Occasionally you get a glimpse of just how bright the future is going to be. Think of your energy bills today. Now imagine them going down…and down…and staying down.
This is the path the world is going down thanks to this rise of renewable energy. I’d say it’s inevitable as anything in human affairs can be.
It’s not climate science driving this. It’s economics. Sunshine and wind are free.
The Australian reports this morning that coal plants here are at risk of closure because they operate on razor-thin margins, but wholesale power prices are falling as renewable energy enters the grid.
Look at this quote…
‘“There is a risk of coal units retiring early. The fact of the matter is we’re moving from a resource and fuel intensity like coal and gas to a resource that has virtually zero fuel cost,” AEMO chief executive Audrey Zibelman told The Australian, referring to renewables.
‘“The challenge is how do we effectively manage the exit of older units so we don’t see the price volatility and encourage new investments at a time period where we avoid scarcity and provide consumers an affordable price of energy.”’
A little further down it says gas prices may need to be as low as $4 a gigajoule to compete with renewables.
That looks like a problem when the gas companies say they can’t produce gas at a profit at that price. They need prices in the $8–10 range. Something doesn’t add up here.
The consequence of this is that the switch to renewables is likely to happen a lot faster than most people think. There’s money to be saved!
But where to store it? Well, in batteries just like the one now under construction in central California. Tesla and a utility over there are building it now, so expect it to be operational by next year.
The development of these means the eventual destruction of nuclear, gas, and coal as energy sources.
That puts lithium stocks right back in the spotlight they held over 2015–17. Right now all of them are reporting that the lithium price is weak.
But there looks to be a long-term bottom forming here as the market prices in the explosion of battery demand to come.
Any call like that runs the risk of being premature, or downright foolish in hindsight. But the price crash in lithium in the last 24 months means a lot of investment plans were delayed. At some point prices will strengthen again.
How to test this hypothesis?
One sign to look for is companies up the lithium battery chain to lock in the available supply now. If they see the same projected big demand coming, the onus will be on them to go and do something about it.
The lithium producers should like that because it gives their investors and financiers a look at some guaranteed cash flow.
Lithium also fits nicely into the environmental thematic that fund managers are now increasingly obligated to consider alongside the usual financial metrics.
Lately I’ve been building a watchlist of the stocks on the Aussie market that are related to renewable energy and the battery thematic. It’s a big list with a lot of opportunity.
If you have a favourite, don’t be shy about putting your idea out there and why. We might be able to get a cracking list together if I get enough responses. I’ll share them next week if the inbox delivers. Let me know at email@example.com.
Editor, Profit Watch
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