In today’s Exponential Investor

  • Moroccan sunshine
  • Noise from Washington (and Glasgow)
  • James Bond on the silver screen; 10-year US Treasury bond on the trader’s screen

The big story of the week isn’t the frenzied panic buying of a fossil fuel, it’s the agreement to build a long-distance electricity cable (an “interconnector”) between the solar-friendly lands of Morocco and the UK.

So says Michael Liebreich, leading energy analyst and founder of Bloomberg New Energy Finance, a leading research and analytics firm.

So, what are interconnectors?

To be fair, electric vehicle (EV) owners must be loving it right now, watching the carnage and chaos unfold at petrol stations across the country. Around where I live and on the motorway this weekend, fuel stations either had enormous queues or signs that read “NO FUEL”.

Electricity costs are rising too to be fair, but that’s substantially because the Russians are withholding gas supply to Europe to try and force them to sanction the Nord Stream 2 pipeline they’ve built to cut Ukraine out of their lucrative throughput fees.

And the significance of long-distance interconnectors has long been touted by experts from across the energy industry.

Morocco, with its enviable 3,000 hours (depressing, isn’t it) of sunshine each year, can produce solar energy at extraordinarily cheap prices.

We in the UK can also generate a strong mix of solar and wind. Including nuclear, over 40% of our annual electricity comes from renewable sources now, up from just 10% as recently as 2012.

So, it’s not to say that we can’t generate our own.

However, there are multiple advantages to long-range interconnectors.

First is cost. It is so much cheaper to produce in Morocco because of its superb conditions that it’s still economically viable to generate it there and transport.

The other long-range interconnector project of this size is between Australia and Singapore. Built by Ocean Sun, it will take Australian solar power 4,200km to power Singapore’s bright lights.

The incredible low cost of solar in such places makes such a system economically viable for the first time.

The second factor, at least in the UK, is diversification of supply.

True – the sun doesn’t always shine. So, we need to find ways to make our increasingly solar-powered grid reliable. One way is batteries. Another is sourcing it from multiple places.

It might not be sunny in the UK – as I write, in fact, it’s pretty miserable. In Morocco, it’s going to be 25 degrees and sunny all week.

So by having some solar coming from there increases our reliability.

Given the soaring gas prices and chronic fuel shortages, a bit of renewable resilience is exactly what should all be demanding right now.

After a very reasonable pullback from the unbelievable heights reached last year, green energy and clean technology stocks could benefit from a couple of months of favourable coverage and meaningful commitments.

But it’s not just as simple as buying up solar and wind companies.

Two reasons why the Green Energy Transition will be in the spotlight in coming weeks

US President Joe Biden’s Green New Deal and the COP26 summit in Glasgow are about to come in quick succession. Off the back of a gas price spike and a road fuel shortage, the direction of travel for global energy systems should be clear.

As China agrees to stop financing or building any new coal plants abroad, there is suddenly a real possibility that all new coal could be off the table by the time our leaders get together in Glasgow.

Meanwhile in the United States, President Biden’s multi-trillion-dollar stimulus bill could pass in the coming week. This huge amount of money involved (estimated at $3.5 trillion by some) will go a long way towards funding his ambition for the Green Energy Transition.

This will likely involve:

  • Fleets of electric school buses and postal delivery vans
  • Hundreds of thousands of EV chargers
  • A veritable wave of new renewable plants – both wind and solar
  • Investment in new and exciting technologies
  • Building a powerful, local supply chain for the key ingredient of the fight against climate change – batteries.

I myself am intrigued to see what commitments, pledges and agreements are made before COP begins in a month’s time.

It will be a mad frenzy of activity, with protagonists going over joint statements, trying to find common ground to reach international agreements, and trying to agree which technologies to promote. I expect a flurry of announcements and headlines in the weeks to come.

Who benefits?

It’s not as simple as buying solar and wind companies though. Firstly, there are hundreds of variations within that.

There are plant operators, owners, financers, and builders. There are panel, cell, and turbine manufacturers, polysilicon and balsa wood suppliers, specialist installation companies, data and efficiency players, cable makers, R&D companies, commodity suppliers, utilities, investment companies, and plenty more aside … and companies of every size and in every country too.

It’s also incredibly fast-moving, and the many trends and paths the transition could follow aren’t entirely clear yet.

That’s why so many people have turned to the expertise of James Allen, editor of Exponential Energy Fortunes, to help them identify the key trends within the energy transition, and the companies most likely to capitalise.  

If you want to join him, and them, on an incredible investing journey…

Then click here, now.

James Bond and the Treasury Bond

On a separate subject, and in a sign of the pandemic easing, the latest James Bond film (No Time To Die) is coming to cinemas in early October.

Having been delayed as we entered lockdowns for the first time last year, it is as symbolic as it is exciting (very).

In another sign that the pandemic is fading in people’s minds, the yield on the 10-year US Treasury bond is rising again. (Put another way, the price of the bond is falling.)

Currently the yield has returned to 1.5%. In the very great scheme of things, this may not sound like much. However, the fact that the yield is pushing towards post-pandemic highs is causing some concern among equity investors.

The sectors which did well last winter, as yields rose past 1.5% the first time since late June, were “cyclical” in nature – as in they benefit from economic recoveries. These were sectors like banks, construction companies, some consumer companies and real estate. Meanwhile, the lockdown winners of tech and software companies did well.

The former have been long ignored and trade on relatively cheap valuations, so they are bundled into what’s known as the “value” group of stocks. The lockdown winners were all tech and “growth” stocks.

This time, yields are rising but without the associated rotation from “growth” into “value”, which is interesting.

Perhaps there will be a delayed reaction. With traditional value sectors trading near multi-decade lows relative to growth, that might just present a fantastic opportunity to reorientate your portfolio towards tomorrow’s winners.

And let’s not forget that the Evergrande saga is rolling on. The company is cancelling stock market listings, missing debt payments and stopping staff payments.

I wrote last week that people were wrong to blame it for Monday’s steep decline in global stock markets. Nevertheless, Evergrande will feature in headlines for some time to come.

All the best,

Kit Winder
Co-editor, Exponential Investor