grid reliability is under active discussion, that makes it possible to measure hourly electricity consumption by sector.
As the figure above illustrates, the biggest declines in commercial/industrial electricity consumption have occurred Monday through Friday between 9AM and 5PM.
The dashed line shows the pattern during 2019. Notice the large spikes in electricity consumption during business hours. The solid line shows the pattern during 2020. Much smaller spikes during business hours.
Fact #4: Everyday is Like Sunday Finally, we have what I would like to nominate as the “Energy Figure of the Year”.
Again, start with the pattern for 2019, reflected by the dashed line. Prior to Covid, Texas households used a lot more electricity on Saturdays and Sundays.
Then along comes Covid, and turned every day into the weekend. Residential electricity consumption in Texas during business hours Monday-Friday is up 16%(!).
In the pattern for 2020, it isn’t easy to distinguish weekends from weekdays. If you feel like weekdays and weekends are becoming a big blur – you are not alone.
Conclusion Researchers are increasingly thinking about electricity consumption as a real-time indicator of economic activity, even as flat electricity demand complicates utility planning and investment. This is an intriguing idea, but Professor Cicala’s new paper shows that it is important to look sector-by-sector.
While commercial and industrial consumption indeed seem to measure the strength of an economy, residential consumption has been sharply countercylical – increasing exactly when people are not at work and not at school.
These large changes in behavior are specific to the pandemic. Still, with the increased blurring of home and non-home activities we may look back on 2020 as a key turning point in how we think about these three sectors of the economy.
More broadly, Professor Cicala’s paper highlights the value of social science research. We need facts, data, and yes, science, if we are to understand the economy and craft effective policies on energy insecurity and shut-offs as well.
ITER Nuclear Fusion advances tokamak magnetic confinement, heating deuterium-tritium plasma with superconducting magnets, targeting net energy gain, tritium breeding, and steam-turbine power, while complementing laser inertial confinement milestones for grid-scale electricity and 2025 startup goals.
Key Points
ITER Nuclear Fusion is a tokamak project confining D-T plasma with magnets to achieve net energy gain and clean power.
✅ Tokamak magnetic confinement with high-temp superconducting coils
✅ Deuterium-tritium fuel cycle with on-site tritium breeding
✅ Targets net energy gain and grid-scale, low-carbon electricity
It sounds like the stuff of dreams: a virtually limitless source of energy that doesn’t produce greenhouse gases or radioactive waste. That’s the promise of nuclear fusion, often described as the holy grail of clean energy by proponents, which for decades has been nothing more than a fantasy due to insurmountable technical challenges. But things are heating up in what has turned into a race to create what amounts to an artificial sun here on Earth, one that can provide power for our kettles, cars and light bulbs.
Today’s nuclear power plants create electricity through nuclear fission, in which atoms are split, with next-gen nuclear power exploring smaller, cheaper, safer designs that remain distinct from fusion. Nuclear fusion however, involves combining atomic nuclei to release energy. It’s the same reaction that’s taking place at the Sun’s core. But overcoming the natural repulsion between atomic nuclei and maintaining the right conditions for fusion to occur isn’t straightforward. And doing so in a way that produces more energy than the reaction consumes has been beyond the grasp of the finest minds in physics for decades.
But perhaps not for much longer. Some major technical challenges have been overcome in the past few years and governments around the world have been pouring money into fusion power research as part of a broader green industrial revolution under way in several regions. There are also over 20 private ventures in the UK, US, Europe, China and Australia vying to be the first to make fusion energy production a reality.
“People are saying, ‘If it really is the ultimate solution, let’s find out whether it works or not,’” says Dr Tim Luce, head of science and operation at the International Thermonuclear Experimental Reactor (ITER), being built in southeast France. ITER is the biggest throw of the fusion dice yet.
Its $22bn (£15.9bn) build cost is being met by the governments of two-thirds of the world’s population, including the EU, the US, China and Russia, at a time when Europe is losing nuclear power and needs energy, and when it’s fired up in 2025 it’ll be the world’s largest fusion reactor. If it works, ITER will transform fusion power from being the stuff of dreams into a viable energy source.
Constructing a nuclear fusion reactor ITER will be a tokamak reactor – thought to be the best hope for fusion power. Inside a tokamak, a gas, often a hydrogen isotope called deuterium, is subjected to intense heat and pressure, forcing electrons out of the atoms. This creates a plasma – a superheated, ionised gas – that has to be contained by intense magnetic fields.
The containment is vital, as no material on Earth could withstand the intense heat (100,000,000°C and above) that the plasma has to reach so that fusion can begin. It’s close to 10 times the heat at the Sun’s core, and temperatures like that are needed in a tokamak because the gravitational pressure within the Sun can’t be recreated.
When atomic nuclei do start to fuse, vast amounts of energy are released. While the experimental reactors currently in operation release that energy as heat, in a fusion reactor power plant, the heat would be used to produce steam that would drive turbines to generate electricity, even as some envision nuclear beyond electricity for industrial heat and fuels.
Tokamaks aren’t the only fusion reactors being tried. Another type of reactor uses lasers to heat and compress a hydrogen fuel to initiate fusion. In August 2021, one such device at the National Ignition Facility, at the Lawrence Livermore National Laboratory in California, generated 1.35 megajoules of energy. This record-breaking figure brings fusion power a step closer to net energy gain, but most hopes are still pinned on tokamak reactors rather than lasers.
In June 2021, China’s Experimental Advanced Superconducting Tokamak (EAST) reactor maintained a plasma for 101 seconds at 120,000,000°C. Before that, the record was 20 seconds. Ultimately, a fusion reactor would need to sustain the plasma indefinitely – or at least for eight-hour ‘pulses’ during periods of peak electricity demand.
A real game-changer for tokamaks has been the magnets used to produce the magnetic field. “We know how to make magnets that generate a very high magnetic field from copper or other kinds of metal, but you would pay a fortune for the electricity. It wouldn’t be a net energy gain from the plant,” says Luce.
One route for nuclear fusion is to use atoms of deuterium and tritium, both isotopes of hydrogen. They fuse under incredible heat and pressure, and the resulting products release energy as heat
The solution is to use high-temperature, superconducting magnets made from superconducting wire, or ‘tape’, that has no electrical resistance. These magnets can create intense magnetic fields and don’t lose energy as heat.
“High temperature superconductivity has been known about for 35 years. But the manufacturing capability to make tape in the lengths that would be required to make a reasonable fusion coil has just recently been developed,” says Luce. One of ITER’s magnets, the central solenoid, will produce a field of 13 tesla – 280,000 times Earth’s magnetic field.
The inner walls of ITER’s vacuum vessel, where the fusion will occur, will be lined with beryllium, a metal that won’t contaminate the plasma much if they touch. At the bottom is the divertor that will keep the temperature inside the reactor under control.
“The heat load on the divertor can be as large as in a rocket nozzle,” says Luce. “Rocket nozzles work because you can get into orbit within minutes and in space it’s really cold.” In a fusion reactor, a divertor would need to withstand this heat indefinitely and at ITER they’ll be testing one made out of tungsten.
Meanwhile, in the US, the National Spherical Torus Experiment – Upgrade (NSTX-U) fusion reactor will be fired up in the autumn of 2022, while efforts in advanced fission such as a mini-reactor design are also progressing. One of its priorities will be to see whether lining the reactor with lithium helps to keep the plasma stable.
Choosing a fuel Instead of just using deuterium as the fusion fuel, ITER will use deuterium mixed with tritium, another hydrogen isotope. The deuterium-tritium blend offers the best chance of getting significantly more power out than is put in. Proponents of fusion power say one reason the technology is safe is that the fuel needs to be constantly fed into the reactor to keep fusion happening, making a runaway reaction impossible.
Deuterium can be extracted from seawater, so there’s a virtually limitless supply of it. But only 20kg of tritium are thought to exist worldwide, so fusion power plants will have to produce it (ITER will develop technology to ‘breed’ tritium). While some radioactive waste will be produced in a fusion plant, it’ll have a lifetime of around 100 years, rather than the thousands of years from fission.
At the time of writing in September, researchers at the Joint European Torus (JET) fusion reactor in Oxfordshire were due to start their deuterium-tritium fusion reactions. “JET will help ITER prepare a choice of machine parameters to optimise the fusion power,” says Dr Joelle Mailloux, one of the scientific programme leaders at JET. These parameters will include finding the best combination of deuterium and tritium, and establishing how the current is increased in the magnets before fusion starts.
The groundwork laid down at JET should accelerate ITER’s efforts to accomplish net energy gain. ITER will produce ‘first plasma’ in December 2025 and be cranked up to full power over the following decade. Its plasma temperature will reach 150,000,000°C and its target is to produce 500 megawatts of fusion power for every 50 megawatts of input heating power.
“If ITER is successful, it’ll eliminate most, if not all, doubts about the science and liberate money for technology development,” says Luce. That technology development will be demonstration fusion power plants that actually produce electricity, where advanced reactors can build on decades of expertise. “ITER is opening the door and saying, yeah, this works – the science is there.”
BC Hydro electricity demand decline reflects COVID-19 impacts across British Columbia, with reduced industrial load, full reservoirs, strategic spilling, and potential rate increases, as hydropower plants adjust operations at Seven Mile, Revelstoke, and Site C.
Key Points
A 10% COVID-19-driven drop in BC power use, prompting reservoir spilling, plant curtailment, and potential rate hikes.
✅ 10% load drop; industrial demand down 7% since mid-March
✅ Reservoirs near capacity; controlled spilling to mitigate risk
✅ Possible rate hikes; Site C construction continues
Elecricity demand is down 10 per cent across British Columbia, an unprecedented decline in commercial electricity consumption sparked by the COVID-19 pandemic, according to a BC Hydro report.
Power demand across hotels, offices, recreational facilities and restaurants have dwindled as British Columbians self isolate, and bill relief for residents and businesses was introduced during this period.
The shortfall means there's a surplus of water in reservoirs across the province.
"This drop in load in addition to the spring snow melt is causing our reservoirs to reach near capacity, which could lead to environmental concerns, as well as public safety risks if we don't address the challenges now," said spokesperson Tanya Fish.
Crews will have to strategically spill reservoirs to keep them from overflowing, a process that can have negative impacts on downstream ecosystems. Excessive spilling can increase fish mortality rates.
Spilling is currently underway at the Seven Mile and Revelstoke reservoirs. In addition, several small plants have been shut down.
Site C and hydro rates According to the report, titled Demand Dilemma, the decline could continue into April 2021 and drop by another two per cent, even as a regulator report alleged BC Hydro misled oversight bodies.
Major industry — forestry, mining and oil and gas — accounts for about 30 per cent of BC Hydro's overall electricity load. Energy demand from these customers has dropped by seven per cent since mid-March, while in Manitoba a Consumers Coalition has urged rejection of proposed rate increases.
BC Hydro says a prolonged drop in demand could have an impact on future rates, which could potentially go up as the power provider looks to recoup deferred operating costs and financial losses.
In Manitoba, Manitoba Hydro's debt has grown significantly, underscoring the financial risks utilities face during demand shocks.
Fish said the crown corporation still expects there to be increased demand in the long-term. She said construction of the Site C Dam is continuing as planned to support clean-energy generation in the province. There are currently nearly 1,000 workers on-site.
Heathrow Airport Power Outage 2025 disrupted operations with mass flight cancellations and diversions after a grid failure, exposing infrastructure resilience gaps, crisis management flaws, and raising passenger compensation and safety oversight concerns.
Key Points
A grid failure closed Heathrow, causing mass cancellations and diversions, exposing resilience and communication lapses.
On March 21, 2025, Heathrow Airport, Europe's busiest, suffered a catastrophic power outage, similar to another high-profile outage seen at major events, that led to the cancellation and diversion of over 1,400 flights, affecting nearly 300,000 passengers and costing airlines an estimated £100 million. The power failure, triggered by a fire at an electricity substation in west London, left Heathrow with a significant operational crisis. This disruption is even more significant considering that Heathrow is one of the most expensive airports globally, which raises concerns about its infrastructure resilience and broader electricity system resilience across Europe.
In a parliamentary committee meeting, Heathrow officials admitted that vulnerabilities in the airport’s power supply were flagged just days before the outage. Nigel Wicking, Chief Executive of the Heathrow Airline Operators' Committee (HAOC), informed MPs that concerns regarding power resilience had been raised on March 15, following disruptions caused by cable thefts impacting runway lights. Despite these warnings, the airport’s management did not address the vulnerabilities urgently, even as UK net zero policies continue to reshape infrastructure planning, which ultimately led to the disastrous outage.
The airport was closed for a day, with serious consequences for not only airlines but also the surrounding community and businesses. British Airways alone faced millions of pounds in losses, and passengers experienced significant emotional distress, missing vital life events like weddings and funerals due to flight cancellations. The committee is now questioning officials from National Grid and Scottish and Southern Electricity Networks to better understand why Heathrow’s infrastructure failed, in the context of a cleaner grid following the British carbon tax that reduced coal use, how it communicated with affected parties, and what measures will be taken to compensate impacted passengers.
Heathrow’s Chief Executive, Thomas Woldbye, defended the closure decision, stating it would have been disastrous to keep the airport open under such circumstances. He noted that continuing operations would have left tens of thousands of passengers stranded and would have posed safety risks due to the failure of fire surveillance and CCTV systems. However, Wicking, representing the airlines, pointed out that Heathrow’s lack of resilience was unacceptable given the amount spent on the airport, emphasizing the need for better infrastructure, including addressing SF6 in switchgear during upgrades, and more transparent management practices.
Looking forward, the MPs intend to investigate the airport’s emergency preparedness, why the resilience review from 2018 wasn’t shared with airlines, and whether enough preventative measures were in place amid surging data demand that could strain electricity supplies. The outcome of this inquiry could have lasting effects on how Heathrow and other major airports handle their infrastructure and crisis management systems, as drought-driven hydro challenges demonstrate the wider climate stresses on power networks.
Ontario Clean Energy Expansion signals IESO-backed renewables, energy storage, and low-CO2 power to meet EV-driven demand, offset Pickering nuclear retirement, and balance interim gas-fired generation while advancing grid reliability, decarbonization, and net-zero targets.
Key Points
Ontario Clean Energy Expansion plans to grow renewables and storage, manage short-term gas, and meet rising demand.
✅ IESO long-term procurements for renewables and storage
✅ Interim reliance on gas to replace Pickering capacity
✅ Targets align with net-zero grid reliability goals
After cancelling hundreds of renewable power projects four years ago, the Doug Ford government appears set to expand clean energy to meet a looming electricity shortfall across the province.
Recent announcements from Ontario Energy Minister Todd Smith and the province’s electric grid management agency suggest the province plans to expand low-CO2 electricity with new wind and solar plans in the long-term, even as it ramps up gas-fired power over the next five years.
The moves are in response to an impending electricity shortfall as climate-conscious drivers switch to electric vehicles, farmers replace field crops with greenhouses and companies like ArcelorMittal Dofasco in Hamilton switch from CO2-heavy manufacturing to electricity-based production. Forecasters predict Canada will need to double its power supply by 2050.
While Ontario has a relatively low-CO2 power system, the province’s electricity supply will be reduced in 2025 when Ontario Power Generation closes the 50-year-old Pickering nuclear station, now near the end of its operating life. This will remove 3,100 megawatts of low-CO2 generation, about eight per cent of the province’s 40,000-megawatt total.
The impending closure has created a difficult situation for the Independent Electricity System Operator (IESO), the provincial agency managing Ontario’s grid. Last year, it forecasted it would need to sharply increase CO2-polluting natural gas-fired power to avoid widespread blackouts.
This would mean drivers switching to electric vehicles or companies like Dofasco cutting CO2 through electrification would end up causing higher power system emissions.
It would also fly in the face of the federal government’s ambition to create a net-zero national electricity system by 2035, a critical part of Canada’s pledge to reduce CO2 emissions to zero by 2050.
Yet the Ford government has appeared reluctant to expand clean energy. In the 2018 election, clean electricity was a key issue as it appealed to anti-turbine voters in rural Ontario and cancelled more than 700 renewable energy contracts shortly after taking office, taking 400 megawatts out of the system.
But there are signs the government is having a change of heart. IESO recently released a list of 55 companies approved to submit bids for 3,500 megawatts of long-term electricity contracts starting between 2025 and 2027, and the energy minister has outlined a plan to address growing energy needs as well.
The companies include a variety of potential producers, ranging from Canadian and global renewable companies to local utilities and small startups. Most are renewable power or energy storage companies specializing in low- or zero-emission power. IESO plans additional long-term bid offerings in the future.
This doesn’t mean gas generation will be turned off. IESO will contract yearly production from existing gas plants until 2028 (the annual contract in 2023 will be for about 2,000 megawatts). As well, IESO has issued contracts to four gas-fired producers, a small wind company and a storage company to begin production of about 700 megawatts to boost gas plant output starting between 2024 and 2026.
While this represents an expansion of existing gas-fired generation, Smith has asked IESO to report on a gas moratorium, saying he doesn’t believe new gas plants will be needed over the long term.
The NDP and Greens criticized the government for relying on gas in the near term. But clean energy advocates greeted the long-term plans positively.
The IESO process “will contribute to a clean, reliable and affordable grid,” said the Canadian Renewable Energy Association.
Rachel Doran, director of policy and strategy at Clean Energy Canada, said in an email the potential gas generation moratorium “is an encouraging step forward,” although she criticized the “unfortunate decision to replace near-term nuclear power capacity with climate-change-causing natural gas.”
There will have to be a massive clean energy expansion to green Ontario’s grid well beyond what has been announced in recent days for Ontario to meet its future energy needs (think a doubling of Ontario’s current 40,000-megawatt capacity by 2050).
But these first steps hold promise that Ontario is at least starting on the path to that goal, rather than scrambling to keep the lights on with CO2-polluting natural gas.
Shell's Industrial Electricity Supply Strategy targets UK and US industrial customers, leveraging gas-to-power, renewables, long-term PPAs, and energy transition momentum to disrupt utilities, cut costs, and secure demand in the evolving electricity market.
Key Points
Shell will sell power directly to industrial clients, leveraging gas, renewables, and PPAs to secure demand and pricing.
✅ Direct power sales to industrials in UK and US
✅ Leverages gas-to-power, renewables, and flexible sourcing
✅ Targets long-term PPAs, price stability, and demand security
Royal Dutch Shell’s decision to sell electricity direct to industrial customers is an intelligent and creative one. The shift is strategic and demonstrates that oil and gas majors are capable of adapting to a new world as the transition to a lower carbon economy develops. For those already in the business of providing electricity it represents a dangerous competitive threat. For the other oil majors it poses a direct challenge on whether they are really thinking about the future sufficiently strategically.
The move starts small with a business in the UK that will start trading early next year, in a market where the UK’s second-largest electricity operator has recently emerged, signaling intensifying competition. Shell will supply the business operations as a first step and it will then expand. But Britain is not the limit — Shell recently announced its intention of making similar sales in the US. Historically, oil and gas companies have considered a move into electricity as a step too far, with the sector seen as oversupplied and highly politicised because of sensitivity to consumer price rises. I went through three reviews during my time in the industry, each of which concluded that the electricity business was best left to someone else. What has changed? I think there are three strands of logic behind the strategy.
First, the state of the energy market. The price of gas in particular has fallen across the world over the last three years to the point where the International Energy Agency describes the current situation as a “glut”. Meanwhile, Shell has been developing an extensive range of gas assets, with more to come. In what has become a buyer’s market it is logical to get closer to the customer — establishing long-term deals that can soak up the supply, while options such as storing electricity in natural gas pipes gain attention in Europe. Given its reach, Shell could sign contracts to supply all the power needed by the UK’s National Health Service or with the public sector as a whole as well as big industrial users. It could agree long-term contracts with big businesses across the US.
To the buyers, Shell offers a high level of security from multiple sources with prices presumably set at a discount to the market. The mutual advantage is strong. Second, there is the transition to a lower carbon world. No one knows how fast this will move, but one thing is certain: electricity will be at the heart of the shift with power demand increasing in transportation, industry and the services sector as oil and coal are displaced. Shell, with its wide portfolio, can match inputs to the circumstances and policies of each location. It can match its global supplies of gas to growing Asian markets, including China’s 2060 electricity share projections, while developing a renewables-based electricity supply chain in Europe. The new company can buy supplies from other parts of the group or from outside. It has already agreed to buy all the power produced from the first Dutch offshore wind farm at Egmond aan Zee.
The move gives Shell the opportunity to enter the supply chain at any point — it does not have to own power stations any more than it now owns drilling rigs or helicopters. The third key factor is that the electricity market is not homogenous. The business of supplying power can be segmented. The retail market — supplying millions of households — may be under constant scrutiny, as efforts to fix the UK’s electricity grid keep infrastructure in the headlines, with suppliers vilified by the press and governments forced to threaten price caps but supplying power to industrial users is more stable and predictable, and done largely out of the public eye. The main industrial and commercial users are major companies well able to negotiate long-term deals.
Given its scale and reputation, Shell is likely to be a supplier of choice for industrial and commercial consumers and potentially capable of shaping prices. This is where the prospect of a powerful new competitor becomes another threat to utilities and retailers whose business models are already under pressure. In the European market in particular, electricity pricing mechanisms are evolving and public policies that give preference to renewables have undermined other sources of supply — especially those produced from gas. Once-powerful companies such as RWE and EON have lost much of their value as a result. In the UK, France and elsewhere, public and political hostility to price increases have made retail supply a risky and low-margin business at best. If the industrial market for electricity is now eaten away, the future for the existing utilities is desperate.
Shell’s move should raise a flag of concern for investors in the other oil and gas majors. The company is positioning itself for change. It is sending signals that it is now viable even if oil and gas prices do not increase and that it is not resisting the energy transition. Chief executive Ben van Beurden said last week that he was looking forward to his next car being electric. This ease with the future is rather rare. Shareholders should be asking the other players in the old oil and gas sector to spell out their strategies for the transition.
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