Part 2 of 4
Note from Callum: The other week I got on the phone with futurist Tony Seba. He just released a new book called Rethinking Humanity.
For the next three days you can read a transcript of our conversation. Anyone invested in the stock market should read this…
Callum: I’ve mentioned your ideas about solar and the disruption of the grid and I still get a lot of pushback on it from people that say, ‘No, it has to be subsidised, it’s niche.’
Here in Australia the government has just come out and said, ‘No, we need natural gas’. They’re talking about building a pipeline from Western Australia across the continent to the east coast or LNG import terminals. You are saying that essentially would be a gross misallocation of capital, right, to go down that path?
Tony Seba: Essentially, I’ll tell you right now; any investment, any capex in conventional energies is going to be stranded, period. Anything with less than a three-year payback, more than a three-year payback, is stranded already.
I mean, solar on a utility scale without any subsidies is the cheapest source of electricity, period. I mean we’re getting 1.5 cents per kilowatt-hour without subsidies.
That is not just cheaper than gas and cheaper than coal and cheaper than anything else; the total cost of utility scale solar is cheaper than the marginal cost of everything else.
Callum: And so, for someone sitting in their house right now, just imagine they’ve got solar panels on their roof. I don’t, personally, but…the pushback is, no, you can’t store it, or you need the fossil fuels to kind of bridge when the wind’s not blowing and the sun’s not shining. You even see that as redundant already, right?
Tony Seba: It is already redundant. Again, on a utility scale, solar plus about four hours of storage today is already cheaper than anything else without subsidies.
And wind also, and wind is a little different from solar and so on, but wind plus solar plus batteries, essentially, are going to eat everything else, and this is not in the future; this is already happening. On a distributed basis it’s going to start with commercial and industrial rooftops plus, basically, their batteries, and then it’s going to migrate to residential.
Callum: You were writing about Tesla in 2014.
Tony Seba: Yeah.
Callum: It has since had an enormous run. To what extent do you think this future that you’re seeing is priced into markets? Do you think it’s priced in a little bit or a lot, or are we five years into a 10-year trend, or…
Tony Seba: Yeah, it’s far from priced in. In energy it’s still far from priced in. Especially in energy. I mean, utilities are going to have a hard time over the next few years. That’s the most diplomatic way that I’m going to say it.
Because this is all one: Tesla, EV companies, are going to get into energy. So, this is not the silos that we had before, where you had a grid and you had a transportation system that was separate; this is all going to become one.
A Tesla model three with 60-kilowatt hours of storage can store two full days of electricity for the average American home.
And I assume that in Australia it’s about the same electricity consumption. Two full days. So when you think about it that way, I mean, if you’re buying a Tesla or transportation, if you use it for something else, the incremental cost for that is zero.
So if you put up a solar panel, in fact, people will tell you, ‘Oh, but you need to buy expensive batteries’. Well, not really. If you have a Tesla or EV, you can store two full days of electricity for free because you already paid for that car. Does that make sense?
Tony Seba: Yeah, so you’re going to see a convergence of these two industries. And one thing that happens in disruptions, which, again, doesn’t happen in mainstream analysis, is the idea of…think of a forest fire, right?
All you need is a spark and the whole forest goes. And you can say that about the existing industry.
Now, the new one may take five or 10 years to emerge, but the existing one is going to be wiped out immediately, and that’s what happens with disruptions.
What happens with disruptions; think about GE. GE is one of the premier industrial companies of the 20th century and their stock went down by, what? 75% over two years? Why did it do that?
Because they had this projection that conventional energy was going to keep going up by three, four, 5%, over the next 20 years. Guess what? It didn’t happen. Now, does that mean that solar is 50% of the market? It doesn’t; it’s still at three or 4%, but what happened was that essentially we stopped purchasing new conventional energy infrastructure.
And that means that the financial collapse of the existing industry happens a lot more quickly than the emergence of the new, right?
Callum: And this is one reason why I wanted to get you on, because it seems to me [to be] very urgent for Australian investors. Anybody who’s passively invested in our market is holding a lot of fossil fuel exposure.
I’m sure your BP came out and downgraded their assets; their oil assets, and said, ‘We assumed it was going to be 70; now we assume it’s going to be 50. We may never get it out of the ground’.
Tony Seba: Yeah.
Callum: So that’s basically just going to keep happening. So any fossil fuel stock is just on a hiding to nothing, basically?
Tony Seba: Yeah. I mean, if you look…I forget what I said in my transportation report with RethinkX, 2020s. Now, this is just 9% so this is just the beginning. And they’re going to deny it because why is a company going to deny what is obvious?
For many reasons, right? But the net present value of the company’s future cash flows is their stock, and if they admit that the cash flows and the terminal value are going to be wiped out, then what does that say about their stock today?
So, yeah, this is just the beginning. When I wrote that book, when I published The Disruption of Transportation, it basically said all of this; that oil was going to collapse as early as 2021, that was my prediction, to $25 in 2021, right? In volume, it’s going to decrease by 30 million barrels; that’s what I said.
And you can imagine what I was told, right? Insane. The polite thing was insane. But you would’ve seen that over the last few months, right?
I mean, basically oil demand went down by 30 million barrels per day, and it went down to…let’s not say that it went down to negative, but it did go down to $25. So the idea of this big, all-powerful industry, whatever; yeah, it can be powerful but it’s also very fragile. If you look at the underpinnings of those industries, whether it’s livestock or oil or whatever, they’re very fragile. In oil, or all you need is a two or three-million-barrel oversupply for the price to collapse to 25.
And how difficult is that? We’ve seen that many times over the last few years. So yeah. What you mentioned about BP, that’s just the beginning of the 2020s.
Callum: It’s so interesting for me because right at the moment there’s a…in Australia, we’ve got this push for gas, because even the regulator, the energy market operator is saying, ‘We need to invest in gas because there’s going to be a shortfall by 2024’, kind of thing. But there’s also a sort of a resurgence in interest in uranium.
Tony Seba: Yeah.
Callum: But again, you just see that as a, don’t go there zone, right?
Tony Seba: Of course. I mean, you’re going to start hearing about hydrogen, you’re going to start hearing about all kinds of new fuels and whatever, and that’s part of the five stages of grief, and none of that makes any economic sense.
Callum: I’ll just jump in there because I had heard about hydrogen. I don’t know anything about it, but again, it’s sort of floats up. You don’t see that…unless it’s solar or wind, you’re just not interested.
Tony Seba: Solar, wind, batteries in electric vehicles. Not hybrid, not hydrogen, electric. Because none of that other stuff is going to scale. And it doesn’t make economic sense. I mean, for purely economic reasons, but none of that other stuff makes any economic sense. And I’m not talking about five years from now, I’m talking about now, it doesn’t make any sense.
That’s the end of part two of our discussion. Stay tuned for tomorrow!
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