After several tumultuous years marked by unexpected disruptions from the COVID-19 pandemic, political and social unrest, and war, making predictions about the coming year can start to feel like a fool’s errand. Nonetheless, innovation leaders need to look ahead to set strategic plans and prepare their organizations — and we here at Lux need to set our research agenda as well. So, we soldiered ahead, with Lux teams meeting in small groups to develop their outlook for 2023, then coming together to share visions, challenge one another’s thinking, and select our top prediction for clients to consider across the chemicals, oil and gas, industrials, consumer products, and utilities sectors. Next year surely won’t be free of surprises either (though we can hope they’re milder than in recent years), but these are developments innovation leaders should expect and prepare for.
Electrification Goes Global as Government Incentives Draw Projects Across the Pond to the U.S. from Europe
Electrifying chemicals production, whether by shifting to electric steam crackers in refineries or using power-to-chemicals for key products, is one of the key steps on the challenging path to decarbonizing the chemicals industry. To date, Europe has hosted the initial projects, including efforts from Dow and Shell in Amsterdam, or BASF, SABIC, and Linde in Germany. However, new funding opportunities and tax credits available in the U.S. following the passage of the Inflation Reduction Act (IRA) of 2022 — with further incentives for complementary pieces like renewables and hydrogen — will spark projects in the U.S. as well. This expansion, plus continued efforts in a Europe still struggling with gas shortages, will help push these technologies toward scale and set the stage for global adoption.
LUX TAKE: While wholesale electrification of the industry is a decades-long project, in 2023 it will become a clear imperative, prompting the launch of projects and initiatives industrywide. Clients should develop a roadmap and strategy, if they haven’t already, and build a technology portfolio that places bets on multiple routes to chemicals electrification.
Oil and Gas:
Acquisitions Boom as Oil Majors Pivot into the Electricity Business
Facing an oncoming secular decline in petroleum demand, oil and gas companies are looking to transform into integrated energy companies. One of the key strategies they can pursue is transforming into a utility, focused on generating and delivering electricity from renewable sources. Shell has already led the way, strategically investing in or acquiring developers in electric mobility, energy storage, and smart grids, such as Ubitricity, Sonnen, and Next Kraftwerke — and even snatching up existing utilities like First Utility in the U.K. and becoming a residential gas and electricity supplier in the Netherlands. Now, as the industry is flush with cash thanks to a year of soaring prices, this activity will accelerate, as more players, particularly in the U.S. and Europe, look to use their war chests to lay the foundation for future strategy.
LUX TAKE: Not all oil and gas companies will be able to — or should — pivot to a utility strategy. Those that will do so successfully will need to create strategies around specialized services and novel technologies, whether that requires managing distributed energy assets or catering to newer ecosystems like EV charging.
The Need for Hydrogen Transportation and Storage Soars
Hydrogen has been hot the past couple of years — and will only get hotter with recent policy moves. In Europe, governments boosted hydrogen in COVID stimulus packages, doubling down on that bet as the war in Ukraine led to a cutoff of gas imports from Russia, while Asian nations like Japan, Singapore, and South Korea have long backed hydrogen projects. In the U.S., the IRA provides a variety of incentives for hydrogen, most notably production credits of up to USD 3/kg for green hydrogen that could make some projects profitable even if they gave hydrogen away for free. These policies will drive up hydrogen production — and reveal the lack of adequate hydrogen transportation and storage capacity to manage this increase effectively.
LUX TAKE: Clients should look to provide on-demand hydrogen infrastructure but place bets carefully. For instance, liquid hydrogen projects will get funding and make headlines, and it’s worth monitoring these efforts — but ammonia is more likely the winning option for storage and transport. On the application side, efforts to decarbonize steel with technologies like direct reduced iron will create demand for hydrogen storage and sourcing in that industry. A variety of solutions from metal-organic framework materials to composite pressure vessels to liquid organic hydrogen carriers will gain traction and deployment in 2023.
Regulators Open the Gates for Cell-Based Meat
The need for more sustainable protein options than animal meat has led to the rise of plant-based providers like Impossible Foods and Beyond Meat, but cell-based or lab-grown meat has been waiting over the horizon as the next alternative, with the promise of better quality and more efficient production. Regulatory approval has been a key barrier but one that’s starting to fall — notably, the U.S. FDA recently gave preliminary approval for Upside Foods’ cell-based chicken. Expect more approvals in the U.S. in 2023 as well as other countries with favorable regulatory stances like Singapore and Israel.
LUX TAKE: Along with sustainability concerns, supply chain fluctuations, inflation, and geopolitics have pushed the industry to explore ingredient alternatives. Cell-based meat is well aligned to address many of these concerns as it can enable greater flexibility in production and sourcing in addition to its reduced environmental impact. However, cost and scalability will continue to be major challenges. As regulatory regimes fall into place, 2023 will be a good time to invest not just for consumer brands but also for business-to-business companies that can play a critical role in lowering cell-based meat costs.
Supply Chain Challenges Push Grid Storage Beyond Lithium
Wind and solar will be the backbone of the grid of the future but need to be integrated with energy storage solutions to fully move utilities away from fossil fuels. Li-ion batteries have become the gold standard for energy storage on the grid, but over the past year, battery materials prices have gone haywire as lack of earlier investment and soaring demand combine to send lithium prices spiking as much as 180%. While capacity expansions are underway, the crunch will boost alternative chemistries. System integrators will take a more technology-agnostic approach, starting with zinc- and sodium-based chemistries that offer higher efficiencies compared with flow batteries. Players to watch include incumbents like CATL diversifying their portfolios, as well as specialized startups like Natron and Zinc8. Look for a surge in project launches and pilots for these technologies.
LUX TAKE: Achieving zero-emissions electricity requires systemic changes to grid operation and relies on technologies in long-duration storage that aren’t proven at scale. Non-lithium chemistries will become a mainstay, but this change also will happen slowly. Nonetheless, establishing a track record of reliability will be critical, so players that engage in pilot projects now can gain an important first-mover advantage, making 2023 an important year for these new grid-storage chemistries.
Much More is Sure to Come in 2023
Of course, notable as all these predictions are, they’re likely only the tip of the iceberg of what should be another busy year as policymakers, consumers, investors, and employees continue to press companies on sustainable innovation. Indeed, our team had trouble selecting just five predictions: There were strong advocates for other choices too, like a shift to compostable plastics, an increase in new nuclear projects, greater use of recycled materials in cars, advances in alternative food oils, and growing electrification of trucks. Fortunately, our teams have written up these predictions and more for a series of upcoming reports across these industries — keep an eye out or find them here once they’re published.