The human tendency is to believe that present circumstances will continue. The gap between expectations and unfolding reality is where profit potential lives. Therefore understanding unanticipated change is one of the key tasks in our quest for investment gains.
Two related trends are about to unleash massive change and opportunity. If we can puzzle out some of the ramifications, it may serve us very well.
Solar power, being a technology, is declining in cost about ten percent per year. In some applications, it is already competitive with more conventional sources. As the cost continues to decline, we may surmise that solar power will represent an increasing fraction of world energy production—and the overall cost of electricity may begin to fall.
The second trend is the declining cost of energy storage. Bloomberg recently reported on the ribbon-cutting of a power-plant size array of batteries, in California, for meeting peaks in demand. The cost of the facility is twice that of a conventional natural gas peaking plant.
Although paying double does not seem to be an economic threat to the old way of doing things, Bloomberg reports that the cost of storage on that scale has dropped 90% in a decade. Again, energy storage is a technology, and the cost of technology tends to drop over time. We know how this works, right?
Connect the dots: we soon may have ever-cheaper energy available when we need it, courtesy of what we might call the Next Energy Revolution.
Economic history is largely a story of new sources of energy. Water power and steam power launched the modern era more than two centuries ago, with the Industrial Revolution. Petroleum in all its forms was central to the astonishing change and growth in the 20th century. What changes will the next revolution bring?
• Given lower costs for energy, will households consume more of it, or spend more money on other things?
• Will less developed areas of the world modernize more rapidly, powered by the sun?
• Does this hasten the rise of electric vehicles?
• Which companies or industries will be helped by cheaper energy? Which will suffer?
• How much wealthier will the world be, as a consequence?
Change brings opportunities and threats. We have begun to identify winners and losers in the next energy revolution. Much more study and thought will be required. Please call or email us if you would like to discuss how this affects your situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.