The proportion of electrified vessels is unlikely to increase until 2030 and the current instruments for compiling the economic calculation for investments in electrification are perceived as insufficient. But the set of instruments can change in the next few years, VTI writes in a report that responds to a government assignment to review the electrification of shipping. In the preparation of the knowledge base, VTI has conducted a dialogue with Lighthouse.
Compared with other modes of transport, shipping has not come far in the transition to electrification. Around 340 ships of the world’s 98,000 ships had some form of electric propulsion in December 2021. The proportion of electrified ships will probably not increase significantly until 2030, writes VTI in Elektrifieringen av sjöfarten – förutsättningar, nuläge och styrmedel – one of three sub-reports that now are ready in the government assignment to review the electrification of transport.
The technology for battery propulsion has come further than that for hydrogen propulsion and the electrified Swedish vessels in which VTI has identified are all powered by batteries. Electrification is likely to continue but is best suited for ferries and ships operating shorter, fixed routes with many stops. Possibly hydrogen in liquid form in the future can be an alternative fuel for longer distances, writes VTI.
There are several challenges regarding the alternative fuels of the future. Hydrogen and battery propulsion are associated with higher costs, lower energy density (and large energy losses in the case of hydrogen propulsion) as well as requiring more space compared to conventional propulsion.
Another challenge that VTI addresses is the large power requirement that will be required in ports if larger vessels are to be powered by batteries. The report mentions the ferry Stena Electra, which is still in the idea stage but is planned for 2030, as an example. The battery of the ferry is approximately 600 times as large as the largest batteries in passenger cars today and will place great demands on powerful electrical connections. Something that will also need to be considered in the future is the large investments in production and distribution of hydrogen that will be required to make hydrogen propulsion possible to a greater extent.
The report also takes a closer look at policy instruments. The majority of those identified in the report, both at national and international level, are intended to promote investment in both land and battery propulsion and hydrogen propulsion. This applies, for example, to environmentally differentiated port and fairway fees, environmental requirements and support for investments and research.
Today’s instruments, however, are perceived by many Swedish and foreign shipping companies as insufficient to compile the financial calculation for investments in electrification. One problem that stands out is the weak economic incentives to switch from conventional fuels. Lack of fuel taxation for shipping makes bunker oil economically advantageous compared to renewable fuels, writes VTI. Another problem concerns loan financing. According to the shipping companies, investments in more climate-friendly shipping are not rewarded by lenders in the form of lower interest rates or other favorable loan terms. Some shipowners in Sweden also experience that existing environmental differentiation of port and fairway fees does not significantly affect the investment calculation.
However, the authors of the report believe that the instruments for electrifying shipping are likely to change within the next few years. The EU’s climate legislation package Fit for 55 can increase the degree of internalisation of emission costs and thus also increase the incentives for electrification. And taxation of fuel for shipping in combination with the cost of CO2 emissions in the emissions trading system, if implemented, are likely to be two factors that increase shipping companies’ economic incentives to switch from fossil fuels.