Secular growth trend: Alternative Energies

Alternative energy sources aren’t something new; they have been here for quite some time but never captured the required attention for very long. This is because until very recently the traditional resources (mainly fossil) were abundant and cheap. Second, the use of alternative energy requires a different ecosystem, and the build-up requires time and resources. This in turn requires investments, and investors require a given ROI per dollar invested. The situation finally became unlocked during the first decade of this century as venture capitalists financially supported bourgeoning technology aimed at new facilities to create, store, distribute, and use energy. Before this, there had been a lot of talking, but little action.

Renewable energy sector offers the growth opportunity in the energy sector. Consumption of non-fossil energy is expected to grow by more than 10 % per annum for the next 10 years. While solar and wind are the present main drivers, is it expected that hydrogen will take over the lead in the next decade. 

Unlike other secular growth trends, alternative energy ticks multiple boxes, i.e., it is capital-intensive, technology-driven (processors, etc.), market-driven (broad infrastructure dependent), and finally it is product-driven as educated and eco-sensible consumers consume the output. 

While disruptive factors of the alternative energy market are generally well-known and accepted, progress isn’t that fast—in fact, the entire sector is as slow-moving as the utility sector it ultimately tries to disrupt. The present transition is delayed due to supply chain and policy-related issues. To execute the planned transition, significant changes are required at the levels of global procurements and investments. These volumes are unprecedented. More importantly, the key companies in this process are restricted to accessing new resources, while at the same time, only these undertakings will allow companies and communities to become carbon neutral in the future. Is there a little catch-22?

The global sector of alternative energy can be segmented as follows:

• Production,
• Storage,
• Distribution, and
• Consumption.

Each of these segments cruises at its own speed and with specific technology, yet each is contributing in a synchronized manner to the target, aiming at achieving global alternative energy production and distribution. 

Some of the solutions mentioned in this report are already at a relatively advanced stage and await funding for commercialization, while others have passed an embryonal situation and require further funding and development to reach a level where they can become public-private programs (PPP). In a recent report, UBS estimated that the global energy transition will require investment in the region of +/- USD 45 trillion for the years to 2030. 

PRODUCTION

As for now, there are limited manners to produce alternative energy in large capacities (solar, photovoltaic, wind, hydrogen). Oftentimes, the production cycle is subject to some external factors, and they are not 24/7. Renewables depend on ongoing advances in semiconductor technology. It directly impacts the way we consume and store energy. There are three main alternative energy production sources:

SOLAR AND PHOTOVOLATIC 
Solar capacities growth at the fastest pace across all alternative energy developments. Educated consumers can distinguish between solar panels and photovoltaic (pv) panels. Solar panels convert radiation into heat, and the technology becomes inefficient when panels become too hot since some of the energy produced needs to be used to cool down the infrastructure to preent damage.

Photovoltaic technology converts luminosity into electrical energy. An individual PV cell is rather a small device and typically produces about 1 or 2 watts of power. A cell is made of different semiconductor materials and has about a one-hair thickness. The whole device is packed inside a combination of glass and plastic and is fixed inclined or vertically to a grounded support.

While both technologies are rather robust, the main disadvantages are external—lack of sunshine, lack of luminosity, and the cleanness of the air. As dust settles onto the cells, cleaning is required to maintain efficiency. The set-up of auto-cleaning infrastructure for a large plant represents yet another technology challenge. 

Solar modules are more affordable and have significantly lower cost levels in the assembly and system management phases. At present, the leveled cost of solar power has become very attractive. PV benefited from advancement in semiconductor technology too. Prices have been falling and coupled with a favorable carbon footprint incremental demand is increasing. Currently, a quality pv cell is available for a few dollars, driving not only increasing adoption by private consumers but also the public sector. 

As a whole, the solar/photovoltaic industry is mature, and there is solid growth with a well-established concept. However, there are little to no major technological advances in the pipeline. From an investment point of view, there aren’t many valuable pure plays in the market, be it in the production of solar and pv panels or the utility level that generates a large part of the solar/pv offerings.

STORAGE

Battery storage technology has made tremendous advances in more recent history. Yet, the industry is still dealing with major issues, such as the batteries getting hot and catching fire and dead battery scenarios. All these issues are becoming more common, and ideally a battery should last longer. Furthermore, it should be safe to use, charge, and reload while using the passive energy created, and the consumption should become a more linear function. Technology onboarded can obviously help to manage some of these issues, but this is not all. Recent battery development makes us believe that soon new types of devices will be available. The five avenues of interest are:

1. NanoBolt lithium tungsten batteries:  By adding tungsten and carbon multi-layered nanotubes that bond to the copper anode substrate, the battery will charge faster and load more energy.
2. Zinc-manganese oxide batteries: Through a chemical conversion reaction, the density can be increased at no cost. The present engineering challenge is to control processes and bring it up to an industrial application.
3. Organosilicon electrolyte batteries: Lithium-based batteries tend to catch fire or explode when mis-use occurs. Devices including organosilicon (OS)-based liquid solvents do not overheat nor do they show physical deformation.
4. Gold nanowire gel electrolyte batteries: Coating gold nanowires with manganese dioxide then covering them with electrolyte gel will increase battery cycles by 3.5 times.
5. TankTwo String Cell™ batteries: Batteries tend to charge slowly. String Cell™ batteries allow fast charging with no disadvantages. Once loaded, energy is transferred to the main battery while in operation.

DISTRIBUTION

Generating renewable energy is part of the future challenge, but at the same time, bringing this energy into the grid is another challenge, though not an unsurmountable one.

While renewables are the preferred way of going forward from an emissions standpoint, power output from renewable sources depends on variable natural resources. Decentralization makes these plants more difficult to control and presents challenges for grid operators, but decentralization is more efficient for the operator. As the supply and demand on the power grid are not constant, having a decentralized infrastructure, capacities can be injected by different means.

In the past, grid operators were able to adjust the supply relatively quickly by taking off capacities and bringing them back when required. With the integration of renewables, the supply becomes more complex as the grid operator must have some sense of how much alternative energy is being produced at a given moment. As the proportion of renewable energy capacity on the grid grows, these issues are becoming increasingly important to understand. 

Given that costs for the production of renewable energy are declining, one can expect that the supply of the latter will increase. To accommodate a highly variable supply chain, the modern grid will require a great deal of flexibility on both the complementary production facility and the demand side.

There are several ways to increase grid flexibility and improve the integration of renewable resources:

• Energy storage:  When paired with variable renewables to accommodate fluctuations, release can occur during down periods.
• More dense transmission network: Building more transmission lines to connect areas of supply (e.g., very sunny or windy areas) with areas of high electricity demand can increase the value of renewable resources and reduce uncertainties of their electricity generation. 
• Combo solution:  A grid can rely on many types of renewables—such as solar, wind, hydro, and geothermal all together. Appropriate planning will allow a less volatility supply.
• Demand management: Consumers are sensitive to costs. By adjusting prices charged at peak time, the grid operator can strategically optimize grid load. 
• Supply management: Rather than trying to manage the behavior of thousands of grid users, duck generators and independent operators would be called in to ramp up production quickly. In regions with mountains, peak demand can be bridged by water-based energy production.  

CONSUMPTION

Economic motivation is important. The market is witnessing plans to switch from fossil to alternative energy sources purely because of rising prices, while the cost of renewable energy is falling.

For private individuals, green mobility is everything it translates to! Together with smart mobility, it will shape the way we use energy in the future for delivery services and other transport (cars, aviation, shipping, aviation, rail, and bikes). The addressable green mobility market will grow to USD 500 billion by 2025, and by 2030 it should reach a value over USD 2 trillion.   

Some analysts suggest that the underlying demand has weakened, yet the opposite is true. The absolute number of KW consumed has never been higher. The rollout of renewable energy projects is accelerating, and one can believe it has much further to go. For investors, every market sell-off is an opportunity to invest more. The secular growth trends in clean energy  continue and are ever-accelerating. Further supporting documentation can be downloaded here. 

It is interesting to see is that overall energy consumption is not going change much over time! More importantly, Middle-East countries are going to be main resource providers for the decades ahead while Asian countries will having the highest demands.

ENABLING TECHNOLOGIES:

In terms of resources and production capacities, the clean technology supply chain remains highly concentrated. Extraction occurs mainly in Latin America, China, Australia, and Africa while 80 % of the global refining capacities are located in China. There are new refining capacities going online in the States and in Europe, but the time required to perform the optimum calibration is long and work intensive. This is not necessary due to the lack of engineering capacities but rather due to validating environmental protection requirements.  

The secular growth trend of alternative energy sources will not deploy all at the same time. This opens up an avenue for investors to progressively move along with the developments or choose an axe that clearly has a long-term time horizon (>10 years). Pending the investors’ objectives, they then will be able to allocate some of the resources from traditional fixed income, to equity, to PE, and to VE funds. Here is an approximative planned schedule on how investment opportunities will unfold in terms of the timing of GTM, hence generating tangible investment revenues.

Download here the list of companies related to the securlar growth trend “Energy Transition“. In the section “Our Preferred Opportunites, you will find specific list by theme such as Opportunities in Hydrogen, Opportunities in Machinery, Opportunities in Transportation, and Opportunities in Cement and Glass. 

NEXT STEPS:

 The energy transition is not just about replacing existing energy resources with new ones. Other efforts and technologies include CCUS (carbon capture, utilization, and storage). While the idea is simple to understand, the technological challenges to be addressed are important. In essence, only highly carbon-intensive industries (petroleum, steel factories, and cement factories) are progressing in this field. A CCUS-based process will allow these industry segments to reduce their carbon footprint by about 40%. 

Other indirect areas include smart automation and green manufacturing. With increasingly lean production models, IIoT will play an ever more important role. Connectivity will allow more efficient processes and transport and thereby a reduction in energy consumption. In 2019, the market opportunity in the global automation segment was around USD 180 billion; it has, however, shifted down due to COVID but gained renewed traction in 2021/2022.

Finally, let’s link to the NIC (National Intelligence Council) report of 2021 which projects how the world will be in 2040. Apart from conclusions that the world will be more fragmented, having higher levels of increased tensions and exposure to all sorts of threats, they address the energy transition and climate change. Here is what they concluded:

• New technologies will be developed to deal with the concerns (these technologies are unknown as of today).
• The race of cobalt and lithium will create inter-regional tensions.
• Solar/PH and wind power will become significantly cheaper.
• Small nuclear modules shall help bridge key demand in industrialize regions, and in developing regions it will play a significant role for regional development.
• It is estimated the most significant and cheapest manner to address carbon neutrality would be to consider planting more trees.

So, is the economy is stupid? It is making all kinds of assumptions, considerations, and restrictions if the issue can be solved in a much easier and more efficient manner. The entire report enumerates addressable markets and estimated benefits; however, the last point invites the reader to a more moral interrogation.