Why you need to give the energy transition your full attention, now more than ever

“Green” stocks have performed outrageously well in the last 18 months.

James just sold another stock in his Exponential Energy Fortunes portfolio for a 700% gain.

And Dominic Frisby calls a bubble “a bull market in which you are not invested”.

It’s my favourite definition of all time – and it’s true about me calling the FAANGs a bubble that’s for sure.

But are green stocks really in a bubble?

The most objectionable part of people calling green stocks a bubble is what they mean by “green”.

I’m not quite sure how they’ve managed it, but many people seem to have lumped all that green crap into one neat box which can then be thrown away. This is to avoid having to actually look into what’s going on, and why.

Because “green” is a helpful label in some ways, but very unhelpful if you believe it conveys any sense of uniformity within that category.

Within our own Exponential Energy Fortunes portfolio, the variety is incredible.

We have multiple “value stocks”, which were bought with single-digit price-to-earnings ratios.

We have technology companies, R&D, growth companies (in some corners of the market, technology and growth can still be separated), as well as manufacturers, retailers, licensers and more.

There’s renewable energy like solar and wind, and energy storage for national grids, cars, and tiny devices. There are companies owning solar plants operating utilities, and companies trying to bring light to the villages of Africa using self-charging streetlights.

Within the hydrogen sector we have refuellers, automotive companies, producers and innovators.

Electric vehicles might be the new VW Golf i3, it might be a couple hundred thousand delivery trucks for a global retailer or delivery company, or it might be a tiny company making a component for accelerating the charging process or improving electric motor efficiency.

We’ve got robotics and AI, but also… wood – a company that is revolutionising the use of wood in the construction industry.

Within that, it covers markets in every continent and pretty much every country. Some companies are purely focused on emerging markets, some on developed ones. Some target institutions, some are after homeowners. Some still need government support, or subsidies, but some have been operating off their own back for years already.

Our oldest companies having been honing their business models, technologies and products for decades, but some only discovered their core offering in the last few years.

In market capitalisation, the range goes from $7.6 million to $4 billion.

But most importantly, most crucially of all…

While plenty of stocks have gone up loads, others haven’t. Some have made it on to the front pages of the Financial Times, and some sectors haven’t been heard of by more than a handful of people.

Everyone knows about solar, wind, and electric vehicles.

But firstly, in many places or sectors, these things have hardly broken through at all – but we know they will.

Meanwhile, where those markets have already matured and developed, there are incredible things coming through behind them, and to find out where James and I are looking now you’ll just have to subscribe to be honest.

But the point is this.

Dumping everything green into one basket and labelling anyone who invests in it a basket case, is lazy, and could prove very costly.

Whatever pre-conceptions you may have about these things (solar and wind are just expensive luxuries/we can’t grow the economy and fight climate change/electric vehicles have been promised for years and not appeared) are now wrong, I’m afraid to say. The picture has changed.

If you own and run a coal plant now, it would be more economical over the next ten years to blow it up, and rebuild a solar plant.

Yes, it takes up more space, but land is not nearly as much of an issue as people think.

Solar is the cheapest electricity the world has ever seen, as of this year. The International Energy Agency (IEA) expects renewables to meet 80% of electricity demand growth up to 2030. Currently, renewables generate only one tenth of all electricity in the world.

Conservative estimates have renewables down to produce half of all electricity by 2050, in a world that is using much more.

And is this all going to cost more and be a burden on growth? Not one bit. The US is not even leading the charge on renewables, but it has successfully decoupled its own economic growth from its contribution to climate change.

Source: InsideClimate News

The US is still the biggest emitter, if you amalgamate per capita and total stats (China is top in nominal terms but around 70th in per capita terms).

So that’s not to say well done them, only to show that the argument that greenies want us to have less, use less, or build less to save the world is just not true.

Hell – the Nobel prize for economics in 2018 went to climate scientists William Nordhaus and Paul Romer, who showed that fighting climate change and economic growth can be done compatibly.

But back to the question: is green investing in a bubble?

Answer number one was: it’s stupid to lob it all in the same bucket – there so much diversity and so yes, some stocks have gone parabolic, but there’s so much there that hasn’t, at least not yet.

It would be like saying – all stocks are in a bubble! When, clearly, they are not, it’s mainly just the ten Nasdaq stocks which make up 60% of the whole index.

Answer number two is: also no, funnily enough.

But this time it’s because there is real reasoning behind what’s going on. Now especially.

Stimulus is being launched at the sector in an unprecedented way.

Renewable sources of energy are the number one beneficiaries of post-Covid-19 stimulus, in terms of size of the stimulus compared to the size of the sector.

Fatih Birol, head of the IEA

In March, the head of the IEA Fatih Birol said, “Large-scale investment to boost the development, deployment and integration of clean energy technologies should be a central part of governments’ plans [to revive their economies] because it will bring the twin benefits of stimulating economies and accelerating clean energy transitions.”

This has now happened.

Governments across the world have selected the energy transition as the best way to encourage job creation, GDP growth, and social improvement in the wake of the pandemic.

Joe Biden’s $2 trillion leads the way, but in every country across Europe and the world, fiscal stimulus is focusing on new energy infrastructure and technology.

China has finally committed to net zero, by 2060. Boris Johnson wants us to be the Saudi Arabia of wind. Spain, France and Germany lead the way for hydrogen, pledging nearly €10 billion each.

Calls for a “green recovery” have been supported by a chorus of voices, from the Pope to the head of the UN and the presidents of Germany, Austria and Switzerland, among many others.

In the UK, nearly 200 major firms called for a green economic recovery, as well as corporate bailouts made conditional on the country’s net-zero emissions goal.

The IEA estimates that each dollar invested in solar PV as part of the Covid-19 economic recovery will create twice as many jobs as a dollar invested in coal or gas.

And it’s a truly global phenomenon:

  • South Korea, France and Italy have increased rooftop solar PV subsidies
  • Nigeria’s Covid-19 stimulus plan allocates around $620 million for a programme to install solar home systems for 5 million households
  • Colombia just announced a new economic recovery plan that will spend $4 billion on renewable energy and energy transmission projects, including nine wind, five solar, three geothermal and one hydropower project
  • Morocco plans to adopt legislation that will incentivise green investment in renewable energy while also creating jobs.

This is a powerful, multi-decade trend and the total market cap of all that green crap is probably less than the size of Apple, Amazon or any of those guys.

The social media revolution has happened.

The energy transition has only just begun.

Stocks are soaring, some are way beyond reasonable prices.

But to say clean energy investing is in a bubble is thoughtless, and may cost you a fair bit of money in the months, years and decades to come.

Best,

Kit Winder
Editor, UK Uncensored

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