energy storage

The Next Energy Revolution is Here!

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Back in 2017, we wrote about two trends that would interact to change the world. Declining costs of solar power generation, combined with declining costs of battery storage, would herald an energy revolution.

In a recent article, Bloomberg News suggests that solar and wind energy is more economical to build than coal or gas plants in two thirds of the world. Five years ago, this wasn’t the case anywhere.

New sources of energy have heralded remarkable periods of growth and prosperity in the past. Water and steam brought us into the modern era more than two centuries ago. Coal and petroleum pushed development beyond what anyone could have predicted, before their use became widespread.

The next energy revolution, solar and wind plus battery storage, will bring massive new opportunities – and threats to older technologies. We are thinking about ramifications for investors.

1. The demand for copper may rise, against a constrained supply.
2. Underdeveloped areas of the world may develop faster, since solar can be deployed on much smaller scales than big central generating plants using fossil fuels.
3. Cheaper electricity may encourage new uses, not yet dreamed of.
4. Incumbent electric utilities may find themselves with stranded assets in the form of obsolete plants and equipment.

No guarantees on any part of the future, of course. But it does seem to be unfolding as we expected a couple years ago.

Clients, if you would like to talk about this or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Update: The Next Energy Revolution

© Can Stock Photo / kessudap

Our work involves looking at trends and striving to figure out if there is a way to make appropriate investments that may have a good chance to work out well. More than two years ago, we put together a pair of trends and made a forecast. It’s time to check in and see how the forecast is working out.

The cost of electricity from solar sources was said to be declining 10% per year, while the cost of electricity storage by battery was also declining. We felt then that this would lead to a revolution in energy production.

Installed solar generating capacity in the US grew 19% last year. The Solar Energy Industries Association projects that capacity will double in the next five years. In terms of new generating capacity by source, solar has ranked first or second each year for the past six years.1

Groundbreaking projects are going up around the world, too. The World Economic Forum reports that Abu Dhabi switched on the world’s largest virtual battery plant, able to store 648 megawatt hours. That’s enough to keep the city supplied for up to six hours in the event of a generating outage. This is feasible because the price of lithium-ion battery storage has dropped by more than 75% since 2012.2

As this combination of solar power generation plus battery storage commands a bigger share of global energy production, it seems to us that a lot of copper will be used. At the recent Global Copper Conference, a keynote speaker talked of record demand in the years ahead.

With prices on some mining companies that produce copper off by 75% or more from peaks of a few years ago, we see opportunity. This idea has not made large piles of money for anyone over the past few years, but the trend looks favorable. We believe we know how this turns out, so we are sticking with our convictions.

Clients, if you would like to talk about this or anything else, please email us or call.

Notes and References

1. Solar Energy Industries Association, U.S. Solar Market Insight. https://www.seia.org/us-solar-market-insight. Accessed May 7th, 2019.
2. World Economic Forum, “The Cost of Generating Renewable Energy Has Fallen – A Lot.” https://www.weforum.org/agenda/2019/05/this-is-how-much-renewable-energy-prices-have-fallen/. Accessed May 7th, 2019.

This Will Change the World

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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.