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New Energy World
New Energy World embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low carbon technologies.
Twin-engine strategy for meeting energy transition goals
8 min read
Dev Sanyal FEI, CEO of Varo Energy, a leading integrated European energy company, and a speaker at International Energy Week 2023*, provides New Energy World with key insights into the company’s strategy regarding the global transition to net zero.
How advanced are your customers in respect of strategies to meet future energy needs in the transition, compared to those which just focus on conventional energies and efficiency?
The tragic war in the Ukraine on the heels of the global pandemic has dramatically changed the energy landscape. The solution to this current crisis is what we refer to as the ‘twin-engines’ – ensuring reliable flows of conventional energy to provide security today while also investing to accelerate the energy transition. The point of the twin-engines is to ensure that both engines [of change] work together.
In July, the One Varo Transformation strategy was announced, which has at its heart the twin-engine strategy. Engine 1 is focused on conventional energies, maximising efficiency and generating high levels of cashflow to reinvest into Engine 2, which is focused on sustainable energies. Engine 2 consists of five Strategic Growth Pillars targeting the most attractive low-carbon growth markets in Europe: biofuels, biomethane and bio-LNG, hydrogen, e-mobility and carbon removal.
We plan to invest about $3.5bn over the period to 2026, with two-thirds committed to sustainable energies. We are targeting sustainable energies to account for over 50% of group earnings by 2026, which are expected to treble over the period. As the current crisis demonstrates, it is paramount that we ensure a smooth transition to ensure reliability, accessibility and sustainability. We are working with our customers in a shared vision through what we call ‘Customer Lighthouses’. Our vision is to be the energy transition partner of choice by helping customers decarbonise using value-adding services.
Varo plans to invest about $3.5bn over the period to 2026, with two-thirds committed to sustainable energies
Photo: Varo Energy
What are the main objectives of your customers – to cut costs or emissions?
We reflect our customers’ needs, ie to accelerate the transition to a world of reliable, accessible, sustainable energy. The first priority for our customers is to have reliable energy supply along with access to competitively priced low-carbon energy. Many customers have committed to reducing their carbon footprint or achieving net zero within a given time frame, and we want to support them in their plans. This requires a strong partnership and close collaboration.
Many governments have also implemented policies which support decarbonisation and therefore require our customers to adopt new, sustainable energy solutions. The mandates and regulatory framework incentivise change. For example, since mandates have been put in place in Europe, biofuels are widely blended.
However, we cannot only rely on regulatory framework. We believe that the energy transition can happen only if we produce and supply sustainable energies at scale. This pathway to scale creates economies and propels accessibility. For example, we have just announced the development of the largest biogas manufacturing facility in Northern Europe by doubling the current capacity from 300 GWh to 650 GWh by 2026. We want to bring scale to the biogas business and use it as a platform for future growth in this market as it is expected to grow 10-fold by 2030.
What do you see as the key enabling technologies for the energy sector to transition in line with the Paris Agreement target of limiting global temperature rise to 1.5°C?
The energy transition will require a portfolio of solutions as it is multi-dimensional. Put simply, we can split the energy landscape into three parts:
- Power and domestic heat (~30% of worldwide emissions).
- Transportation (~15% of worldwide emissions).
- Industry (~20% of worldwide emissions).
There are also non-energy related emissions such as deforestation (~10%) and agriculture (~20%).
The energy transition will require a portfolio of solutions as it is multidimensional and concerns different sectors.
We have built our strategy on five Strategic Growth Pillars, using a disciplined approach.
To decarbonise power and domestic heat, the key enabling technologies will be renewables, storage, nuclear and bio. We already have a leading platform in biofuels and are investing in the biogas business, which in the form of biomethane can help to decarbonise the gas grid. This is a great complementary solution to renewables as it offers baseload power.
To decarbonise transportation, the key enabling technologies will be biofuels, EVs, bio-LNG and potentially hydrogen and its derivatives (ammonia, methanol, etc). Hybrid solutions can have a further positive impact. We cover all those technologies with our Pillars, as it is our natural market. Today, Varo has a substantial footprint in Europe with conventional fuels, and our intent is to transition this demand towards sustainable fuels.
To decarbonise industry, key enabling technologies will be bio, electrical furnaces, hydrogen, CCUS (carbon capture, use and storage) and circular solutions such as recycling. We understand that our heavy and hard-to-abate industrial customers must also go through a similar transition. As part of our Customer Lighthouses, we have a special focus on process heat, for which we will provide biomethane and hydrogen. Energy-efficiency, process optimisation and digitalisation can further help lower emissions.
Finally, to reach net zero, we will need carbon sinks to compensate for the last few percentages that cannot be tackled through technology. Varo is an active player in nature-based carbon removal to tackle those percentages. We have laid out a 2026 target to create a carbon portfolio equivalent to 15mn tonnes of CO2 equivalent, that will be sourced from high quality reforestation projects, most notably through our SilviCarbon venture.
The future is a mix of various energies, and our customers will therefore need a variety of sustainable solutions. Varo is developing multiple new products to meet these needs. There are various paths. But what matters is that we act now.
How important a role will hydrogen play eventually, and in which sectors?
The market for green hydrogen is still under development. But hydrogen is now, more than ever, recognised as a way to build an independent, sustainable energy supply. Hydrogen can be used as a versatile energy vector. It can be used as an energy carrier, as a fuel and as a chemical feedstock.
We consider hydrogen as potentially a key component of a carbon-neutral energy value chain of the future. The utilisation of hydrogen will differ significantly for each region, and it is heavily influenced by the regional policies, support frameworks and incentives.
Hydrogen is forecast to comprise 12–15% of the energy mix by 2050 in Europe. Its success will hinge around enabling policies to kick-start the scale-up of hydrogen production and stimulation of end-use. Refineries and chemical industries using hydrogen as feedstock will be the initial ‘low-hanging’ industries to adapt green/low-carbon hydrogen. This is where Varo will primarily focus.
Our intent is to use our positioning. For example, at the Bayern manufacturing hub in Germany we use the equivalent of nearly 1 GW of hydrogen. When we convert this hydrogen from grey to green, we can achieve scale naturally. The same applies to our Cressier manufacturing hub, which represents 70% of Swiss hydrogen consumption.
We have announced our intent to build a 125 MW electrolyser in our Bayern manufacturing hub with the potential to scale up, and there is more to come.
This will be followed by the decarbonisation of heavy industries which rely massively on process heat, and where hydrogen can be used to generate necessary heat (eg, in process industries). Hydrogen transportation could also take-off for heavy-duty vehicles or shipping.
What is Varo's own journey towards net zero by 2040 – including Scope 3 emissions?
As part of the One Varo Transformation strategy, we laid out an ambitious ESG (environmental, social and governance) strategy. We believe it is our responsibility to act fast and decisively and commit to providing supply security in the short term, while also taking action to reduce our emissions and help customers with their decarbonisation journey.
Varo has set ambitious and sector-leading new targets for the reduction and elimination of CO₂ emissions.
Scopes 1 and 2: We aim to achieve 40% absolute greenhouse gas (GHG) emissions reduction by implementing defined decarbonisation initiatives in our assets, with energy conservation measures, green electricity purchasing and replacement of grey hydrogen with green hydrogen.
As an example, we have announced a 125 MW green hydrogen project in our Bayernoil manufacturing hub to partially decarbonise our hydrogen requirements. We have also announced a target of using more than two-thirds renewable electricity in our operations by 2023.
Scope 3: We aim to achieve a 15% reduction in our value chain emission intensity by quickly growing our portfolio of biofuels, biomethane, bio-LNG, hydrogen, high-quality nature-based carbon removals and e-mobility solutions.
We aim to achieve full value chain net zero by maximising our decarbonisation efforts. This includes further repurposing our manufacturing hubs – eg SAF (sustainable aviation fuel) production, CCUS, synthetic fuels projects – and are aiming for additional strong growth in our low-carbon product portfolio to provide future-proof green solutions tailored to the future needs of customers. Any remaining impact will be neutralised through CO₂ removal projects.
*The Energy Institute’s International Energy Week 2023 hybrid conference will be held at the Intercontinental London Park Lane hotel and broadcast online, on 28 February to 2 March 2023.