Why Shecco in Norsk Hydro? A presentation of Norsk Hydro and how and why the Shecco technology became part of Norsk Hydro’s portfolio
Written by: Rolf Marstrander Senior Advisor ProSus, Formerly Senior vice president Norsk Hydro
At: ProSus – Centre for Development and the Environment University of Oslo P.O.Box 1116, Blindern NO-0317 Oslo Norway Phone: +47 - 22 85 89 00 Fax: +47 - 22 85 87 90 e-mail: rolf.marstrander@prosus.uio.no Web: http://www.prosus.uio.no/english/
Innovating for Sustainability 11th International Conference of the Greening of Industry Network October 12-15, 2003 - Hotel Nikko, San Francisco
1
Summary
The Montreal protocol was the starting point for the reinvention of CO2 as a refrigerant in air conditioners. The efforts put into developing air conditioning technology then started to find their way into heat pump systems in general; the patents and their application into workable technology being principally the same. This paper describes briefly how the Norwegian Oil-, Light metals- and Chemical industrial conglomerate Norsk Hydro became the industrial owner and commercial arm of the industrialization of these patents. The patents are owned by Sintef, the industrial research arm of The Norwegian University of Science and Technology, NTNU. The patents and the corresponding technology are by Hydro given the brand name SHECCO The introduction of CO2 as a substitute for CFCs, HFCs and other highly polluting substances represents a way of supplying heat pump technology with a refrigerant that does not increase emissions of greenhouse gases; the CO2 is collected from industry and would otherwise be vented to the atmosphere. Further, CO2 represents a drastic reduction in global warming potential compared to for example HFC-134a (used in cars) whose impact is 1300 times that of CO2. One of the lessons learned from the efforts of introducing the technology to a global market, is that a variety of institutional and economic factors represent obstacles to such introduction. It is true that there are technical factors that have to be dealt with, but experience seems to show that the time required for successful introduction is defined by predominantly non-technical factors. As a consequence of these observations, Hydro started a dialog with ProSus (Programme for Research and Documentation for a Sustainable Society),University of Oslo, in 2000 on how social scientists could be involved in cooperation with industrial know how and experience to sort out and systematize relevant factors in the introduction of new, eco-efficient technologies. The overriding goal of the collaboration was to improve planning processes for all institutions involved. This led to the development of the CondEcol Project. The present paper focuses on the Shecco innovation journey and some of the industrial processes and experiences in Norsk Hydro that led to the research cooperation with ProSus.
2
Introduction
When the Montreal Protocol was signed in 1987, Prof. Gustav Lorentzen of NTNU, Trondheim, Norway, believed that natural refrigerants (ammonia, hydro carbons and carbon dioxide) would attract a renewed interest from industry as alternatives to the, at the time, dominant CFC refrigerants. His personal favourite was CO2, in which he had taken a great interest already as a student in the 1930s. Together with his research assistants he designed a transcritical circuit with a novel control concept that was granted a patent in 19891. At the time of the invention and filing of the patent he contacted Norsk Hydro for assistance in the commercialisation of the technology. This paper outlines the key elements and milestones of the march from concept to commerce, and conveys the challenges of making it a success story. The technology will be referred to as “Shecco” throughout the presentation, although this brand name was added later (reg. TM). The introduction of CO2 as a substitute for CFCs, HFCs and other highly polluting substances represents a way of supplying heat pump technology with a refrigerant that does not increase emissions of greenhouse gases; the CO2 is collected from industry and would otherwise be vented to the atmosphere. Further, CO2 represents a drastic reduction in global warming potential compared to for example HFC-134a (used in cars) whose impact is 1300 times that of CO2. One of the lessons learned from the efforts of introducing the technology to a global market, is that a variety of institutional and economic factors represent obstacles to such introduction. It is true that there are technical factors that have to be dealt with, but experience seems to show that the time required for successful introduction is defined by predominantly non-technical factors. As a consequence of these observations, Hydro started a dialog with ProSus (Programme for Research and Documentation for a Sustainable Society),University of Oslo, in 2000 on how social scientists could be involved in cooperation with industrial know how and experience to sort out and systematize relevant factors in the introduction of new, eco-efficient technologies. The overriding goal of the collaboration was to improve planning processes for all institutions involved. This led to the development of the CondEcol Project. The present paper focuses on the Shecco innovation journey and some of the industrial processes and experiences in Norsk Hydro that led to the research cooperation with ProSus.
An industrial organization is in a state of more or less continuous change. To simplify our story we have based the numbers in this presentation on reports for 2002 only. Since Hydro Aluminium, the light-metal branch of Hydro, became the first operational owner of the CO2 related technology, we will go in some more detail into this part of the company. In 2000 the ownership of the CO2 technology within Hydro was transferred to a separate business unit under the name of Shecco. Both the business unit Shecco and the technology by the same name are described in more detail in the following.
1
See section Technology for explanation.
3
Norsk Hydro
Norsk Hydro is organized in three main business areas with a total turnover in 2002 of NOK 163 bn as indicated in fig 1.
Hydro’s business areas
Company total: NOK 163 bn Aluminium Oil & Energy
Agri
NOK 65 bn
The largest European aluminium company and among the top three world wide
NOK 52 bn
The second largest producer of oil and gas on the Norwegian Continental Shelf
NOK 33 bn
The world’s leading supplier of plant nutrients
Figure 1: Norsk Hydro’s business areas and turn over. Hydro does business on a world scale, but with its major operations in Europe. This turned out to be an important asset in the introduction of the Shecco technology. With a network of offices and already well-established business contacts in markets related to air conditioning, it became natural to go global also for Shecco and establishing necessary business contacts would be relatively easy. Hydro has roughly 36000 employees with about half of them in Norway. It has been indicated that Hydro, compared to industrial companies of a similar size, has a highly decentralized organizational structure. Even though the company for the last few years has put a stronger focus on core business areas and a stricter evaluation of initiatives, it is still the case that most initiatives are generated on a broad (low) base in the company hierarchy. As long as the initiative can prove to be “healthy”, it is given a life. Even if Shecco today is not part of the core business of Hydro the decentralized culture is part of the reason why Shecco still is part of Hydro’s business portfolio. Hydro aluminium As fig 1 indicates, the light-metals division, consisting of magnesium and aluminium production, is the biggest business area in Hydro at present. In 2002 the German aluminium company VAW was integrated into Hydro Aluminium. VAW was about the same size as Hydro Aluminium at the time. Hydro Aluminium has had a rapid growth since its start-up in the 1960’s, and is the third largest of integrated aluminium companies in the world today. The Shecco technology was brought into Hydro by initiatives from Hydro Aluminium. This is partly explained by the business structure of Hydro Aluminium; the properties of the material it self; and later on by the R&D philosophy of Hydro Aluminium combined with the overall culture of a company in rapid growth. We will look in closer detail into these aspects of Hydro Aluminium.
4
Business structure Hydro Aluminium is a fully integrated aluminium company. Besides being a major producer of primary aluminium, the company has major interests in downstream activities related to the automotive, building and packaging industry, see figures 2 and 3. A speciality related to the automobile industry is the making of precision tubing which goes into heat exchangers and liquid transport lines. In this market segment Hydro Aluminium Heat Transfer business unit was and is the market leader in North America and Europe. It was this link to the automotive and air conditioning industry that was the starting point for Shecco’s entry into Hydro’s business portfolio.
Alumina*
680
734
Primery metal
1 414
Hydro Long Term Contracts 3rd party Primary Remelt external Remelt own scrap Rolled ** Extrusion & Automotive Cast products 300 925 555
Metal Products
1 414
Downstream
840
564
67
Figure 2: Hydro Aluminium’s value chain
• Castings
– Several casting processes – Focus on powertrain, chassis parts – Aluminium and magnesium components
• Precision Tubing
– Global leader in automotive – Heat exchange competence – World-class development
• Rolled Products
– Strip and sheet applications – Slitting capabilities – Seam-welded tubes
• Structures
– Extrusion-based components
Figure 3: Hydro aluminium Businesses related to the automotive industry
5
Aluminium – Material properties Aluminium has over the last 20 years had a growth in terms of consumption which is stronger than the yearly growth in GDP in most countries. The increasing use of Aluminium in a series of different markets can be observed. This is most dominant in the automotive-, packagingand building sectors, but the same tendency can also be observed in the whole transportation sector, including trains and ships. This is explained to a large extent by the key material properties of Aluminium, such as: • Reduced weight in several structural applications • Corrosion resistance • Conductivity • Easy to form and process • Very good recyclability A consequence of both growth and material properties is that the industry is on a continual look out for new product opportunities. This was also one of the factors that led to the decision on entering into the Shecco technology. This expansive attitude is to a certain degree reflected in Hydro Aluminium’s research philosophy. Research Philosophy Aluminium as a material is in strong competition with steel and plastics. To a certain degree we can say that aluminium substitutes steel while plastics substitute aluminium. There are some differences in “R&D aggressiveness” between the three materials. Plastics come from chemical industry with a traditionally high relative investment in R&D ( 3-5% of turnover). Aluminium, on the other hand, works traditionally more as a commodity industry with R&D investments around 1% of turnover. Steel as a “mature” industry seems to have even lower R&D investments, but has shown ability to establish major pre-competitive R&D efforts on a joint basis that can compensate for this. Hydro Aluminium partly compensated for somewhat low R&D investments by establishing strong links to selected universities. NTNU in Trondheim has been the dominant partner. The fact that Sintef (the industrial research arm of NTNU) came to Hydro with the request that Hydro should commercialize their ”CO2-ideas”, and later on became a working partner in the introduction of the Shecco technology, is part of this picture. In general, the R&D philosophy of Hydro Aluminium is based on: • Strong links to the different business units in the company through defined projects; • Several corporate owned and coordinated research centres; • A limited portfolio of corporate owned activities, mainly to support more basic research activities and projects in the “high risk - high profit” quadrangle. The “CO2-ideas” had a set of characteristics that made them a natural fit into the latter of these points. The “high risk - high profit” projects represent goals that relate to activities outside the core businesses, but could also prove profitable in terms of synergy and spin-off effects. Shecco represented a possible business opportunity and a source of valuable knowledge transferable to the core business area Aluminium. Because of the very high gas pressure (up to 150 bar, 2150 psi), the “CO2-ideas” represented challenges to the design of tubes and heat exchangers, a market Hydro Aluminium was already in.
6
Shecco
In this section we shall 1) briefly present some major steps in the development of the Shecco technology; 2) show how ownership and business interests inside Hydro have changed over time; and 3) indicate the present level of business related to Shecco. As a starting point we present some overall characteristics of the technology2. Technology CO2 as a working fluid has been known since 1870 as a practical solution. CO2 was used by the military and shipping industries as it was neither toxic nor flammable. CO2 disappeared from the market in the 1940s because of technical problems related to leakage. Also, the old systems could not work with variable workload in a closed system of working fluid. The CFCs were developed and introduced in the 1930s for the new market of home fridges. They are very efficient refrigerants, but as we now know they represent negative environmental effects if released into the atmosphere through production, use or recycling for renewed use. The CO2 technology as we see it in Shecco has managed to solve the problem of variable workload in a closed system, and improved technology which reduces leakage has come to the market. Compared to other “new” technologies, it is fair to say that Shecco from a technology-concept point of view does not represent anything dramatically new. The technology challenges of implementing Shecco is related to the high working pressure, and to some extent the differing molecular properties of CO2 compared to F-gases. These challenges have been solved to a degree that allows the technology to be introduced into the market. The technology has a major advantage related to the working temperatures in the process. The CO2 gas reaches a temperature up to 120 C and starts to condensate at 30 C. This means that the process can produce/release water or air at temperatures up to 90 C and still be a very efficient thermodynamic process. In heating applications this is important.
Figure 4: Schematic diagram of the Shecco technology
2
For more detailed information on history and technology please refer to: http://www.shecco.com . (Accessed Aug 18th 2003.)
7
The Shecco technology is schematically shown in fig 4. CO2 is chosen as working fluid on the basis of its low boiling point. Even in cold outdoor air, CO2 can be made to boil and evaporate. The process of evaporation absorbs heat from the surroundings. When liquid CO2 is induced into a heat exchanger and evaporates, the CO2 absorbs heat. The CO2 vapour is then removed by a compressor, which increases the pressure and temperature of the gas. Heat can then be liberated by another heat exchanger in the high pressure side of the circuit. Thereby CO2 has transported heat from one place that needs to be cooled, to another which becomes warm. Depending on the direction of the circulation, the system can be used for either cooling or heating purposes. The process in which CO2 operates is called a transcritical cycle. Transcritical means that the high-side pressure is supercritical. Supercritical means that we are above the pressure under which liquid and vapour can coexist, only gas is present, which implies pressures up to 150 bars. The technology operates with higher pressures, but in principle it is the same technology as CFC and HFC-technology. The high working pressure means that one can work with less volume. As the designs applied to the technology have improved this advantage has been demonstrated. In automotive applications this is important. Tap water heating units applying Shecco technology, which have been introduced to the Japanese market, have already demonstrated the advantage of the high temperature characteristics of the technology. As new automotive propulsion systems based on fuel cells, battery technology and hybrid solutions are brought to the market, a new area for the CO2 based Shecco technology surfaces. These propulsion solutions do not generate enough extra heat to heat the interior of the vehicle. A combined air conditioner and an effective heat pump is needed. This means new opportunities for Shecco. Ownership and business inside Hydro Shecco has had different “homes” in the Hydro organization since it was first presented to Hydro. Briefly, the history goes in the following four phases: • Shecco was presented to Hydro in 1989-1990 and taken on by Hydro Aluminium. A strong scientific link to Sintef was established. The idea was to enter into the business of making air conditioning systems for automobiles. This would be an extension of already ongoing business activites related to the auto industry. After more than two years of work the idea was dropped because of two factors: It turned out to be too costly and the idea represented a conflict with already established markets/customers • Shecco was kept in the Hydro Aluminium organization, but in 1992 “given” to the R&D organization for further development. The research link to Sintef was maintained. The idea was that it could be turned into interesting business opportunities from a licensing point of view and with the added benefit of giving insight into future markets well suited to Hydro Aluminium’s product portfolio. Both perspectives were maintained. • Gradually it became clear that Hydro Aluminium Heat Transfer did not believe the technology as such would add new business. It was even argued that the fact that Hydro Aluminium was working on the development of the Shecco technology was counterproductive to their present markets. • In 2000 Shecco was moved to Hydro Pronova3, the internal venture company of Norsk Hydro, with no close links to Hydro Aluminium. The brand name SHECCO was established, and the new organization was given the mandate of making a profitable
3
http://www.hydropronova.com (Accessed Aug 18th 2003.)
8
business out of licensing and associated technical services related to Shecco technology. The strong link to Sintef is maintained. Seen from the inside, this story in Hydro has been dependent on “champions“ in Norsk Hydro’s top management. This goes both ways. Champions have defended the budgets needed to carry the idea of Shecco forward. But the heat transfer business has also needed their champions to defend their present short term markets from negative responses to new ideas. Shecco also needed to be freed from close association with Hydro Aluminium, because in several Shecco applications aluminium is not considered the material of first choice. To day we see that a balance is reached by an aggressive Shecco organization, positive response from the market and an active development program in Hydro Aluminium to meet future demands related to Shecco technology. The development of Shecco from a business point of view It is interesting to note that while Hydro Aluminium and Sintef from the start focused on the automotive industry, the first commercial application of Shecco technology is found in the production of hot tap water. In hindsight there are good technical reasons for this development due to the very high output temperatures. The fact that this was not “visible” in the initial efforts of introduction relates to the business interests of those involved at the time in Hydro Aluminium. The list of signed contracts to use the Shecco Technology is as follows: • Denso Hot Water, Sept 2000 : – Sales 2003 est.: 40-50 000 units – Denso sublicensing: Sanyo Nov 2002, Daikin July 2003 • Denso Short for Mobile Air Conditioning (MAC), Feb 2002: – 20 Fuel Cell Hybrid Vehicles late 2002 • Alpha, June 2002: – Commercial launch mid 2004 • Beta, July 2002: – Commercial launch mid 2004 • New MAC, 3rd Q 2003 (Note: Alpha and Beta are both “Fortune 500”) The business and development history of Shecco in Hydro is a story not unlike what we have seen in many business cases. We see how business focus may shift, and how different groups inside a big company have different views and different attitudes towards business development. Most of these positions can be related to varying signals given from the respective business environments that the different business units operate towards. It is normally not ill will that is the explanation, though often claimed in a heated debate. When the micro tube business of Hydro Aluminium finds that the involvement in Shecco technology is counterproductive to their daily business it is a reflection of what they observe in their present markets. This points to another important challenge to the introduction of any new technology. As Shecco already has demonstrated the technical implications of introducing new technology into existing markets it has also demonstrated another challenge that has not been dealt with in this presentation; the general opposition or lack of support which may arise in businesses
9
and institutions that become influenced by the new ideas. This opposition relates to factors like: • Threat to existing markets. • A need to maintain present investments until reasonable time for depreciation has passed • A need to be on the safe side when entering into new technology • A general lack of scientific and technical knowledge to evaluate new ideas • For eco-friendly technologies a difference in views about how fast the market will react positively to the possibilities given and how much, if anything, the market is willing to pay for these new opportunities The list can be made longer but demonstrates as it stands that we face a multitude of factors that influence the time needed for an “eco-friendly” technology to reach the market. It is fair to say that we do not know enough about these factors and their inter-relationships to deal with them in a systematic way, neither inside the business communities nor in the interaction between businesses and governments. It is also interesting to observe that these factors are predominantly of a non techno-economic nature. They seem to belong to the social sciences and in the interphase between techno-economic and social factors. Without a more precise and general understanding of these factors, we will lack a basis to improve planning for the introduction of new “eco-friendly” technologies in companies themselves and in society at large. It is this task, based on cases from different businesses, that Hydro supports ProSus, through the CondEcol project, to take on (Lafferty, Marstrander and Ruud, 2003).
Concluding remarks
The history of Shecco in Norsk Hydro is interesting from several points of view. It is in many ways a classical case in terms of how new opportunities can travel through large international corporations. Some of the new opportunities survive, many do not. This is in itself a phenomenon that deserves – and gets – a lot of attention. The specific case of Shecco relates to the fact that it is a technology with a very high potential for improved eco-efficiency compared to conventional technology. The story so far demonstrates that this fact seems to have no measurable argumentative weight or advantage in the marketplace. In that sense the case tells us a lesson; “the eco-efficiency argument can help us to bring a new idea to the market, but by the end of the day it is the techno-economic arguments that decide its destiny”. On the other hand we have to remember that without the Montreal Protocol the whole idea of Shecco would not have come to the surface. Even if we talk about “greening of industry” we can still observe that we are more likely to redesign or use known technology in new ways, rather than come up with radically new technology. The litmus test is our ability to demonstrate the applicability of the technology and transfer it to technical solutions in new “eco-friendly” products. The Shecco case has taught us that a major challenge is to move into mass production, because this demands overcoming the initial high (unit) manufacturing costs. Unfortunately it seems like “ecofriendly” solutions have to be equally or more cost efficient than existing solutions to conquer the market. On the other hand, when “eco-friendly” and cost efficient solutions are introduced to the market, a true win-win situation is created: both environmentally and economically better than previous solutions.
10
The lesson from the case of Shecco that still is to be learned relates to how well we can understand all the non-technical factors, often beyond control of a given company, that strongly influence our ability to introduce “eco-friendly” technical solutions to the market and the society at large.
References
Lafferty, William, Rolf Marstrander and Audun Ruud. 2003. “Exploring the Conditions for Adapting Existing Techno-industrial Processes to Ecological Premises – CondEcol” Paper submitted to the 11th GIN Conference in San Francisco Oct 11th - 15th 2003.
Internet Resources
http://www.hydro.com/en/ http://www.hydropronova.com http://www.shecco.com
11