Report: Hungry for green energy, the chemical giant BASF enters the circle of renewable energies
With roots in Germany’s industrial heartland dating back to 1865, chemical giant BASF is gearing up for carbon neutrality. While establishing itself in the field of renewable energies, the company is transformed from a buyer to a producer of green electricity.
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With a market capitalization of nearly 47 billion euros, BASF manufactures products such as fertilizers, industrial gases, electronic-grade chemicals and glues, which it manufactures in production centers in Texas, in Belgium, Malaysia, China and other global locations.
The company has pledged to buy power from several European wind and solar farms, taken a stake in a Dutch offshore wind farm, bid for another and in January created a dedicated renewable energy division.
By creating BASF Renewable Energy, the company is integrating renewable energies into its core business. “This is an extension of our existing approach of integrating ourselves into the key input value chain,” Horatio Evers, CEO of the new division, told S&P Global Market Intelligence.
BASF, which already generates most of its own electricity through steam and gas turbines, aims to “deliver a secure and ideal portfolio of renewables,” Evers said. Its “make and buy” strategy includes building its own capacity while purchasing power through long-term power purchase agreements.
These activities have accelerated in recent months. In November 2021, the company signed a 25-year PPA for green electricity with French utility Engie, covering up to 20.7 TWh of electricity. The move comes after Vattenfall bought a 49.5% stake in the Hollandse Kust Zuid offshore wind farm in the Netherlands, half of which BASF agreed to sell to German insurer Allianz at the end of the year. year.
Most recently, BASF took a stake in a company called Vattenfall Hollandse Kust West VI, with Vattenfall and BASF confirming on April 22 that they will bid for the 700 MW Site VI concession in the Dutch offshore wind tender Hollandse Kust West. The bidding opened on April 14 and closes on May 12, with winners to be announced after the summer.
Having BASF more involved in the construction and planning of offshore wind farms would be a welcome development, according to Martin Neubert, commercial director of Danish wind developer Ørsted.
“There are a lot of [interest] industry to directly secure, source and be part of the development,” Neubert said at the annual conference of industry group WindEurope in Bilbao, Spain, on April 6. “I think it’s good, in terms of how best to allocate resources, capabilities, but risk. An open-door approach allows the industry to scale up.”
Ørsted will sell 186 MW of output from its 900 MW Borkum Riffgrund 3 wind farm on Germany’s North Sea coast to BASF under a 25-year PPA. The project is expected online in 2025.
Purchasing green power under long-term PPAs allows BASF to secure required volumes at predictable prices, Evers said.
The agreements also help reduce BASF’s direct Scope 1 and 2 greenhouse gas emissions – those associated with its own production and purchased energy – which amounted to 21.8 million tonnes. of CO2 equivalent in 2020, according to S&P Global Trucost, having barely changed since 2016. German utility RWE more than halved its direct emissions during this period.
BASF aims to reduce its Scope 1 and Scope 2 emissions by 25% by 2030, compared to 2018 levels. For these perimeters, the company aims for net zero by 2050. In comparison, Germany, country origin, has a net zero goal of 2045. To achieve its goals, BASF wants to spend around 4 billion euros on low-carbon technologies by 2030.
The company has no target for Scope 3 emissions, which come from customers using its products, but said it aims to be “among the first companies to supply large volumes of as many products as possible. with a reduced carbon footprint.
Renewable electricity will help decarbonize company operations, but many processes rely on natural gas or gas-derived hydrogen and cannot be directly electrified. Ammonia, a fertilizer ingredient, for example, is made from gray hydrogen, produced with natural gas, in particular by BASF.
The company uses around 1 million tonnes of hydrogen per year in its global operations, and the flagship site in Ludwigshafen, western Germany, produces around a quarter of that hydrogen.
To clean up these polluting operations, EU policymakers want chemical companies to switch to green hydrogen, which is made from renewable energy and electrolysis. BASF’s renewable energy unit welcomes the plan, Evers said, while calling for a focused approach and focusing on specific use cases.
“Hydrogen alone will not solve all of our problems,” the executive said. “For production, we will also need large amounts of renewable energy that we currently do not have.”
As a result, hydrogen deployment must take place in areas that directly depend on hydrogen, such as chemicals and steel, Evers said. Policy makers should prioritize these sectors over power generation or heating, when there are enough alternatives. “Precious hydrogen should not be wasted,” Evers said.
As the market and production capacity for green hydrogen increases, BASF also wants production to take place near existing hubs like Ludwigshafen, while a gas network for long-distance transport is built in the medium to long term. . To this end, the company will build an electrolyser in Ludwigshafen from this year, subject to grant approval.
“We know how energy-intensive electrolysis is,” Evers said. BASF is testing an additional method of producing hydrogen at the site, called methane pyrolysis, which the company says uses less electricity. According to BASF, the process splits the gas into hydrogen and solid carbon and produces no greenhouse gas emissions if it runs on renewable energy.
The approach is not without criticism.
“Methane pyrolysis is almost as bad as today’s major hydrogen production process,” Mark Jacobson, professor of civil and environmental engineering at Stanford University, said in an email. This is mainly due to gas leakage in the value chain, while the green energy needed to power pyrolysis cannot replace coal and gas in power generation, Jacobson said.
European industries will also exploit hydrogen in a pivot of using Russian gas, with the EU pledging to stop all imports by 2027 in light of Russia’s invasion of Ukraine. This change will be strongly felt in German industry, as the country relies heavily on Russian gas, importing more than half of its supplies through pipelines. BASF shares fell sharply when Russia invaded Ukraine and are down 18% year-to-date to April 13.
The company also has a majority stake in Wintershall Dea, one of the financiers of the now abandoned Nord Stream 2 gas pipeline; Wintershall took a write-down of one billion euros on this project.
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