Recent Links and Research Topics

How did Europe reduce its gas demand this winter?

The standard answer “warm weather” is only part of the picture according to the IEA in this report Europe’s energy crisis: What factors drove the record fall in natural gas demand in 2022? – Analysis - IEA. Renewables, fuel switching and efficiency played almost as large a role. There will be more to come this year as recent earnings calls indicate that supply chain issues that bedevilled heat pump supplies have now abated. With the symbiosis of heat pumps and solar, European energy demand could fall for households very quickly from here. This could happen especially quickly as European market specific products get rolled out, like this heat pump which is specifically designed for retrofits of district gas heating in apartments.

Europe still has a lot of the inflationary impact yet to digest but with gas prices having fallen to 2021 levels the energy driven components should wash out over the next six months. From 20242-2025 US LNG export capacity expands rapidly. I think it is fair to say that energy coercion by Russia has failed and becomes less of an issue from here.

Clayton Christensen’s Low End Disruption Comes for Lithium

Recent news on sodium batteries fits the “Low End Disruption” paradigm whereby a slightly inferior product enters the low end of a market and then improves or scales its way to dominance. Sodium is now being used in lower end Chinese EVs and is likely to make inroads very quickly into ebikes and stationary storage. Despite slightly inferior energy density as outlined in this paper the answer primarily lies in the electrolytes which freeze at a lower temperature and catch fire at much higher temperatures. A more thermally robust technology needs less active safety features and can be a much more densely packed “dumb box” for storage. This is ideal for home storage where fire risk is very high stakes and the relative savings on battery pack management and cooling can make a much more cost competitive product - as much a third of the price of a Tesla Powerwall today.

This does not mean lithium is going to zero or anything like that - decarbonization is a big enough market that it is unlikely materials get squeezed out. However, it does indicate that fears of materials shortages acting as a constraint on decarbonization may be overplayed.

The Great Alt-Meat Bust

I have stayed away from this space in VC and was involved in some public markets shorts. This is not because I think Beyond Burgers and the like are dumb - there are a lot of vegetarians and flexitarians and I used to be one - but that as business models they seem problematic. Many people who stop eating meat just lose their taste for those flavour profiles over time and there is no shortage of other options. There seems no “edge” in these products and the advantages to larger consumer packaged goods conglomerates with their shelf space and distribution allowing them far better unit economics seemed a prohibitive barrier. No doubt many of the likes of Impossible now rue takeover offers they may have turned down.

These insights seem obvious now especially to those who invested in this space. It seems VCs are now focussing on upstream investments in agriculture which seems smart: Pivot Bio looks like a very real business to me with a clear value proposition as opposed to marginal meat proxies.