The most important investment trend in a generation – and why most people will miss the boat on it

Yesterday I talked about the nature of exponential growth and why it takes almost everyone by surprise.

As I said yesterday this kind of exponential growth is happening in three key areas:

  • Renewable energy
  • The electric car market
  • The enabling technologies behind both of these industries.

Let’s start with renewable energy.

Coal-free days are the new normal

Over the last couple of years the UK, a familiar news story has popped up time and again.

First, it was Britain has gone 24 hours without coal. Then a few months later, it was a couple of days. Then four days. And now, as of Wednesday, the UK has had its first coal-free week since 1882.

As the Guardian points out, this comes only two years after Britain’s first coal-free day since the Industrial Revolution.

From Wired:

At around 2PM on May 1, the UK stopped burning coal to generate power. It smashed the previous record of 90 hours, set in April, during the long weekend, and at around 2PM on Wednesday, May 8, the country will reach the landmark of seven days without using coal.

A longer than usual spell of sunny and windy weather has played a part, but this is the fruit of a long-term plan to edge the UK away from goal, and towards renewables and natural gas. “As more and more renewables come onto our energy system, coal-free runs like this are going to increasingly seem like the ‘new normal,’ says Julian Leslie, head of national control at National Grid Electricity System Operator (NGESO). “We believe that by 2025 we will be able to fully operate Great Britain’s electricity system with zero carbon.”

As you can see from that excerpt, the National Grid says coal-free runs like this will soon become the new normal.

This energy didn’t all come from renewables, but the percentage that did is ever increasing.

Wind provided 35% of the UK’s electricity over the weekend, with solar accounting for 21%. So that’s over half coming from renewable sources.

Gas still plays a big part when the wind drops and the sun isn’t shining though. But even that is changing.

Again from Wired:

“The pace of change is phenomenal,” says Leslie. “We’ve proven we can run without coal, and now we need to do the same for gas.” It’s difficult, but it will be worth it. “The transformation of how we get the energy to heat our homes and power our work is a massive change, but the advantages it brings in terms of green energy far outweigh any challenges.”

This growth in renewables is the exact kind of exponential growth I was talking about yesterday. It has been happening slowly at first, but very soon renewable energy will simply become the new normal.

The key thing here, though, is this isn’t just happening in the UK. It’s happening all over the world. You can think of the UK as a microcosm of what’s happening everywhere.

Even the oil nations are (reluctantly) embracing renewable energy

For instance, in February I reported on how California, the world’s fifth largest economy, is now committed to going 100% renewable.

From my invisible resources piece:

In September 2018, California committed to going 100% clean electricity by 2045.

California may not be a country, but it might as well be. It is the world’s fifth largest economy by GDP.

That makes it a bigger economy than the UK, India, France, Brazil, Canada, South Korea and Russia.

Only the US itself, China, Japan and Germany are bigger by GDP.

So this bill has worldwide significance.

And it has also led a number of other US states to follow suit.

From the LA Times in January:

It’s been less than four months since California committed to getting all of its electricity from climate-friendly sources by 2045. But the idea is already catching on in other states.

At least nine governors taking their oaths of office this month, from Nevada to Michigan to New York, campaigned on 100% clean energy, or have endorsed the target since it was enshrined in California law. The District of Columbia also set a 100% clean energy goal last month. So did Xcel Energy, a Minneapolis-based utility that serves 3.6 million electricity customers across eight Western and Midwestern states.

And you can tell that this worldwide embracing of renewable energy is more than just a flash in the pan, because even the oil nations are adapting – or at least trying to.

My colleague Kit Winder, a research analyst here at Southbank Investment Research, wrote about this phenomenon in Wednesday’s Southbank Investment Daily.

Southbank Investment Daily is only available to paid subscribers, but Kit has okayed me quoting it here:

There are lots of sources of power dancing to the tune of the global economy these days. Wind, solar, oil, coal, gas, biomass, nuclear, hydro… In the game musical chairs, every time the music stops, there is one less chair.

In the energy world, I know who I think the next few losers are going to be.

The reason Saudi Arabia, and all major oil producers, are panicking is because the end is nigh. Yes, fossil fuels are finite, yes, they are a pollutant – that was always going to happen. Their policy on reducing its fossil fuel revenue dependence is “better late than never”.

But the rapid rise of renewables in recent years has forced their hand.

Look, I’m sure Saudis have plenty of oil to guarantee their future incomes if else remained equal. But it won’t remain equal

I always come back to two key things with renewable energy.

The Stone Age didn’t end because we ran out of stone. It was because a new technology came along that was better. In that case bronze and iron. In this one, clean energy.

Renewables are infinite and equal. Everyone has something – solar, wind, hydro. Nuclear and biomass are options too.

But they’re not waiting for oil to run out. They’re overtaking it.

Saudi Arabia has, of late, been trying to change its brutal image and make the world see it as a vibrant, happening, futuristic place that’s embracing the future. But the world isn’t biting.

It’s becoming increasingly clear that that as soon as companies and nations can stop relying on Saudi Arabia and other oil nations for their oil, they will cut them off completely.

And it’s not just for ethical or environmental reason. It’s also, and probably mainly, for economic ones.

As I said in my invisible resources piece:

Remember, oil nations control the supply and price of oil.

When they want to make a statement, they mess with that price.

When they want more money, they mess with that price.

When other countries take them to task on their genocidal wars and human rights abuses, they mess with that price.

When they want… well, anything… they mess with that price.

For a company like Google that has absolutely colossal energy needs, it really makes sense to protect itself from the whims of these countries.

And, like I said, it’s not just Google that’s going renewable.

Amazon and Facebook have both set the goal of being powered by 100% renewable energy, too.

So, as you can see there are a number of factors at play when it comes to the exponential growth of renewable energy.

VW “not playing”, launches the electric “car to beat for the future” – this generation’s Beetle

But what about electric cars?

We read a lot about Tesla an its fantastic, yet extremely expensive cars. Tesla is the company that has put electric cars on the map.

Before Tesla when you thought of an electric car you probably thought of something more like a golf buggy. Tesla showed us that electric cars could be every bit as good as petrol and diesel ones.

But Teslas aren’t, and probably never will be, mainstream. What consumers are waiting for is an electric car that’s as cheap to buy as their current petrol on, but that also runs just as well.

Remember, as I said on Wednesday, once you get over the initial outlay for an electric car, they are much, much cheaper to run.

Electric cars cost around 3p per mile, compared to diesel’s 9.1p per mile and petrol’s 12p per mile.

You’d literally be cutting your fuel costs by 75% compared with a petrol car.

Now, we have reached a tipping point where traditional car makers are moving into electric. And Wednesday saw possibly the most important announcement… well, ever in this field.

VW is making an electric car that it hopes will become the spiritual successor to the VW Beetle.

It will be priced the same as a diesel Golf, and have a 230 mile range.

More than 10,000 people have placed a pre-order for one within 24 hours of VW’s announcement, at £750 deposit a pop. The cars themselves are expected to reach buyers next summer.

From Bloomberg:

“We are not playing,” VW sales chief Juergen Stackmann said at an event in Berlin launching the reservation program. “This is the car to beat for the future, for all our competitors.”

The ID.3 anchors the rollout of more than 20 battery-powered models in coming years with a goal of selling more than 1 million electric cars annually by 2025. The ambitious effort is set to stoke competition in a segment where automakers struggle to generate returns and is mainly driven by tighter pollution regulations. Stackmann said that its electric cars “must make money.”

While some consumers have shown interest in the vehicles — which generally cost more but have less range than combustion models — electric cars haven’t broken through on the mass market.

As you can see in the above excerpt, electric cars still haven’t broken through to the mainstream. But it’s milestones like this that will make them viable alternatives to our current fossil fuel crop.

And it’s not just VW. All major manufactures are releasing electric cars for the mainstream.

The electric car’s “model T” is likely already in production. It could very well turn out to be this release from VW.

Just as with renewable energy generation, electric cars are growing for a number of reasons.

They have environmental benefits, and also cost benefits for customers. You get to save money and feel good about saving the planet, too. What’s not to like?

Here’s the hidden technology behind all these developments, and the key to their survival

But neither of these areas would be able to flourish without parallel growth in their enabling technologies.

Without a good network of charging stations and good batteries, electric cars would be useless.

Without good energy storage solutions, renewable energy would only be useful when the sun was shining or the wind was blowing.

The enabling technology doesn’t grab the headlines, but it’s usually where the most money is to be made by investors.

To show you just how important this enabling technology is, here’s a story from South Australia.

In 2017 Elon Musk bet he could build a 100 megawatt power pack to store the electricity a wind farm was generating in less than 100 days.

He had it finished in 45 days, at a total cost of $66 million.

Sounds pretty expensive, right? But the thing is, that ability to store the wind farm’s power is saving it a whole lot of money.

It saved the farm $40 million in its first year alone. So within 18 months of being built that power pack will have paid for itself.

Even as few as five years ago, something like that would have been thought impossible. But progress in these enabling technologies has also been increasing exponentially.

How to invest in these three exponential growth areas

I hope by now you can see just how powerful the growth in these areas is.

As I said yesterday, the rate they are growing will take most people. Most investors even, by surprise.

But hopefully not you.

This story is such an important one that my colleague Eoin Treacy has dedicated a massive number of hours into researching the best way to play it from an investment perspective.

And later today, he’s going to share that research with you.

If you have any interest in investing in this area, you need to see what Eoin has to say. So look out for his email at 1pm.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Energy

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