Supply and Demand

One uncomfortable fact for green investors is that the clean energy transition is going to require a lot more mines.  Lithium, nickel, cobalt, copper, manganese, graphite, even steel: just name and industrial commodity, and we’re probably going to need a lot more of it.

Total mineral demand for clean energy technologies by scenario, 2010-2040

Even worse, it’s not at all clear where all these materials are going to come from.  While there are plenty of all the elements we need in the Earth’s crust, actually mining them all in the next 20 years is not something that we can accomplish without paradigm-shifting changes to the mining sector.  It’s difficult to imagine a scenario where we construct enough mines to supply all the materials needed to even reach the world’s stated goals for clean energy development, let alone the scale we would need to keep global warming below 1.5℃ or 2℃.  

Economics 101 tells us that when demand for anything increases much faster than supply, price will also rise until the two can be balanced again through demand destruction (reduced purchases because it’s too expensive) or increases in supply (companies increasing production), usually both.

Investing 101 tells us this is an opportunity for companies that already supply the commodity or can supply the coming future demand are likely to do well, and we should buy them.  The obvious suppliers are existing mining companies. This investing theme was particularly popular two years ago when the expected increase in demand for materials was frequently in the news.  This led to a peak in the S&P/TSX Global Mining Index at 133 in April 2022, which has since fallen to 103 as of February 20 (data from spglobal.com).

Little has changed in the long term bullish outlook for commodities in the last two years since the mining index peaked.  Except the stock prices, that is.  Hence, with the mining index down over 22% at the same time that the broad market has been rising, now seems like an excellent time to invest in companies which seem likely to profit from the coming clean energy minerals boom.

Reduce, Reuse

While I expect that investors in mining companies will do well financially over the next decade, as an environmentally minded investor, mining is one sector I’m simply not willing to invest in.  While I believe that there are likely some mining companies that behave as environmentally responsible as possible, I do not have the skills or the inclination to determine which are which.

Environmentalism 101 (Is that a class?  If not, it should be.) tells us to reduce, reuse, or recycle before we buy something new.  When it comes to these materials, mining is making new.  I expect there are good investing opportunities in all three principles. We can reduce the use of the most expensive and rare materials by substituting more common ones.  Origami Solar (not a public company) is working on replacing expensive aluminum with cheaper and stronger steel in the frames for solar modules, while Form Energy (also not public) is making batteries with cheap and abundant iron instead of the commonly used (and much more expensive) lithium.

We can also reuse existing infrastructure, such as repurposing the sites and grid connections of old coal plants for energy storage. We can also extend and expand the usefulness of power lines with grid-enhancing technologies like better monitoring and software.

Recycle

As astute readers have noted, most of the examples of reduction and reuse of clean energy materials listed above involve new businesses trying to create new markets.  Such opportunities can lead to incredible investment returns, but they also come with a level of risk that I, as a relatively conservative investor, try to avoid.  Recycling, however, is an established business that already produces profits.  This is the type of investment opportunity I look for: Currently profitable businesses that can profit from the transition to a clean energy economy.

Historically, lithium-ion batteries have not been recycled at all due to the lack of facilities to recycle them. That situation is changing rapidly.

The Inflation Reduction Act’s requirement that electric vehicle batteries is leading to a boom in the construction of battery recycling plants in North America.  With all the announcements of new recycling plants, I’ve become concerned that there may not be enough used batteries to go around.  

If I’m right that we are likely to soon have more battery recycling plant capacity than we have used batteries that are easy to recycle, then the companies most likely to make a good profit are the companies that already have systems for gathering used batteries in place.  In the case of used electric vehicle batteries, that means companies that already have vehicle part recycling and reuse facilities, commonly known as junkyards.  Two such companies are Radius Recycling (RDUS – until recently known as Schnitzer Steel) and LKQ Corp (LKQ).  

Radius is vertically integrated, using its junkyards as one source of scrap metal for its recycled steel mills.  It’s also widely recognized as an environmental leader.  Corporate Knights named it the world’s most sustainable company for 2022.  

In contrast, LKQ Corporation is a manufacturer of non-OEM replacement car and RV parts as well as running junkyards.  I don’t think I’ve ever seen LKQ on a list of sustainable companies, although much of its business is inherently sustainable.  Repairing a vehicle is usually a more sustainable option when compared to replacing it.  It’s also what I usually call a “boring” business… I like these because I think they are less prone to selling at inflated earnings multiples.  That’s certainly the case for LKQ today.

My final recycling holding is Umicore SA (UMI.BR, UMICY).  Umicore is a European processor of  recycled battery materials and other precious metals. They are a little farther up the value chain, making them relatively more vulnerable to future spikes in the price of used batteries, but I expect that their established relationships, proprietary recycling expertise, and participation in the more mature European battery recycling industry should help them weather increased competition for a limited supply of used batteries.

Conclusion

It’s widely accepted that the clean energy transition will lead to the demand for many industrial commodities growing faster than supply, although many investors have moved on to other themes since the interest in commodities peaked in 2022.  That makes it a great time to get in.

Investing in mining companies is an obvious, but environmentally problematic way to profit from coming price increases.  Investing in the recycling supply chain may be a less obvious method, but it is much more environmentally sound.  Three stocks to consider are Radius Recycling (RDUS), LKQ Corp. (LKQ), and Umicore (UMI.BR, UMICY). 

DISCLOSURE: As of 2/21/24, Tom Konrad and accounts he manages own the following securities mentioned in this article: RDUC, LKQ, and UMI.BR.  He does not plan to sell any of them in the next two weeks, and may buy more.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  All investments contain risk and may lose value. Past performance is not an indication of future performance. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

ABOUT THE AUTHOR: Tom Konrad, Ph.D., CFA is the Editor of AltEnergyStocks.com (where this article first appeared) and a portfolio manager at Investment Research Partners.

The post Scrappy Companies For Scrappy Investors appeared first on Alternative Energy Stocks.

On Friday February 2nd, Brookfield Renewable (BEP and BEPC) reported earnings.  Judging by the immediate stock market reaction, many investors did not like the results.  Quarterly earnings actually beat expectations, but for Yieldcos like Brookfield, cash flow numbers and revenue (which can be more indicative of the company’s ability to pay and raise dividends) can be more important.  These fell short.

The company attributes the cash flow shortfall to its own clients delaying payments at the end of December, in order to make their own financial statements look better, and it expects the shortfall to reverse in the first quarter.

Beyond cash flow, I found the earnings report to be all good (if not particularly unexpected) news.  As one of the preeminent renewable energy infrastructure investors in the world, Brookfield’s access to capital is allowing the company to go on something of a spending spree, buying up cheap assets and companies as many of its rivals have to pull back.

Overall, I feel the pullback after the earnings call is a buying opportunity, and sold some short puts on BEPC this morning (February 5th.)

Why buy BEPC rather than BEP?

Unlike the nearly equivalent share classes of Clearway Energy (CWEN-A and CWEN, discussed here.), rival Yieldco Brookfield Renewable Energy has two share classes with significant differences: Brookfield Renewable Energy Partners (BEP) and Brookfield Renewable Energy Corporation (BEPC).

The company was originally organized as a limited partnership with all equity issued as partnership units (BEP).  In 2020, the company created Brookfield Renewable Energy Corporation (BEPC) through a combination of legal and financial wizardry in order to appeal to investors who prefer to get all their investment income from a brokerage’s 1099 form rather than the individual K-1s received by BEP limited partners.

This makes BEPC more appealing than BEP to many investors, so it is unsurprising the BEPC tends to trade at a larger premium to BEP than CWEN trades relative to CWEN-A.

As I write on Feb 5th, BEPC is trading at $26.10, compared to $24.55 for BEP, or a 6.3% premium.  I generally buy BEPC when the premium is under 10%, and BEP if the premium is higher than that.

Here’s a chart of the prices of the two shares and the BEPC price premium over time.  The data is from Yahoo! Finance on 2/5/2024.  

You’ll note that when BEPC was first launched in 2020, the C-shares temporarily traded at a slight discount (negative premium) to BEPC, and shot up to a bubbly 30%+ at the end of 2020 into early 2021.  The premium hit 25% in November 2020, and later got as high as 40%. At 25%, I thought BEPC’s premium was too high.  That was the only other time I’ve written about the premium publicly.  I thought it was far too low when it was below 5% for most of 2022, but I didn’t get around to writing about it.

Now that BEPC shares are a little more seasoned and we’re mostly done with the stock market disruptions of the covid pandemic, I doubt future swings in the premium will be nearly as dramatic, but it still make sense to pay attention to the price premium when you are deciding to trade BEP or BEPC.  

DISCLOSURE: As of 2/5/24, Tom Konrad and accounts he manages own the following securities mentioned in this article: CWEN-A, BEP, BEPC.  He does not expect to sell any of them in the next three weeks, and may buy more of CWEN-A or BEPC.  He might buy BEP if the BEPC premium over BEP increases to over 10%.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  All investments contain risk and may lose value. Past performance is not an indication of future performance. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

ABOUT THE AUTHOR: Tom Konrad, Ph.D., CFA is the Editor of AltEnergyStocks.com (where this article first appeared) and a portfolio manager at Investment Research Partners.

The post The Brookfield Renewable Energy Corporation Premium appeared first on Alternative Energy Stocks.

A reader of my recent article on Yieldcos asked which share class of Clearway Energy was the better to buy for tax purposes: Class A shares (CWEN-A) or Class C Shares (CWEN).

For tax purposes, they are identical.  They pay the same dividend, and it is treated the same no matter which share class you buy.  The reason many large investors often trade CWEN rather than CWEN-A is because it is more liquid.  As I write on Jan 23rd, Yahoo! Finance puts the 3 month average share volume for CWEN at 1,372,714, while the corresponding number for CWEN-A is 412,958.  When you are trading tens of thousands of shares, this can make a big difference.  For you (presumably) and me, not so much.  I actually like illiquidity, since I usually trade using limit orders, and let people who want to trade a lot of shares come to me, rather than chasing the current market price.

Because large investors prefer CWEN, it usually trades at a small premium to CWEN-A, even though the dividends are the same, and a single share of CWEN-A represents 100 times more votes when it comes to proxy ballots.  This is only a big deal when there are rumors of a possible buyout or similar corporate action, but at such times the price premium CWEN usually enjoys is likely to become a discount, as investors who care how the vote turns out focus on buying votes instead of liquidity.

As you can see from the above chart, CWEN usually trades at around a 5% premium to CWEN-A, meaning you have to pay about 5% more for a class C (CWEN) share, even though you get more votes and the dividend is the same (so the percent dividend yield a.k.a. dividend for every $100 invested higher.)

Recently, the CWEN premium has been rising, and is around 7.5%.  I’ve always bought CWEN-A. Now, if anything, CWEN-A is an even clearer way to buy Clearway.

Maybe I Was Wrong?

I started this article by saying that there was no difference between CWEN and CWEN-A for tax purposes.  But now I’m thinking that the CWEN premium is more likely to narrow than widen in the medium term, so there is one difference: You’re likely to make more money buying CWEN-A than CWEN, and making money leads to a higher tax bill.

So if taxes are all you care about, you should buy CWEN.  Those of us who care more about making money should buy CWEN-A.

DISCLOSURE: As of 1/23/2024, Tom Konrad and funds he manages own the following securities mentioned in this article: CWEN-A. In the next two weeks, he may buy more or CWEN-A, and might sell some CWEN short as an arbitrage trade, especially if the premium over CWEN-A increases.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  All investments contain risk and may lose value. Past performance is not an indication of future performance. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

ABOUT THE AUTHOR: Tom Konrad, Ph.D., CFA is the Editor of AltEnergyStocks.com (where this article first appeared) and a portfolio manager at Investment Research Partners.

The post The Clear Way to Buy Clearway appeared first on Alternative Energy Stocks.

Despite a run-up in the fourth quarter of 2023, it has been a long time since valuations of clean energy stocks have been this cheap.  Perhaps it is worries about hostility towards clean energy under a new Trump administration, or disappointment at the slow implementation of the Inflation Reduction Act.  Whatever the cause, prices are low, and many clean energy stocks are likely to  produce good returns even if the political climate turns further against them.

This is especially true for companies that are less dependent on favorable policy or subsidies.  For instance, Yieldcos, high yield companies that own and develop clean energy assets like solar and wind farms get most of their profits from things which are already built.  New subsidies, like those included in the Inflation Reduction Act, almost exclusively target new facilities.  Because of this, changes in subsidies and interest rates will affect a Yieldco’s growth prospects, but will have limited effect on its short term earning potential.  

Yieldcos such as Brookfield Renewable Energy (BEP and BEPC), Atlantica Yield (AY), Clearway (CWEN and CWEN-A), and Nextera Energy Partners (NEP) fell as much as 50% in 2023.  At current prices, I love them all.  Collectively, these four names account for a fifth of the portfolio.  My current favorite is Nextera Energy Partners, which I have historically felt was consistently relatively overvalued because investors have had faith in its strong sponsor, Nexterea (NEE).  That valuation did not survive the effects when persistently high interest rates led NEP to sharply cut its dividend growth targets last September.

Among the Yieldcos, NEP got the least benefit of the strong rally in the fourth quarter, and it is still trading at a price that gives it an 11% dividend yield.  That high a yield would normally signal that investors are expecting a dividend cut.  I think such a cut is unlikely.  First, NEP’s liquidity and cash flow ratios are in line with other Yieldcos, and if management felt that a dividend cut might be necessary in the near future, they would have done it when they were already disappointing investors by slashing their dividend growth plans.  Instead, I expect NEP’s dividend growth to stall for several years.  But at 11%, who needs growth?  

Another likely scenario would be for NEE to buy back the outstanding shares of NEP to improve its own cash flow ratios.  This is far from unprecedented – Transalta (TA) did exactly that last year by buying back the outstanding shares of TransAlta Renewables (Toronto: RNW).  NEE, like TA, would buy NEP at a 10-20% premium to current prices.  NEP has significant convertible debt financing, much of which will need to be refinanced in 2026.  If NEP has trouble refinancing this convertible debt, I expect the most likely scenario will be a buyback by it parent, NEP.   I’d prefer to collect an 11% dividend for several years to come, but a small short term gain is not something to scoff at.

DISCLOSURE: As of 1/15/2024, Tom Konrad and funds he manages own the following securities mentioned in this article: Brookfield Renewable Energy, Atlantica Yield, Clearway, Nextera Energy Partners. He expects to add to (but not sell) some of these positions in January 2024.  This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  All investments contain risk and may lose value. Past performance is not an indication of future performance. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

ABOUT THE AUTHOR: Tom Konrad, Ph.D., CFA is the Editor of AltEnergyStocks.com (where this article first appeared) and a portfolio manager at Investment Research Partners.

The post Yieldco Valuations Look Attractive appeared first on Alternative Energy Stocks.

I met VegTech Invest CEO, Elysabeth Alfano at the 2023 ESG for Impact Conference, where she made a strong case for investing in food and agricultural systems innovation as a method for reducing greenhouse gas emissions and other environmental harms.  I wanted to learn more about the specific innovative companies she thinks are worth investing in, and so I interviewed her and VegTech Invest Chief Investment Officer, Dr. Sasha Goodman about these themes.  The interview follows. 

 Tom Konrad Ph.D., CFA –

Editor

 Q: Thanks for taking the time to speak with me.  To begin with, can you tell us what VegTech is and why investors might want to invest in the theme.

 Ms. Alfano: VegTech is the innovation that is driving the transformation of sustainable food systems, moving away from inefficient and unsustainable animal proteins and replacing them with nutritious alternatives that are significantly less damaging and, at scale, less costly.  Given the problem-solving nature of these innovations, this theme reflects an anticipated megatrend in which all consumers adopt – to varying degrees – proteins that are more nutritious, more prolific, take less time, require fewer inputs and create less damage.

This represents a significant opportunity to make money with this trend, as well as potentially bring down the carbon footprint of one’s portfolio by investing in this theme.

Q: What percentage of world GHG emissions come from the food system and what is the potential for reducing these emissions by 2030 and by 2050?

 Ms. Alfano: Conservative estimates state that 16.5% of the world GHG emissions come from animals as food.  More significantly, 32% of the world’s global methane emissions come from grazing and growing crops to feed animals.  Life cycle analysis shows the delta of impact for a plant-based burger is 99% less water, 93% less land, 90% fewer greenhouse gas emissions emitted and 46% less energy used.

Impact by 2030 and 2050 will depend on how much capital is driven (through the public markets, but also governments) to VegTech innovations.    According to the Boston Consulting Group, investing in VegTech/Alternative Proteins is 3x-40x more impactful at reducing GHG emissions than investing in alt energy, electric vehicles or alternative building materials.  This is primarily because the CapEx needed to build out the VegTech infrastructure is much lower than the other sectors, so adoption and impact can happen faster.

Q: What are the current options for public market investors to access this theme?

 Our research shows that there is only one option for this theme in the public markets: EATV ETF (NYSEArca:EATV).

 Q: I note that EATV is an actively managed ETF.  Why did you choose an active as opposed to a passive, more index-based approach?

 Ms. Alfano: Markets are dynamic and this sector is dynamic, with anticipated IPOs for novel technology companies. Therefore, we thought it best to have the option to make decisions without restraint. Still, the ETF trades quarterly and, thus, is mindful and disciplined regarding turnover.

Lastly, it is rare to see an ETF led by industry sector experts, but both Stanford educated Dr. Sasha Goodman, Portfolio Manager of EATV, and Elysabeth Alfano, CEO of VegTech Invest, are food systems transformation experts who understand and are involved in the nuances of the shifting global food supply system, as well as being venture and private investors.

Q: How do you decide if a company that’s involved in the food system belongs in the VegTech theme? How many companies are currently in your investing universe?

Dr. Goodman: We continually scan the landscape for plant-based companies, starting with a pool of over 100 potential candidates, as listed in the VegTech non-tracking index EATVi. Companies are selected based on rigorous quantitative and qualitative analysis, including in-depth revenue research. We sample around 50 products per company, aligning them with revenue segments to ensure they meet our prospectus criteria, ultimately choosing those best positioned to leverage market trends in sustainable food systems transformation. These are companies that are innovating for efficiencies and disruption and fit into our categories, which notably include business-to-business players, such as flavor technology and ingredients producers and synthetic biology specialists, in addition to the plant-based consumer goods.

Q: How has the ETF performed in comparison to EATVi?

 As of 10/31/23, the actively managed and non-tracking ETF, EATV, surpassed the EATVi index across the 1, 3, 6, and 9 month cumulative periods, and the 1 year average annualized periods.

Q: What technologies or methods for transforming agriculture are you most excited about?

Ms. Alfano: We are most excited about both fermentation and cultivated meat.  Cultivated meat, growing meat from cells, is still 6-8 years away from scaling, so I will discuss fermentation here.   We have been fermenting foods for hundreds of years: kimchi, vegetables, tea, bread, and beer are a few examples.  It makes good sense that we would now ferment proteins.

Companies like Gingko Bioworks (NYSE: DNA) engages in partnerships and collaborations where they provide their services and expertise to help other companies develop and produce bio-based products. This is often done through the use of Ginkgo’s platform.  Lamb Weston is selling potatoes to be fermented as protein.  AB inBev, the largest fermenter in the world, is now fermenting proteins through its company BioBrew.  It is exciting to see a company of such size and expertise, now focusing its attention on feeding a growing population quality proteins, without damaging the planet.

Q: Under what circumstances is controlled environment agriculture (greenhouses, etc.) better for the environment than field agriculture, and when is it worse?

Dr. Goodman: Controlled environment agriculture (CEA), like greenhouses, is generally more eco-friendly than traditional agriculture. When positioned near urban areas, CEAs reduce transportation emissions, offer fresher product that can last longer and minimize food waste. Their enclosed nature safeguard waterways by limiting pesticide and fertilizer runoff, and operate with 70-95% less water use, also utilizing rainwater collection. Modern CEAs optimize natural light, use energy from biogas, and CO2 from industrial sources, enhancing sustainability. Linking CEAs to renewable energy sources such as wind, solar, or geothermal eliminates dependence on non-renewable energy.

Q: EATV’s full holdings are available for review here: https://eatv.vegtechinvest.com/full-holdings.  Please describe how your top 3 holdings are helping reduce the environmental impact of the food system.

Dr. Goodman: VitaCoco’s (NASD:COCO) specialization in coconuts puts them in a good position in the Plant-based Innovation food supply chain. They currently offer coconut water, coconut milk, and coconut oil. Their coconut milk is a dairy alternative that lasts around 12 months on the shelf, and is less likely to spoil and therefore reduces food waste. Both their coconut water and milk are shelf-stable. Notably, their ability to produce coconut oil positions them well in the supply chain, as it is a popular ingredient in plant-based meat recipes. Coconut oil is currently a primary fat source in many plant-based meats due to its semi-solid state at room temperature, which makes it a better substitute for solid animal fat than other plant oils.  Further, VitaCoco is also committed to eco-conscious initiatives, investing in recycling infrastructure and promoting regenerative agriculture.

Celsius (NASD:CELH) offers plant-based energy drinks made with natural ingredients like green tea extract and ginger. Their products, packaged in recyclable aluminum cans, align with sustainable practices, emphasizing a long shelf life and the use of recyclable materials.

e.l.f. Beauty (NYSE:ELF), while not food-related, focusing on carbon reduction and ethical practices. Material companies like this comprising about 20% of the fund portfolio.

Q: I found a few of your holdings surprising, since I had not previously associated them with food system innovation.  Can you tell me how you believe DOLE and TESLA are helping make our food system more sustainable?

Ms. Alfano: Dole (NYSE:DOLE) is the OG of non-dairy ice cream, if you will, with the Dolewhip product.  But much more on the cutting edge is that Dole is upcycling is pineapple skins to produce alternative leathers.  Ultimately, if we are making less beef, we are making less leather.  And given the environmental footprint of a tannery, that’s a good thing.

Alternative materials act as a follow-on hedge with alternative proteins if you will, per the above.  It is for this reason that EATV focuses around 80% on food and 20% on materials. Not only does this give the fund diversification, but also capitalizes on the innovations that are occurring around replacing environmentally damaging animal products from supply chains.

Enter Tesla (NASD: TSLA).  Tesla was the first car manufacturer to mandate only having alternative leather in its vehicles. This prompted Mercedes and BMW to have around 50% alternative leather for their cars.  Automobile leather is second only to shoe leather for its large-scale production, so it is meaningful to have car companies move away from leather per Tesla’s initiative.

Q: One company I immediately expected to see were companies focused on plant-based food products like Beyond Meat (NASD: BYND and SunOpta (NASD:STKL), but I was surprised to note that these names each account for less than 1% of your portfolio, when your top holding (Vita Coco/COCO) is almost 10%.  Why do you have such low allocations to such obvious VegTech names?

Ms. Alfano: We allocate in the fund according to a mix of qualitative and quantitative considerations: performance, financials, potential IP moats, CapEx spends, EBITDA and revenue growth and profitability, volatility, in addition to considerations of environmental and human rights goals. The companies can’t just have great innovations. They also have to be well performing companies for larger allocations.

The markets have been tricky and that has been almost without exception for all companies, bar a few.  We believe two things are at play: small and mid-cap companies, which is around 70% of EATV, are undervalued at the moment, leaving room for a great buying opportunity.    The markets have not yet priced in the magnitude of demand and necessity for food systems transformation.   Thus, currently, EATV offers high growth companies and low growth prices.  We do believe it is a great time for buyers to get into the EATV ETF as we see food innovation coming to take center stage in the investment community on the near horizon.

 Q: Moving beyond investing for a moment, can you describe a few actions people can take in our personal lives to help make the food system more sustainable?  What is the potential for each of these actions to reduce our own carbon footprints?

 Ms. Alfano: For starters, investors can invest in the EATV ETF to potentially lower the carbon footprint of their portfolios.  EATV is determined by ACA Global’s Ethos ESG to be the only ETF to be Carbon Neutral without buying credits due to the emissions avoidance impact of the fund.  It isn’t producing large amounts of emissions, thus, doesn’t need credits to cover them up.  Perhaps this is best illustrated by the following:  Ethos ESG has found the global temperature warming potential (image attached) of EATV to be 1.18C, well below the Paris Accords recommendation.  For a reference point, the global temperature warming potential of one of the most common investments, the S&P 500 index, is 3.87C.

Beyond investing to lower the carbon footprint of one’s portfolio, Project Drawdown, the Physician’s Committee for Responsible Medicine and the Intergovernmental Panel on Climate Change (IPCC) all agree that one of the most important things one can do for the environment is to remove meat and dairy in part or in full from one’s diet.

The LinkedIn, San Francisco headquarters took its employee cafeteria two-thirds plant-based for 1 month, with meat and dairy still available, but less than usual, and the employees 1) dropped their meat consumption by 55% and 2) the company as a whole dropped its CO2 by 14,000kg.  Further they received letters of thanks from the employees who had been trying to eat better for their own health and healthcare costs but were finding it hard when fried meat and rich dairy fats were the choices they were given.  They were happy for the healthier options and the company was also happy to reduce its CO2 numbers and in the long-term, they believe, their corporate healthcare costs while improving employee productivity.

 Q: What else do you think stock market investors should know that I have neglected to ask about?

 According to OurWorldinData.org, 41% of the world’s tropical deforestation is driven my growing crops for animal feed and grazing animals.  According to the United Nations, animal agriculture is the leading cause of biodiversity loss and deforestation due to growing crops and grazing for animals who get the food instead of people.

According to the U.N., the population will grow from 8B to 9.7B by 2050, but we won’t get more land or water.  A growing middle class in Africa, India and China will increase the demand for meat without the natural resources to sustain this.

These aren’t new data points and governments around the world are deeply focused on food insecurity and the political insecurity that comes from this.  Israel, China, the Middle East, Singapore, German, Holland, Canada and the U.S. are all investing in the infrastructure and innovation, along with private investors and now, through EATV, and the public markets.    Shifting the food systems isn’t a nice option or a preference. It is a necessity and the production and adoption is expected to shift quickly according to meat industry experts at Cargill.

Synthesis Capital, based on the think tank, ReThink X, anticipates the tipping point adoption of 10% around 2035 with earlier investment opportunity and growth to be made before the tipping point.

We believe the VegTech sustainable and prolific proteins theme, as exemplified in EATV, is a very strong thesis.  Please reach out to either Stanford educated Chief Investment Officer, Dr. Sasha Goodman, or VegTech Invest CEO, Elysabeth Alfano at Info@VegTechInvest.com. For more information on the Plant-based Innovation & Climate ETF, EATV, and to view the full holdings, visit https://EATV.VegTechInvest.com.

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Transmission and distribution is the process of getting electricity from the point of generation to the point of use. Unfortunately, upgrades, maintenance, and the need to extend the electricity infrastructure from point a to point b are often ignored. Also ignored are infrastructure designs that support a distributed grid with renewable energy sources of electricity.

Transmission bottlenecks are the utterly foreseeable consequence of accelerated solar and
wind deployment. As countries worldwide were announcing RE goals, holding auctions, and providing incentives, system operators everywhere were warning about the need to add new and upgrade existing infrastructure while also warning about the effect of variable sources of electricity production on the grid and mismatched peaks.

The industry and governments listened, but governments and utilities didn’t act. And then,
seemingly overnight, accelerated solar deployment DID happen, bringing long queues for transmission studies, high costs for the new transmission, long connection queues, and curtailment as a special treat.

Ontario, Canada, offers an example of what happens when a country moves to accelerate
solar deployment by offering healthy incentives without considering whether its  infrastructure is up to the deployment goal. In 2009, the province’s government announced a generous 20-year feed-in-tariff for rooftop and utility-scale solar and a CAD $2.3-billion T&D plan. The new feed-in tariff was the centerpiece of Ontario’s Green Energy Act. The act also made connection permits easier and established a Right-to-Connect for RE projects of any size. Project approval queues sprang up overnight, as did requests by homeowners. Unfortunately, projects were proposed in areas where new transmission was necessary to deliver the electricity to the demand centers. After experiencing long wait times, developers began canceling projects.

Ontario applied restrictions and fines to prevent early and easy exits but, as transmission
building continued to lag, was forced to allow developers to exit without penalty.

When Ontario first announced its FiT, it expected gigawatts of deployment. Though installations in Canada did increase, mainly in Ontario, deployment was primarily rooftop and far below expectations. Figure 1 depicts solar growth in Canada from 2009 through 2019. Deployment is, again, primarily in Ontario.

Canada Demand Growth, 2009-2019

Over ten years ago, California’s Independent System Operator stated that increasing solar on the state’s grid would strain resources partly because of inadequate transmission and partly because solar’s peak is a mismatch for the demand peak – the infamous duck curve. The mismatch can be mitigated with storage, but over ten years ago, storage was considered too expensive and, in some cases, unnecessary. One west coast utility announced that it did not need storage but would instead strategically install wind and solar, assuming that wind would take over when solar stopped producing. As everyone knows, it never pays to bet on the weather. Sometimes the wind doesn’t blow, and the sun doesn’t shine.

The current situation, understood well by developers, is for longer wait times for transmission studies to begin and higher costs for transmission when they do. Building new transmission is, ballpark, $1-million a mile (or so), with the cost of undergrounding lines much higher. Who pays? – often the developer. Other project delays, such as permitting and offtake agreements, are icing on the unpalatable cost-overrun cake.

The infrastructure problem is global – and since deployment activity continues apace, it’s  not improving.

Most countries, for example, China, though the problem is far beyond just one country, continue installing and simply do not connect new systems to the grid. Systems that are connected to the grid are almost always subject to curtailment.

Transmission planning is the boring, necessary stuff of getting electricity from one point to
another. Rethinking infrastructure to enable a world dominated by renewables is a challenge – and an expensive one. The electricity future cannot be a reimaging of the past. It will take bold thinking and unpopular action to redesign the current electricity structure, literally, tear it down, redesign, and build new – one circuit at a time if that is the only way to move forward.

What the world needs now isn’t love, sweet love (What the World Needs Now is Love, lyrics, Hal David); it’s a T&D infrastructure that serves the present and addresses the future.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here. 
This article was written for SPV Reaserch’s monthly newsletter, the Solar Flare, and is republished with permission.

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China has loosened the zero-Covid policies that helped the country continue functioning during the first stage of the pandemic, while much of the rest of the world shut down.  Unfortunately, the policy was remarkably successful at keeping people from catching the virus, meaning that the population has little natural immunity to the now more infectious strains of the virus circulating today.  Combined with a weak vaccination policy, Chinese infection rates, hospitalizations, and deaths from the virus are skyrocketing.  This is both a human tragedy, but also a source of considerable uncertainty regarding the country’s ability to continue to fill supply chains the world over.

In short, expectations for the world economy in 2023 are looking to be somewhere between A Clockwork Orange [1971] and The Exorcist [1973 and 2023] on the Hollywood scale of economic prospects.  

When it comes to the stock market investing, investor mood swings tend to overshoot.  If we think other investors are tuning in to horror movie marathons, it’s often a good move to surf on over to the Disney Channel for a little hope in the face of adversity.  At the Foundation Green Income Fund, our mood is less Texas Chainsaw Massacre [1974]  and more Up [2009].

Without a doubt, there are going to be moments when things don’t look good for our animated stock market heroes in 2023, but we’re feeling optimistic about the prospects for the clean energy income stocks that are the core of our portfolio.  The horror movie watchers have knocked valuations back down from the romantic comedy highs we saw at the end of 2021, and new policies like the inflation reduction act and Europe’s push for free itself from Russian fossil fuels are both greatly boosting the chances of an uplifting ending, despite the challenges.  The Russians are likely to inspire clean energy stock market progress.   Call it an October Sky [1999] theme for 2023.

The stock market is never without risk, so investors need to focus not on avoiding risk, but looking for those times and places where the potential downside is already reflected in prices, but the potential upside is not.  Those times come and go in both the market as a whole, and sectors.  

Since I started writing for AltEnergyStocks.com in 2007, I’ve only been more optimistic as I am now three times.  In early 2016.  A group of clean energy infrastructure stocks called Yieldcos had gone through a bubble which popped in mid-2015. Those same Yieldcos were trading at great valuations, and I bought lots of tickets to that feel-good movie, leading to a couple great years for my “10 Clean Energy Stocks” model portfolios in 2016 and 2017. 

Similar great movie and investment opportunities for the whole market were released in 2020 at the height of the pandemic, and in late 2008 during the implosion of housing bubble.  Both of these are great examples of the theme that when horror movies are playing (maybe Pandemic and The Shining, respectively) brave souls who buy during the scariest parts often end up doing well. I was less brave than I should have been about the market’s prospects in 2020, so did not go all-in; I cautiously bought a few tickets at the time.  In late 2008, I wanted to buy, but I had been less prepared for a downturn early that year than I should have been, so why I wanted to buy, I did not have the cash to invest that I should have.  2008 was an important learning experience for me, and a large part of the reason the crash in early 2020 did not catch me off guard.

This year, the previews have definitely gotten me interested again.  I’m not as confident that green income stocks are ready for the blockbuster year as I was in 2016 or late 2008/early 2009, but I’m more confident than I was at the lows of the pandemic bear market of 2020.

2023 is an investment movie I am excited to see.  I’m buying lots of tickets.

DISCLOSURE: No positions in the movies mentioned in this article.  I have not even seen all of them… horror movies are not my thing.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post 2023: Looking Up Like the 2009 Disney Movie appeared first on Alternative Energy Stocks.

The market for reliable back-up power in homes and businesses is booming.

With more people working from home and increasing news coverage of power outages due to severe weather events and public safety power shutoffs in California (not to mention domestic terrorism), power reliability seems like it’s destined for a long term boom.

New Competition

A decade ago, if you wanted backup power, a generator was the only option.  Now, there are an increasing number of battery-based alternatives beginning to compete with generators to provide back-up power.  While most battery-based solutions are better than gas or propane generators when it comes to carbon emissions, none of them can yet beat traditional generators in every way most homeowners and businesses consider important.  It’s more of a “horses for courses” type scenario with the best solution depending on price, the amount of power needed, the length of power outage the buyer is preparing for, and convenience. 

Here is a list of options a homeowner might consider and how they stack up.

Natural Gas Generators

Traditional gas generators which run off the utility gas network are a relatively inexpensive solution for a homeowner looking to power their entire home for extended power outages lasting days or weeks.  The main downside for such gas generators is that they won’t work if the weather events or other factors cause a gas outage at the same time as an electrical outage.  For example, during the 2021 Texas Power Crisis, one of the major causes was a cascading problem of cold temperatures shutting down both gas supplies and electric generation.  The resulting lack of electricity caused further problems with gas supply leading to further electric shortfalls, and so on.  All in all, gas supply dropped by approximately 56 percent (and production in Texas dropped by approximately 40 percent) during the crisis.  This means that even people who had home gas generators may not have been able to use them when the power went out.

Liquid Propane Generators

Generac and competitors’ propane generators share the low cost and most of the convenience of gas generators but cost more to run because they rely on propane stored in a tank on the premises, and delivered propane fuel costs far more than pipeline gas.  On the other hand, local storage of the fuel makes them more reliable in an electrical outage that lasts a few days even if the crisis also affects the natural gas supply.  On the downside, the generator will eventually use all the fuel in the tank, and a prolonged crisis may interfere with propane deliveries.

Gasoline and Diesel Generators

Gasoline and Diesel generators are typically smaller than the natural gas and propane generators. They typically do not have the capacity to power a whole home and deliver their power through outlets on the generator itself.  Although they are not a solution for whole home power backup, they can be used to power critical loads like the refrigerator to prevent food from spoiling and charging electronics.

They are also commonly used by building contractors to work on sites that are not yet connected to the grid.  Their relatively low price point (hundreds as opposed to thousands of dollars) appeals to people who want some backup power but find that a whole home generator is too much for their budget.

Home Battery Backup

There are now a number of home energy battery brands in addition to the best known Tesla (TSLA) Powerwall.  These include the PWRcell offering from home generator leader Generac (GNR), as well as offerings from Panasonic (Tokyo:6752 or US ADR:PCRFY), microinverter maker Enphase (ENPH), and solar manufacturer SunPower (SPWR).

Until the recent passage of the Inflation Reduction Act (IRA),  the only way to get 24% the US federal Investment Tax Credit (ITC) for a home battery system was to install it with a solar system in such a way that it charged primarily from the solar.  The IRA both extended and raised the ITC to 30%, and made it applicable to stand-alone battery systems.

Now that home battery systems can be installed independently from solar and still qualify for the ITC, we can expect demand to increase as homes and businesses that are not good candidates for solar suddenly see effective prices fall by 30%.

Batteries vs Generators

Even with the tax credit, however, home battery storage is likely to remain relatively expensive compared with generators for the purpose of maintaining power during an outage. 

If a generator has enough power to supply the electricity need, it can continue to supply that need as long as it is connected to a large enough storage tank or to the gas network.  Because of this, increasing the duration that a generator can protect against a power outage costs very little.  In contrast, doubling the duration that a battery system can protect against a power outage requires doubling the size of the battery, which will nearly double the cost.

Because of this, generators have a significant economic advantage compared to stand-alone batteries when it comes to ensuring long term power supply.  But while secure power supply may be the main attraction for consumers of home battery storage and generators, batteries are far more attractive to grid operators and utilities because of many services they can provide that generators cannot:

• No direct greenhouse gas (GHG) emissions: Electricity from batteries is as clean as the power used to charge them. Small generators, which rely almost exclusively on fossil fuels produce GHG emissions usually far in excess of other electricity on a utility’s grid.  Any reliance on generators makes it harder for a utility to meet its targets for GHG emissions reduction.  While some utilities have voluntary GHG targets, many also are subject to legally binding targets imposed by their regulators and state governments.
• Load shifting and renewable energy integration: Increasing solar and wind penetration on the grid is rapidly changing net usage patterns for electricity.  This trend is particularly pronounced in states that have been early adopters of solar, like California and Hawaii.  Both have now adopted compensation schemes for solar that give homeowners strong incentives to pair solar with battery systems. Since these battery systems also give the homeowners some protection against power outages, this eats into the market for home generators.
• Utility grid upgrade deferral: Batteries can also be used to delay or replace expensive grid upgrades.  Utility power lines and transformers need to be sized to the peak power usage that passes through them, even if this peak only occurs for a few hours per year.  If controlled by the utility, batteries in homes can help with this: by charging when the local line or transformer is operating well below its peak capacity, and supplying that power to meet local demand when it otherwise would be operating at or above peak.  

Green Mountain Power has an interesting pilot program where it leases home battery systems to customers at a subsidized rate in return for the right to use that battery for both utility upgrade deferral and load shifting so long as it keeps enough charge in the battery to assure the customer that they will have protection from a power outage.  Battery system owners can also enroll in the program in exchange for an upfront payment of up to $9,500.  A payment that large could easily influence a homeowner to prefer a battery backup system over a generator.

I expect similar programs to proliferate around the country as utilities and their regulators become more familiar with the benefits batteries can deliver to the grid.

…And It Also Provides Backup Power

An even larger potential disruptor for the generator market is devices that consumers buy for other reasons, but which can also provide power in a blackout.  A prime example of this is the Ford (F) F-150 Lightning: an all-electric pickup truck which can also power your home with the right electrical upgrades.  Electric cars from Nissan and VW are expected to have similar capabilities soon.

The F-150 is only the most prominent example of battery powered vehicles, devices, and appliances that can also deliver backup power.  Many other electric and plug-in hybrid electric vehicles come equipped with standard 120V outlets, while the Kia EV6 has an adapter which turns the charging port into a functional 120V outlet.  Even if an electric or hybrid vehicle does not come with a 120V outlet, an inverter costing $300 or less plugged into the cigarette lighter or attached to the car’s traditional 12 volt battery can serve much the same purpose.  This ability of an electric or hybrid vehicle to power one or more standard outlets is referred to as “Vehicle to Load” while the F-150 Lightning’s ability to replace a home generator is often called “Vehicle to Home.”

While Vehicle to Load cannot replace the utility of a whole home generator, it can easily replace the functionality of smaller gas and diesel generators.  Homeowners who already have electric cars that can power their refrigerator and charge their electronics will also be less likely to spend thousands of dollars on a generator to power their whole home during infrequent outages.

Energy Storage Equipped (ESE) Appliances 

Nor are cars the only devices that can provide incidental power backup.  Owners of Ego battery lawnmowers, snowblowers, and other devices can buy the Ego Nexus Power Station which uses the batteries from those devices to provide all the functionality of a gasoline or diesel generator that can be used indoors.

Photo: The author and other members of the Marbletown Environmental Conservation Commission and Rondout Valley High School Environmental Club with their all electric entry in a holiday parade. The trailer is being towed by a 2012 Toyota RAV4 EV and the lights and music on the trailer are powered by a Ego Nexus Power station.  Other entries trailers in the parade have lights powered by gas or diesel generators.

Another potential development is the including of batteries in home appliances that have not previously had them.  These Energy Storage Equipped (ESE or “Easy”) Appliances also provide incidental power backup.  The main purpose of the batteries is to enable efficient electric appliances like induction stoves and heat pump water heaters to replace their gas counterparts without expensive electrical upgrades.  The batteries allow them to deliver high power performance (like an induction stove’s unmatched ability to boil a large pot of water in minutes) while plugging in to a typical low-power electric outlet.  The extra cost of the battery is offset by lower installation cost and the new investment tax credit for battery storage, effectively delivering a device that not only delivers high performance cooking at no extra cost, but also provides an external outlet which can power your fridge and other critical loads during a power outage.

While neither the Nexus Power Station nor an ESE appliance can deliver the full performance of a home generator, if someone gets one because they need a new stove or snowblower, they will probably be less willing to pay thousands of dollars for a home generator.

Conclusion

While the market for reliable home power is expanding, companies that sell home generators seem  likely to benefit only in the short term.  Longer term, increasingly ubiquitous electric and hybrid electric vehicles with Vehicle to Home and Vehicle to Load capability, along with Energy Storage Equipped (ESE) appliances and utility programs that subsidize (or give away) home battery storage will disrupt the market for generators in a way with which they cannot compete.  

How will a home generator installer persuade a customer to spend many thousands of dollars on a home generator when they already have most of the resiliency benefits it can supply for much lower cost, or even for free as an extra feature of an appliance they would have bought anyway?

A few people still buy high-end digital cameras for the capabilities that a cell phone can’t yet emulate, but those people (and those capabilities) are becoming fewer and fewer.  Ten years from now, we’ll be saying the same things about home generators’ capabilities and home generator buyers..

DISCLOSURE: No positions in companies mentioned in this article.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post How New Battery Applications Will Disrupt the Home Generator Market appeared first on Alternative Energy Stocks.

Disclosure: Long all the stocks in the 10 Clean Energy Stocks model portfolio.

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