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Renewable Energy business focuses on segments with high growth potential. These include the solar district heating market (Solar District Heating, SDH) in Europe, particularly in Germany, France, Poland, Finland, Sweden, Denmark and some Eastern European countries, and systems for generating heat for industrial processes (Solar Heat for Industrial Processes, SHIP), where markets with most potential for Savosolar are in Europe, Latin America, Australia and Africa.
The most active European market for solar heating systems is currently France, where the government has promoted the increased use of clean energy in heat production over the long term. France already has several project developers who invest in the production of solar thermal energy and sell heat to their end customers’ industrial processes through long-term supply contracts. A similar trend can be seen elsewhere in Europe and even in district heat production. The demand for solar energy systems has also increased significantly Germany in recent years.
The growth outlook for large solar thermal systems (more than 1,000 m²; installations of more than 700 kWth) is promising. The war in Ukraine has increased the need for energy self-sufficiency, particularly in Europe. In addition, the higher prices of fossil fuels, emission reduction targets, the higher prices of emission allowances and incentives to increase the use of renewable energy have improved the competitiveness of solar heat.
However, the turbulence in the energy sector, inflation and the higher costs of financing have slowed investment decisions. Consequently, investments in renewable energy production did not progress as expected in 2022. Energy investments are decisions made for the long term, even decades, and are significantly affected by short-term cost fluctuations.
Solar district heating
The use of solar district heat has increased in Europe, where Denmark has clearly been the leader in this field. It dominated the market for large solar thermal systems for around a decade, until the peak level was reached in 2018, when the growth slowed down because of the changes in the governmental support policy. Meriaura Energy has a good market position in Denmark and other European countries, such as France, Germany and Poland. Because of gas availability problems and the increase in the market prices for thermal energy, the demand for solar thermal solutions is expected to grow rapidly in these markets.
At the end of 2021, a total of 299 solar district heating systems (more than 350 kWth, 500 m²) were operating globally, with an installed capacity of 1,645 MWth (2.35 million m²). In 2021, a total of 44 new solar district heating systems (more than 350 kWth, 500 m²) were built globally. Their capacity is 142 MWth, and 20 of them were installed in China and 14 in Europe.
The global market potential for district heating is more than a billion square metres, so we are talking about a market potential of several hundred billion euros. Even if only 10% of this was implemented by 2050, it would mean an annual collector field market of more than EUR 1 billion in district heating.
Solar heat for industrial processes
Interest in solar heat for industrial processes (SHIP) has increased globally. Several promising projects have started in recent years, and systems of up to 100 MWth have been built. So far, the systems are relatively small and often generate process heat with a temperature of over 100°C, but the trend is towards a larger scale with temperatures of both under and over 100°C.
In 2022, the industrial heat projects implemented in Europe had in common the fact that they were developed by investors with long-term heat sales contracts with industrial plants. This model is expected to become more widely used and accelerate the use of solar heat in industry.
According to a study published by Solrico in early 2022 and a study by AEE INTEC, a total of 78 new SHIP plants were documented globally in 2021, with a total collection area of 51,539 m2 (36 MWth). This increases the total number of SHIP plants in operation to at least 975, with a total area of 1.2 million square metres. Most of these SHIP plants are in the food, mining and textile sectors.
The company’s view is that the SHIP market has become more active as a result of the high costs of fossil fuels and industry targets to reduce production emissions.
Competition in the solar heat market
According to Solar Heat Europe, the European solar thermal market began to recover from the pandemic in 2021, such that new capacity (1.46 GWth) was built than in the previous year. In 2021, the capacity available in Europe was 37.8 GWth, which corresponds to a collection area of around 54 million square metres. However, growth has been slower than the targets set by the European Union in 2020.
A significant increase in demand can be seen in large solar thermal systems, the main market for Meriaura Group. There are only a few global competitors in the market. In addition to direct competitors, there are system integrators with general experience in heating systems that are looking for a solar heat partner.
China is by far the largest solar heat market in the world, but large Chinese flat plate collectors have so far had no significant impact on the European solar heat market. Chinese companies’ production is mainly concentrated in the Chinese and other Asian markets, as there is practically no price difference between Chinese and European high-quality collectors.
-Savosolar Financial statement release 2022, 6 March 2023
Meriaura’s vessels are involved in contract shipping and the tramp trade in Europe, mainly in the Baltic Sea and the North Sea. Meriaura specialises in the marine transport of industrial products and raw materials (bulk cargo) and the transport of demanding special cargo. Around two thirds of Meriaura’s revenue come from bulk cargo, and around one third comes from special cargo and project cargo.
Bulk cargo
Bulk refers to raw materials transported unpackaged in large containers. The demand for bulk cargo is affected by both global and regional economic activity. In the early 2000s, the demand for bulk cargo exceeded supply. The number of new bulk cargo ships increased rapidly after this, which – combined with the global financial crisis – led to a sharp decline in cargo prices. Currently, the number of new ships under construction is relatively low, and Meriaura’s view is that overcapacity is disappearing and the market has recovered. This applies to ships with an ice classification in particular.
According to Danish Ship Finance, bulk cargo shipping increased by 4% in 2021, driven by recovery in coal and small bulk products. Freight prices were also high at that time. Danish Ship Finance expects demand to increase by around 0.2% in 2022 and 2% in 2023.
Danish Ship Finance expects the bulk cargo fleetto grow by 3% in 2022 and 3% in 2023. The annual growth rate was 4–5% in 2019–2021.
Seasonality is typical of business operations, so there is usually less activity during the summer months.
Special cargo and project cargo shipping
Larger or otherwise demanding cargo requires completely different equipment and infrastructure and more experienced staff than bulk cargo. The planning of transport is also much more demanding.
Large-scale special cargo includes tower, blade and generator components for wind turbines, for example, as well as harbour cranes, which account for a significant part of the demanding transport operations provided by Meriaura. The use of wind power is expected to continue to grow in the coming years, which will increase the market for project cargo business operations. The inclusion of transport service providers in projects as early as the planning phase has increased in recent years.
Competition
Bulk cargo is a competitive sector where the market participants range from large multinational companies to smaller regional businesses. The number of competitors is high, and business regulation is low. However, a significant part of Meriaura’s business operations is related to ports frozen in the winter. This limits the competitors in contract-based business operations to companies with ships with an ice classification.
In the special and project cargo business, the cargo is very heterogeneous, and there are fewer competitors. Companies can cooperate in large projects that involve heavy lifting, for example.
Biofuels are generally regarded as a cost-effective and environmentally friendly alternative to oil and other fossil fuels. Most biofuels are used as transport fuels, but they can also be used for heating and electricity production.
The value of the global biofuel market is estimated at around USD 155 billion in 2021, and the market is expected to grow to around USD 230 billion by 2027, at an annual rate of 6.9% (CAGR). When the biofuel market is divided into solid, liquid and gaseous biofuels, the majority of revenue in 2021 came from liquid biofuels.
The use of biofuels is expected to increase as their prices decrease as a result of research and development and their supply is commercialised. The increased use of biofuels is supported not only by emission targets, but also by their Finnish origin, which reduces dependence on imported oil. Various regulations and tax incentives to support the use of biofuels are also expected to increase the demand for biofuels in the transport sector around the world.
-Savosolar Financial statement release 2022, 6 March 2023