Energy is the biggest industry on the planet. And right now, it’s going through its biggest change in living memory.
It may sound hyperbolic to say this change will affect the lives of everyone alive today. But the fact is, it will. And it’s also going to make clued-up investors a lot of money in the process.
This is about more than just the shift away from fossil fuels and towards renewables. It’s creating a whole new paradigm. As you’ll see, with the rise of new technologies like micro grids, the way we create, consume and pay for energy will never be the same again.
In this special report, you’ll discover why fossil fuels are on the way out, what’s replacing them and how it’s happening so fast. But more than that, I’ll show you why it’s not just the way we generate energy that’s changing, but the whole ecosystem surrounding it.
We’ll cover micro grids, biofuels, solar roofs, and storage walls. And even a few of the more out there ideas like the “artificial star” reactor.
This sea change is creating huge investment opportunities. And in this report, I’ll not only tell you about them, but I’ll show you where to invest in them, too. I’ll give you my top six energy stocks for 2018.
But first, let’s take a step back and get our bearings in the new energy landscape.
What are fossil fuels?
Most non-renewable energy is made from fossil fuels.
These are simply any fuel that is created from the fossilised remains of plants and animals. Oil, coal and natural gas are the three most common fossil fuels.
The advantages of fossil fuels is that they are very abundant and very easy to extract energy from.
For most of human history they were also the cheapest means of creating energy. But as you’ll see in this report, that is starting to change.
The main disadvantages of fossil fuels is that they are running out. It takes millions of years for dead plants and animals to change into fossil fuels.
That’s why energy sources such as solar and wind are called renewables. Because they don’t get used up when you use them for energy. We won’t run out of solar and wind power for billions of years.
Another major disadvantage of fossil fuels, as you’re no doubt aware, is they cause huge amounts of pollution.
Are fossil fuels really on the way out?
Big changes always seem impossible before they happen and obvious in hindsight. The transition away from fossil fuels, even a few years ago, seemed ludicrous.
How could renewables possibly compete? They were far too expensive and far too inefficient.
But as technology advanced, the impossible became the inevitable. As renewables became cheaper and more efficient at an astonishing rate, we reached a tipping point. In 2016, renewables became cheaper than coal in many parts of the world.
As Bloomberg New Energy Finance reported in December 2016 (emphasis mine):
This year has seen a remarkable run for solar power… It started with a contract in January to produce electricity for $64 per megawatt-hour in India; then a deal in August pegging $29.10 per megawatt hour in Chile. That’s record-cheap electricity—roughly half the price of competing coal power.
It’s worth going over the above quote again, because it is major. The price of energy generation from solar dropped by over 50% in 2016. In many parts of the world solar power is now half the price of coal power.
And it’s not just price that’s driving demand. Price is a huge factor, but countries installing renewables are also taking step towards self-sufficiency. They no longer have to rely on the whims of the oil-producing nations for their energy needs.
The question has now switched from why would use renewables, to why wouldn’t you?
The world’s biggest fossil fuel nations now prefer clean energy
Now, even the most fossil-fuel heavy economies are adapting to this new paradigm.
In May 2017, India cancelled its plans to build 14 gigawatts of coal-fired power stations and instead opted for solar.
Why? Well, solar power is now cheaper than coal power in India.
“For the first time solar is cheaper than coal in India and the implications this has for transforming global energy markets is profound.”
– Tim Buckley, director of Energy Finance Studies, Australasia
And China, the world’s biggest energy market, cancelled 100 coal power projects in 2017 in favour of renewable alternatives.
China is now the world’s biggest clean energy investor. It will spend 2.5tn yuan (£292bn) on renewable energy projects by 2021.
Even Saudi Arabia is on board. A country whose entire economy is founded on oil wealth.
By 2023 it aims to developing almost 10 GW of renewable energy. This will replace the equivalent of 80,000 barrels of oil a day. And it’s investing between $30bn and $50bn into the initiative.
And let’s not forget about the good ol’ US of A. As the Guardian reported in January 2016:
Last year, the US solar industry grew by 20% for a third year in a row, according to the foundation’s National Solar Job Census 2015. By the end of 2015, it employed nearly 209,000 solar workers, more than those employed in oil and gas extraction.
Closer to home, Ireland plans to be the first country in the world to completely cut ties with fossil fuels. In January 2017 Ireland’s parliament passed a bill to stop investing public money in fossil fuels.
And the UK is on track with its programme to close all its coal power plants by 2025 . In the first six months of 2017, coal only supplied 2% of the UK’s electricity. That’s down from 40% just five years ago.
You can see the coal’s dramatic decline, and the rise of renewables in this chart by Ofgem.
Right now renewables account for 27% of the UK’s power generation. And that number is increasing rapidly.
But what about “new” fossil fuels like shale oil and gas?
Although shale oil and shale gas may seem new, the end product is still just traditional oil and gas.
The “new” part is where this oil and gas is coming from. Traditional drilling goes straight down. Horizontal, or directional, drilling lets producers get to oil and gas in previously impossible places.
For instance, under a town, as you can see in the illustration below.
Fracking is another way of getting oil and gas out of difficult places. Shale oil and gas is oil and gas that’s trapped in shale rock.
To extract it, the rock has to be “fractured” with high pressure water and chemicals in order to release the oil and gas.
This process is much more expensive than simply tapping a well in the traditional way. But in the last few years prices have dropped significantly. So much so that fracking is now competing against more traditional drilling.
This has led to a huge amount of press coverage over the last few years about “the fracking revolution”.
Especially in the UK, it seemed like fracking could be the answer to cheap energy. But fracked oil and gas still has all the negatives environmental impact that comes with oil and gas.
In fact, many people argue it’s even more damaging. It uses massive amounts of water, and can cause mini-earthquakes. People also worry about the chemicals used in the process seeping into our groundwater supplies, which has happened on multiple occasions.
Even more than that. It’s still a fossil fuel. It relies on thousands of years of decompositi0n. When you drill it, you’re literally draining a reserve. And that reserve will run out one day. It’s not sustainable.
The main advantage of renewables… is that they are renewable
The advantage renewables have always had over fossil fuels was that they are, well, renewable.
Once they are set up, so long as they are maintained, they can keep producing energy forever. The wind isn’t going to just run out. The sun won’t stop shining for billions of years. And the tides will keep rising and falling as long as we still have a moon.
Clean energy, green energy, renewable energy… call it what you like. It’s always had this same advantage over fossil fuels.
Countries installing renewables are also taking step towards self-sufficiency. They no longer have to rely on the whims of the oil-producing nations for their energy needs.
Plus, they get to look good in the eyes of the world for making the shift towards clean power and away from pollution, which is becoming a bigger and bigger issue around the world.
Where renewables always lost out, was on price. Until now. As we’ve seen, renewables are now cheaper than fossil fuels in many parts of the world.
People always default to the easiest and cheapest option. That is now renewables. And they are getting cheaper and easier to use all the time. In 2017 the price of solar power dropped by another 26%.
And it’s not just power generation, it’s fuel too
So far we’ve only talked about power generation. But we are also seeing a shift in energy used for fuel too.
Transport is a massive market for oil. But that’s all starting to change. In July 2017, a major report by ING Group forecasted that 100% of new cars in sold in Europe will be electric by 2035.
And it’s not just cars. The Tesla truck was announced to great fanfare in November 2017.
Delivery companies, in particular, latched on to the idea of the huge cost savings they could make over time by using electric trucks. And between its two versions – $150,000 300-mile range truck and a bigger $180,000 500-mile range one – it had over 200 orders in within two weeks. Good news for Elon Musk’s net worth.
Even the shipping industry is embracing electric.
In 2017 Sweden converted two of its massive ferries from diesel to electric. They are 238 meters long and weigh 8,414 tonnes. And they carry 7.4 million passengers and 1.9 million vehicles every year.
And towards the end of 2017 China launched an electric cargo ship, with a carrying capacity of 1,000 tonnes. Ironically this ship is used to carry coal up the Pearl River.
Electric is fast becoming the fuel of choice when it comes to transport, in all industries.
The main reason, is just as with power generation, these new technologies are becoming cheaper than their fossil fuel alternatives.
But wasn’t hydrogen supposed to be the fuel of the future?
Remember a few years ago when we heard all about super-efficient hydrogen fuel cells that just give off water… Wasn’t it supposed to be the new “green fuel” of the future?
Yeah, what happened to that? They switched to electric, too.
As Electrek reported in 2016:
For most people, the physics of fuel cell vehicles make little sense compared to battery-powered vehicles. In most cases, a battery-powered vehicle is almost 3 times more efficient.
The only real advantage fuel cells *currently* have over batteries is refuelling speed which is quickly being closed by Tesla’s Supercharger and other DC fast charging technology.
The transition isn’t all bad for fuel cell automobile manufacturers. The work they’ve done and the vehicles they’ve created are still essentially electric cars but with a different (and inferior) storage and fuelling system. That means switching to battery EVs will be much easier than starting from scratch.
And since then, electric vehicles have gotten even more efficient and faster to refuel. Honda now says its electric cars will charge in just 15 minutes by 2022.
What about biofuels?
We’ve covered the countries, but what about the companies? Well, the world’s oil majors are betting on renewables and alternative fuels too.
ExxonMobil alone is working on hundreds of green energy projects, particularly in biofuels.
What are biofuels?
These are fuels produced from non-fossilised plant material. Where we have to wait millions of years to turn plants into diesel, we can turn plants into biodiesel in a matter of weeks.
So biofuels are renewable because we simply grow a new crop to harvest and make into new fuel when the last batch is used up.
However, biofuels still produce pollutants when burnt for energy. So they are not as good for the environment as wind, solar and hydroelectric power.
As Bloomberg reported in November 2017, biofuel projects ExxonMobil is working on include:
• Algae biofuels: Exxon is planning to harvest algae in ponds or oceans around the world and process it into a biofuel for regional distribution. Swarup expects that it will first be blended with diesel and jet fuel, but the goal is to eventually sell a 100 percent algae-derived fuel.
• Biodiesel made from agricultural waste. The company is working with Renewable Energy Group Inc. to use microbes to convert inedible crop residue like corn husks into biofuels. The two companies began their collaboration in 2016 and recently extended their joint research program.
• Carbonate fuel cells: Most fuel cells generate electricity by reacting chemically with natural gas or hydrogen. These ones use carbon dioxide. Exxon and FuelCell Energy Inc. are researching how the devices can be used in carbon capture and storage and to generate electricity at the same time. It’s building a pilot plant within a few months and is working on the engineering of the facility now.
• Process intensification: Exxon is working with Georgia Institute of Technology to develop a more efficient way of refining crude oil into plastic. It involves using a membrane and osmosis rather than heat. Exxon is targeting carbon dioxide emission reductions by as much as half with the process.
But it’s not just ExxonMobil. All the oil majors are investing heavily into clean energy.
Total is setting itself up as a solar energy powerhouse after buying solar module maker SunPower for $2.3bn and battery maker Saft for $1.1bn.
And Shell, Europe’s biggest oil giant, created a $1.7bn new division in 2016 to invest in renewable and low-carbon power. It has since set itself up as a world-leader in wind farms.
So with all this money and research flowing into renewables, where are the biggest developments happening? Let’s take a look.
Could all new houses soon have solar roofs?
Even in the sun-starved UK, we are starting to see more and more buildings with solar panels on their roofs. They are easy to spot. Solar panels are very distinctive. At least they have been till now.
In May 2017 Tesla started taking orders for its solar roof panels. It sold out within weeks . Why? Because these are a new generation of solar panels that actually look like normal roof tiles.
The actual solar cells are made by Panasonic, and then Tesla integrates them into the tempered-glass tiles above.
Aside from the obvious aesthetic advantage they have over traditional solar panels, they are also more durable and lighter than ordinary roof tiles.
They are more expensive though, wish Tesla stating the “typical homeowner can expect to pay $21.85 per square foot for a Solar Roof.” However, they come with a lifetime warranty and 30 years of power generation guaranteed. So according to Tesla they will work out cheaper than traditional roofs.
That remains to be seen, but if Tesla is right, this could be an absolute resolution in house-building practices. Why wouldn’t you opt for a full solar roof if it’s cheaper, longer lasting and looks just as good as a traditional one?
Tree-shaped wind turbines, coming to a city near you
The amount of energy we generate from wind power, like most renewables, is on an exponential curve.
As you can see in the chart below, it’s up over 550% in the last decade.
The main problem with wind power is the turbines are huge, unsightly and very loud. This is fine for the likes of offshore wind farms. But in places where there are people, they can draw opposition.
One company, New Wind has solved this problem with its tree-shaped turbines. These turbines don’t produce as much power as a traditional design, but they look and sound a whole lot better.
The idea is these tree-shaped turbines can be used in urban areas, even as a home wind turbine in your backyard, where they won’t look too out of place. And it’s not just a far-fetched idea. There are already plans to install them in the Place de la Concorde in Paris.
These futuristic turbines cost £23,500 each and will apparently be profitable after a year of wind speeds averaging 7.8 mph.
However, if you want to really generate a whole lot of electricity, there’s one technology that could – in theory – solve the entire planet’s energy needs.
Could the spherical sun generator solve all our energy needs?
It’s the technology that’s been “a decade away” for the last half century. It’s also the one that could change the course of human history.
The special sun generator, or artificial star, is a form of nuclear energy. Unlike our current nuclear plants, which are based on nuclear fission, the spherical sun generator uses nuclear fusion.
In the most basic terms:
Nuclear fission is the splitting of one atom into two, creating large amounts of energy.
Nuclear fusion is the combining of two atoms into one, creating vast amounts of energy – orders of magnitude more than nuclear fission.
It’s called an artificial star, or spherical sun generator because nuclear fusion is the process that gives our sun and other stars their energy.
Nuclear fusion is literally harnessing one of the most powerful forces in the universe. And doing that is just as difficult as it sounds.
It took just three years between the first nuclear fission detonation in 1945 and the first nuclear power plant coming online.
Whereas it’s been over 60 years since the first nuclear fusion detonation in 1952, and there’s no sign yet of a nuclear fusion power plant.
But there is one being built, right now in the south of France.
The International Thermonuclear Experimental Reactor (ITER) has been in production since 1985 and is set to turn on in 2025. It’s estimated to have cost $18 billion so far, but it’s difficult to find the actual figure.
This is one of the biggest international projects ever conceived. It has support from Europe, the UK, Russia, the US, South Korea, China India and Japan.
Could it solve all our future energy needs? In theory. But in reality we are still some years off that yet.
Dr Michel Laberge, a leading Canadian physicist, sums up the situation well:
“Fusion right now is somewhat like airplanes right before the Wright Brothers flew for the first time. Once someone shows how it can be done, excitement will go up and then investment will pour in, but right now there is not much excitement in fusion.”
Once we have the energy, how will we store it?
The final piece of the puzzle is storage and transport.
There has been a lot written about microgrids and nanogrids in the last few years.
If you’re not familiar with the terms:
A microgrid is a local energy grid with control capability, which means it can disconnect from the traditional grid and operate autonomously.
A nanogrid is like a mini microgrid that typically serves just one building.
As we move more and more towards renewables, people are going to generate more of their electricity themselves. And this will lead to a bigger and bigger uptake in microgrids and nanogrids.
What nanogrids and microgrids have in common is they both contain a method of storing electricity “off grid”.
For areas that are frequently struck by natural disasters, microgrids can make a world of difference.
Take Necker Island for instance. In September 2017 it was struck by the worst storm in the Atlantic since 2005, Hurricane Irma.
Despite heavy damage to Necker Island’s 800 solar panels, the island’s microgrid survived the storm and power was restored the following day. That’s an incredible feat considering the amount of damage Irma caused.
But even in less volatile areas, microgrids allow people to move towards self-sufficiency. Or at least save a lot of money on their electricity bills. As the move towards renewables increases, microgrids and nanogrids will rise in tandem.
This leads to some big investment opportunities.
How to invest in the rise of renewable energy
A key component of microgrids and nanogrids is the energy-storage solution.
While fossil fuels contain storage in themselves, renewables merely generate the electricity. They have no inbuilt method of storage. So every microgrid and nanogrid needs a big battery to go along with it.
There are a number of ways to play this opportunity. But one of the smartest is to buy the companies supplying battery makers with their raw materials.
In fact, as can see below, two of our top six energy plays for 2016 revolve around investing in these raw material makers.
The top six renewable energy investments for 2018
To get the best renewable energy investments I’ve called on two of our in-house tech experts:
Sam Volkering, who writes Revolutionary Tech Investor and Crypto Profits Extreme.
And Eoin Treacy, who writes Frontier Tech Investor.
They have each given their top three renewable energy picks for 2018.
Renewable energy play one: the “grey gold” for 2018
Batteries, fuel-cell, renewable energy. This is the energy future you need to get used to.
Maybe you’re a climate change believer. Maybe you’re not. Maybe you think it’s all one big conspiracy. It doesn’t matter. The facts are clear. The world is moving away from fossil fuel energy generation.
Sure “green” energy isn’t going to be the silver bullet that ends oil and gas and coal overnight – but it’s death by 1,000 cuts.
The trick as an investor is making the right plays into the right tech now to make sure you don’t miss out. And one material which goes through swings of adoration and hatred is our beloved grey crystalline allotrope of carbon – graphite.
You need graphite in lithium-ion batteries. You need it in fuel cells. Graphite works as an anode in these power sources and therefore is critical to efficient and effective, high power output lithium-ion batteries and fuel cells.
That means as the like of Volkswagen, Mercedes, General Motors, Ford, Audi, Porsche, FCA Group (Fiat Chrysler), BYD and Geely catch up (and probably pass) Tesla with EV production there’s a huge growing demand for graphite coming.
One of the great plays in this space is Australia’s Syrah Resources [ASX: SYR] a graphite producer with graphite mines in Mozambique.
It recently signed a new sales deal with Chinese graphite anode producer Zhanjiang Juxin New Energy Ltd for 20,000 tonnes. In our view there’s more Chinese demand coming for graphite as companies like Geely and BYD ramp up electric vehicle (EV) production. With Syrah well positioned in the Chinese market they could be a great play for 2018.
2018 renewable energy play one: Syrah Resources [ASX: SYR].
Renewable energy play two and three: China goes “full EV”
The demand out of China is only going to rise and rise… and rise for battery tech.
Companies like BYD, Geely, Changjiang, Kandi Technologies, BAIC and Chery are all going “full EV” in the coming years.
That means cars, trucks, buses, every mode of transport you can think of these companies are making electric. It’s going to see lithium-ion battery demand go through the roof.
It means that investment into companies like BYD could pay off nicely as they not only hit the Chinese markets but soon bleed out into the Western world.
Also a company like CATL, one of the world’s biggest li-on battery makers, could also see a huge ramp up in demand, production and sales.
CATL is about to launch a multi-billion dollar initial public offering (IPO) – and may be the best and biggest launch of 2018.
If you can see the direction of green energy and the direction of Chinese EV makers, then perhaps BYD and CATL are two more plays to put on the watch list for 2018.
2018 renewable energy play two and three: BYD and CATL.
Renewable energy play four: nickel goes binary
The London Metal Exchange (LME) is talking about splitting its nickel contract in two because of the growing demand from the battery sector.
Right now, the vast majority of nickel is used in the stainless steel sector and is derived from ferronickel and nickel pig iron ore.
China has ample supplies of low-grade nickel pig iron and has flooded the market with it which has sources. That also dictates what is delivered to LME warehouses.
However, batteries need much higher quality nickel and that is putting fresh demands on the mining sector to deliver.
After the commodity bust the mining sector is less than enthused with the idea of spending billions to develop new mines and even more importantly wouldn’t receive funding because the nickel price is the only one of the primary LME-traded industrial metals which has not rebounded over the last two years.
That’s where the interest in creating a new nickel sulfate contract is coming from.
The battery sector is hot so miners are likely to get funding to build new mines. Right now there are very few high-grade nickel pure-plays but Sherritt International, which is listed in Canada, is a definite candidate with significant upside potential when a new contract is launched.
2018 renewable energy play four: Sherritt International.
Renewable energy play five: coal could come clean in 2018
There is no more hated commodity than coal.
It’s dirty and polluting and its energy content is nothing like oil, gas or nuclear. However, it has one redeeming feature: it’s literally dirt cheap.
It is still used by utilities all over the world but they are under increasing pressure to shut down heavily polluting power stations.
China and India have reached points in their development where choking smog is both a political and economy liability so they feel like they have to do something.
The holy grail of the coal sector is clean power generation from the same dirty sources. Clean Coal Technologies is a late stage startup with patents that are according to its website “significantly more efficient, less polluting and more cost-effective than untreated coal”.
Even if we take the cost-effective part of that sentence with a grain of salt the reality is that coal is a vital fuel in the emerging markets.
If they are to reduce the quantity of carbon entering the atmosphere, coming up with a cheap way to clean it is vital to the interests of the planet and everyone living on it.
In September Clean Coal Technologies announced it is building its first full-scale facility as a proof of concept on a commercial scale . So 2018 is going to be a big year for the company.
2018 renewable energy play four: Clean Coal Technologies.
Renewable energy play six: let it shine
SolarWindow announced in September that it will be raising additional capital.
It’s also a late-stage development company so occasional requests for additional capital are de rigour as new products take time to develop.
However, this occasion was different from other capital raises because the company was asking more money so it could move into production.
SolarWindow has spent years developing spray-on solar cells and is now moving towards full commercialisation. The company’s ambition is to turn every skyscraper in the world into a power station with the eventual aim of doing same for every home.
It is still early days but it is no exaggeration to state that this is a ground-breaking technological innovation that will change the energy mix in many countries in the very short order.
2018 renewable energy play four: SolarWindow.
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Editor, Exponential Investor