Cricket has returned to terrestrial tv, which is lovely. England are playing India in what looks like being a fascinating and exciting series – absolutely fantastic to have on while working from home I must admit.
Joe Root has obligingly extended his incredible form, with another sensational hundred in the subcontinent.
His scores read like the minute by minute prices for Gamestop shares – 228, 186, 218.
The man has diamond hands, that’s for sure.
One thing I’ve been meaning to take a look at it how the energy transition looks in emerging markets.
India, for example, is a fascinating case.
A point I’ve made a few times in previous notes is that the energy transition means very different things in different parts of the world.
To many people in the most developed nations, divesting from oil companies is a ‘moral’ or ‘virtuous’ thing to do.
But even if that did have an effect on oil majors’ ability to explore and commercialise new reserves, what would the consequences be?
Less supply, and higher prices.
Who does that hurt the most? The least developed nations, and the most vulnerable people.
Cheap oil is the backbone of economic development. It was for the west and continues to be in many parts of the world.
Given that individuals in the UK or America use fifty or a hundred times more oil than our brothers and sisters in developing nations, denying them the chance to use it to catch up with our high standards of living hardly seems like the best route to a ‘just’ transition.
So if not divestment, how can we invest in the transition?
By investing in the companies which are driving the change. This is especially true post-Covid, as this has been the greatest accelerant of technological change – maybe ever.
Emerging markets face a challenging future regarding energy, but one full of opportunity.
Post-Covid, they are at a bigger disadvantage financially than ever.
We’ve seen huge commitments from Europe and North America on the spending programs for the transition, a build back better philosophy of fuelling growth with green.
New skills, jobs and projects are seen as a way to reboot the economy and put the energy system on a better track too.
Less developed markets have less capital, and possibly more urgent considerations to deal with. They also have higher costs of capital, (higher interest rates if they want to borrow money) for long term projects such as wind and solar.
This makes it harder in general, and is especially true now, in the supposedly ‘post’ Covid recovery. .
However, here are some incredibly cool and exciting things happening. Developing nations have some great opportunities.
Connecting the unconnected is a big theme. Since 2010, more than a billion people have gained access to electricity. As a result, 90 percent of the planet’s population was connected in 2018. Yet 789 million people still live without electricity.
India alone has over a hundred million people who are still not able to access electricity locally.
Sub-Saharan Africa is struggling too, accounting for 70 percent of the total.
In some nations, only 2/3rds of people, or fewer, are connected.
This is because in countries like India, or many African countries, many people live away from traditional grid connection, which is patchy. Many rely on dirty, unreliable things like diesel generations instead.
Distributed solar power is an incredible force for good in such places, offering electricity to those without, or a cheaper and cleaner alternative to those relying on coal or diesel.
You can have a few panels in a village, for light or heat. It’s easily scalable, and doesn’t require continuous input costs (oil). Diesel generators emit nitrogen oxides (NOx), carbon monoxide (CO), dioxide (CO2), carcinogens and particulate matter that are major health threats.
Remember, pollution is responsible for around 10% of premature deaths each year, globally.
Besides air pollution, communities dependent on diesel generators are exposed to diesel price volatility and high operational (repair) and transportation costs.
Pollution in major cities in developing nations’ crowded capital cities is also a big issue.
The electrification of transport is happening slowly there – they can’t afford to subsidise the rollout of EVs in quite the same way as Europe, China and North America.
In Kenya, though, this challenge is balanced out by opportunity. With 93% of energy already produced by renewable sources, a transition to a clean vehicle fleet would be a huge leap forwards, removing a primary source of emissions from the country, and improving the quality of air and life for residents.
Crisis management matters too
Energy storage for vulnerable places is a crucial step forwards that needs to be taken. For example, after natural disasters a distributed system of renewables and energy storage is much, much more effective in rebooting a hard-hit area than a national grid, where infrastructure is damaged and both costly and time-consuming to repair.
Puerto Rico was a tragic example of this, when Hurricane Maria struck in 2016.
Twenty-five percent of the island’s electric transmission towers were severely damaged, as were 40 percent of the 334 substations. Power lines all over the island were downed, including the critical north-south transmission lines that cross the island’s mountainous interior.
It took months to restore power to many parts of the island.
Now, the country has turned to distributed energy to solve its problems. Renewables plus storage offer a much more flexible solution in the face of seasonal natural disasters like hurricanes, and Puerto Rico is charging head-first into the modern world.
What of the resource curse?
Another factor is that some developing nations are also oil producers. The transition is both a threat and an opportunity for them too (I’m sensing a theme here…)
Some would say that the resource curse is a blight on a national economy, causing corruption and inequality, and often violence too.
In the Cantillon Effect, a source of money enriches those closest to it.
It was true in Spain in the 16th century, when they discovered South American gold and flooded Europe with it.
It’s true with central bank money printing, as Jerome Powell and Janet Yellen’s US stock holdings go up while ordinary Americans suffer.
It’s true with oil wells too. It pays to control and own the land, and not to share the wealth.
Saudi Arabia, Venezuela, Iran, Russia… Not exactly renowned for their political stability or just society.
So perhaps a transition to a point where those who control oil no longer control the world could be a good thing, for 95% of citizens in oil-rich nations.
Believers in the resource curse would say that without the blight of plentiful petro-dollars buried underground, society would develop a broader and fairer economy, with many different sectors, services and specialisms.
The energy transition is such a rich vein of opportunity for investors because of its breadth.
It’s not just breadth of technology – from heat pumps to hydrogen, cobalt to cars, but geographical. The opportunities in America are very different from those in Egypt, or Indonesia.
Whether it’s reducing carbon emissions, or replacing them, there are many ways to approach this transition, and it’s happening in a million ways in a million places.
The opportunity is huge, and one man is scouring the globe for the every best ways to invest in it.
James Allen is even now scouring the murky world of online brokers to see which offer the best range of markets, so that he can open up new markets, and tap new opportunities.
With so many routes to net zero, there is opportunity everywhere. Emerging markets offer a great variety of options, many of which are doing an incredible amount of good in those places.
To find out what James’ latest research and recommendations are about…
All the best from me,
Editor, UK Uncensored
James calls it ‘the Masterkey’. It’s the one thing which needs to happen, to ‘unlock’ the next phase of the energy transition boom that we’re seeing at the moment. Without it, everything else will get held back.
He’s found two brilliant companies which are making that happen.