Tue, Apr 23 2024 23 April, 2024

With Renaulution, car firm steps up decarbonization

Amid soaring energy prices, French car manufacturer Renault has accelerated its Renaulution strategy to move away from gas usage at its sites. Renault follows in the footsteps of industrials who are larger gas consumers. But are more targeted regulatory incentives needed?

A Renault factory in Flins-sur-Seine, northern France.

Record gas and electricity prices in 2022 have forced many energy-intensive industries in Europe to stop or reduce output at their sites to remain economical viable. Many have also stepped up their decarbonization efforts. In a recent example, French car manufacturer Renault signed three major deals last November as part of its ‘Renaulution’ plan shaped in 2021 to replace gas with biomass and geothermal electricity at two plants and source more of its electricity from renewable energy.

But relying on short-term market dynamics is insufficient, experts say, in a stark reminder that more targeted regulatory incentives are needed to invest in adequate low-carbon technologies to replace industries’ gas uses on a large scale, including hydrogen.    

Heat generation 

As is the case for other large gas industrial consumers in the steel and metals, petrochemicals and fertilizer segments, Renault’s efforts to accelerate its decarbonization plan are not new. But the energy crisis that gripped Europe in 2022 was “an accelerator of the decarbonization movement in which it was already engaged,” Juliette Faucon, a spokeswoman for Renault, told Gas Outlook.

Renault opted for biomass and geothermal energy to replace gas for heat generation, which is one of the most widespread uses of fossil fuels by industrials. Under the first deal with Dalkia, a subsidiary of EDF Group, Renault will receive a new biomass boiler at its ElectriCity plant in Maubeuge, northern France. With plans to bring the new 15 MW boiler online in 2024, the new equipment is expected to save 65% of its gas consumption. The biomass boiler will burn class A wood that is untreated and unpainted.

In another deal with Engie Solutions, a subsidiary of French energy utility Engie, a deep 40 MW geothermal energy project will be developed at Renault’s plant in the city of Douai, northern France. It would save 70% of its gas consumption from 2025.

Biomass and geothermal energy (depending on the plants’ location) are well established technologies that will help decentralize the company’s operations. Biomass is the most widely used renewable fuel in the industrial sector to produce thermal energy. But it represents a small share. “Biomass is not sufficient to decarbonize the French and European industries,” Julius Ecke, a partner at Berlin-based consultancy Enervis Energy Advisors, told Gas Outlook.

“Let’s not forget that the sustainable supply of biomass is limited because of limited wood supply and the need to protect forests,” he said. “There is also strong competition for biomass, you can burn it to produce heat, but you can also use it for sustainable building for instance.”

Impact of Ukraine war

Meanwhile, industrial gas demand has taken a hit in the wake of Russia’s invasion of Ukraine, with preliminary estimates by the International Energy Agency (IEA) pointing to a 15% – or around 25 bcm – decline in industrial gas use in European OECD nations. This was due to production curtailments, gas-to-oil switching combined with the effect of efficiency measures.

But as gas prices have receded in recent weeks, this picture could be reversed. “Some of the industrial demand might be coming back if the price environment allows for that,” Gergely Molnar, a gas analyst at the IEA, told Gas Outlook.

This volatility and the potential for future LNG supplies to weigh on gas prices highlights the need for a framework that encourages the decarbonization of industries in a more structured manner.

Molnar said this should include a combination of subsidy schemes and mechanisms, and targeted regulation from governments that take into account the specific gas uses from industrials. “In many cases, it is about switching from natural gas to low-emissions hydrogen.”

Much of the focus has been on decarbonization through renewables in the power and building sectors. “We need to differentiate gas uses. In many sectors, where gas is used as a feedstock, we can’t necessarily switch to low-emission electricity, and to really scale up decarbonization, we need low-emission hydrogen,” he added.

Renewables-based PPAs 

Under the third deal signed in November 2022, Renault and independent power producer Voltalia signed a 15-year Power Purchasing Agreement (PPA) for a capacity of 350 MW of electricity from solar photovoltaic panels that will be installed in France from 2025.

Described as the largest long-term PPA in France, the deal is designed to cover up to 50% of the manufacturer’s electricity use in its production from 2027. It will also serve to cover the sustainable electricity needs of the ElectriCity cluster, the largest electric vehicle production centre in Europe, located in northern France.

Importantly, as a new contractual tool, the PPA would shield Renault from price volatility on the spot market by offering it a fixed price on the long-term market.

Even before the war, higher electricity and gas prices in the wake of the coronavirus pandemic led many industrials in the chemical and petrochemical sector to sign up for new renewables-based PPAs to switch away from gas- or coal-fired generation. For instance, in November 2021, giant petrochemical group BASF signed a 25-year PPA with Engie for the supply of up 20.7 TWh of electricity from renewable assets including onshore and offshore wind farms.

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