We hosted an R&D-themed investor call with our Director of R&D and Engineering, Juha Kytölä, on September 4. The call did not disclose any new material or unpublished information.
Find the recording of the call here and the presentation slides here.
Juha Kytölä, the Director of R&D and Engineering, has been working at Wärtsilä for almost 35 years and has been awarded as the Chief Technology Officer of the year 2023 in Finland.
Juha started the call by highlighting the high level of activity in research and development in Wärtsilä. Decarbonisation is at the centre of Wärtsilä’s strategy, also within R&D. Our target is not to rush in bringing new concepts to the markets but rather to focus on understanding the market opportunities and value streams. Thorough development of technologies and proof of concepts enables us to offer high quality to the customers.
The call continued by discussing Wärtsilä’s new engine portfolio, where Juha explained how the engines are based on a common modular architecture. Modularity enables conversions for future fuels and the adaptability to different needs. The industry is moving from single-fuel to multi-fuel, and the movement has to be considered already today. Natural gas, green fuel blends, and carbon neutral fuels are expected to significantly increase their share within fuel types used, and the investments in vessels or power plants need to consider this movement towards future fuels already now, because of the long asset lifetimes.
To present a deeper look into the product portfolio, Juha outlined the three fuel types for which Wärtsilä is developing solutions. These three fuel types are methanol, ammonia, and hydrogen. Wärtsilä has been developing methanol technology since 2015, and in 2022, Wärtsilä launched the W32 Methanol engine. With regards to ammonia technology, the technical concept is expected to be ready in 2023 and first engine deliveries are expected in 2024. Wärtsilä is also developing engine technology using hydrogen fuel and the related technical concept is estimated to be ready in 2025.
Wärtsilä has also been developing hybrid technologies, where battery storage systems are used in ships. The technology allows vessels to use electricity for shorter periods, for example in the harbours, to make the environmental footprint lower. 104 vessels are already working with hybrid technologies. In addition, Wärtsilä has developed solutions for fully electric ships. One of the newest examples is a 130-metre-long ferry, Incat Tasmania, which is fully electrically powered with batteries. The battery storage technology of the ferry is delivered fully by Wärtsilä.
Q&A
Regarding the engine conversions in ships, are the conversions mainly from heavy fuel oil to LNG?
When ships use heavy fuel oil, they always have a diesel fuel oil option available as a built-in. Now, markets have been promoting natural gas solutions. However, the choice to go to natural gas has economically created some pressure, because by modifying a ship to have a natural gas tank and systems onboard, you need to have the space, which requires investments.
One conversion option is around the new fuels, for example, conversion to methanol. A methanol tank can be easily placed on the ship because it can be fitted into various spaces due to fewer geometrical limitations. You can use cavities in the ship for storing your methanol, so it is an easier fuel to adapt to the ship.
If the ship engine is converted from heavy fuel oil to LNG, can the same engine be converted to methanol?
Yes, you can convert it to almost anything. Typically, dual-fuel engines can use two to three fuels. However, the engines can be converted to other fuel types later so the mix of the two to three fuels can change over time.
How about the conversions and new fuels in the energy business, are the synthetic fuels relevant there?
Yes, especially hydrogen which has gained high interest on land due to access to hydrogen and as it is considered efficient technology-wise.
On the marine applications, do both space and fuel cost constraints compete or are either a more dominant variable?
In all our markets, the customers are very focused on the operations and financials, so the operation costs are an important factor. When discussing the physical limitations, the discussion is more related to the time a vessel can spend at the sea between harbours and charging stations compared with the space they have available for the engine or fuel storage.
What speed of adoption and level of applicability do you see for carbon capture technology in fleets for the next 10 years?
We are doing research and development in this area, and the commercial solution is expected to be released in 2025. The first installations where we could adopt carbon capture technology, are within ships that have longer routes, meaning commercial ships rather than passenger ships. As the development goes forward, carbon capture and storage are a potential way to capture the carbon and still be able to continue using low-cost fuel without increasing costs or impacting the environment.
Regarding the certain R&D avenues that you have disregarded over the years, what has changed in how you identify the routes that are best for investing and most likely to reach industrialization? Is R&D more focused on industrialization compared to before?
The development is much more open and transparent nowadays, with more collaborators and involvement. Wärtsilä is in an extremely good position after making big investments in new facilities focusing on R&D, the latest being the Sustainable Technology Hub in Finland which is now the main R&D site of Wärtsilä.
How do you estimate your readiness and market share in starting to offer engines using methanol, hydrogen and other new fuels?
In methanol, we were number one in the markets. We started R&D on that very early, and in 2015 already adopted the technology for the engines. We have continued on that path. In ammonia, we are in a very good position within technologies and development as well. We are not only early with these different technologies, but we have also been able to create the width of our portfolio, meaning that we do not focus on one technology only.
What kind of timeline for the availability of methanol and ammonia for vessel harbours do you see?
Carbon-neutral methanol is seemingly of high interest in areas where supply development happens. Already couple of vessels in the markets are operating on methanol, and the market continues to develop constantly. Investments regarding methanol are being made in all the continents, including China, Europe and the Americas.
Ammonia is a result of synthetic process related to hydrogen production. Therefore, ammonia will probably be more limited in terms of access. Currently, areas in Norway and Japan have the highest interest in ammonia.
With the new technologies, methanol and ammonia-driven vessels, do you see any competition from Chinese and other, for example, Korean, companies emerging?
We are not alone in the markets. Different projects are going on around these different fuels, but we do not know the exact content of these. In South Korea, one player has already introduced a methanol engine to the markets but besides that, we have no clear evidence from others.
What technological steps do you need to take to turn a system which may capture only 20% of carbon dioxide into one that can capture 70%? How do you expect the timeline for this evolution to evolve?
To progress further in the development, the partial capture must be continuous, and as efficient as possible. At the moment we plan to prove that carbon capture and storaging is possible within a ship. The research and development on the technological side is still ongoing, as we need to further estimate the logistics after the carbon has been captured.
You have a strong position on the auxiliary engine side, how much of a threat do you consider to be that the fuel cell-based auxiliaries would eventually take over, and are you planning to develop your own?
In 2000, we started our own development of fuel cells, and it was developed rather far. We had the working system on ships and on land, where we had the fuel cell system based on solid oxide fuel cells. We then divested that company but continue to own a small share so that we can follow up on where the technology goes and have an in-depth understanding in that.
The challenge there is the capex and the life cycle of the cells. We currently do not see that huge interest towards fuel cells, but if customers want and need to have those, we are also integrating those into the deliveries.
To what extent do you think clients are waiting for the full hydrogen engine to become available to invest or are they happy to go with the blend for now and then maybe retrofit later?
Currently, customers are not ready to jump to full hydrogen use because they do not have a reliable supply of hydrogen. However, it seems that there are two types of customers. The customers who have an interest in producing hydrogen themselves and who consider that they could use electrolysers to produce hydrogen as part of their production. Then some customers think that they can source hydrogen from others and could use that as a part of their production.
Are there any differences for the customer in terms of methanol or ammonia investment costs when taking into account everything from technology, engine, and storage installations?
There are some small differences, even though they are not far from each other. Ammonia needs more attention to safety than methanol, for example, by putting compartments where handling ammonia. Also, the tank size for ammonia is slightly bigger, because it needs to be cooled down to -33 Celsius in order to keep it in a liquid state. Overall, ammonia has slightly more costs on the system side, but on the engine side, the costs are more similar.
Is the market potential more in retrofits or new builds?
We are providing technologies for both markets. In retrofits, the target is that the ship or power plant has 10 more years of operations, and on the new build we consider the lifetime already as a built-in. Traditionally we have been focusing on the new build markets regarding the technologies, but now we have seen growth in retrofit markets as well.
Regarding the hybrid models, what kind of changes are needed to convert a mechanical 2-stroke ship to an electrical, 4-stroke ship?
When looking at the ship concepts, the 4-stroke electrical drive concepts compared to the 2-stroke mechanical drive concept, are very different and it is unlikely that conversions would take place. If, for example, a 2-stroke engine were replaced with a different machinery, the whole engine space would need modifying, which is unlikely to happen, and would then be more in the new build market. However, the 2-stroke concept on its own allows some hybridization modifications, such as electricity support.
Is the production of ammonia/methanol engines more complex or costlier than that of conventional fuel engines?
The frame of the engines is the same, but mechanical parts have to be added for the new fuels, and the new components are increasing costs.
When is the commercial launch of the ammonia and pure hydrogen engines expected to happen?
For ammonia, we have stated that the technical concept is ready this year, and we can deliver next year. For hydrogen, we have stated that the technical concept will be ready in 2025.
