Two new reasons why the energy market is set to be transformed: bankruptcies, bubbles and opportunities await

The energy industry is set to be transformed. There are lots of reasons why, but I have two new ones to tell you about. The end result will be dramatic indeed, old established companies will collapse, a new lucrative opportunity will emerge, but in the hype, investors will chase false promises and bubbles will inflate and burst.

Article updated: 23 July 2018 10:00am Author: Michael Baxter

Reason number one: boy it’s hot

In 1976, the UK basked in its hottest summer ever recorded. No one, as far as I recall, put it down to changing climate, it was just a random thing. In fact, it was the year before that, in 1975, when the first ever scientific paper, by Wallace Broecker, had the words ‘global warming’ in the title.

42 years later, the UK is having a summer that may well emerge as comparable to ‘76. This does not prove climate change of course. It takes more than a few weeks of above average temperatures to suggest the climate is changing. Then again, four months ago the UK was experiencing the coldest winter I can ever recall. It feels as if we have gone from Arctic to Mediterranean climate in just four months. That’s weird.

But the warm weather is not unique to Britain. Sweden, for example, is seeing forest fires rage inside the Arctic Circle.

There is a wider issue. 2017, was the third warmest year on record, according to NOAA (National Oceanic and Atmospheric Administration), and the warmest year on record without an El Niño in the Pacific Ocean. The warmest year ever was 2016, the second warmest was 2015. The six hottest years on record have all occurred this decade.

The hottest year ever recorded up to the end of the 20th Century was 1998. The ten hottest years ever recorded have all happened either this century or in the aforementioned 1998.
Climate change is not proven by these figures, but they do provide strong evidence. Bear in mind, however, that the theory of climate change was formulated before there was any evidence of changing temperatures.

In 1989, Margaret Thatcher, with her degree in chemistry, gave a speech at the UN, warning about climate change. I wonder if that is why Nigel Lawson, who resigned from the Thatcher government, supporter of ERM but now EU critic and Brexit cheerleader, is willing to overlook the overwhelming body of evidence about climate change.

Climate change is real, I worry that it may prove to be even more serious than is currently expected, and the implications are simply massive.

If the 20th Century was the century of oil, the 21st will be when the oil industry shudders to a virtual halt. Until recently, its defenders told us that we still need oil for plastic, but then David Attenborough showed the world images of a new born whale apparently killed by plastic. As ever the deniers and vested interests slammed the BBC, there was no proof that the whale was killed by plastic, but that misses the point; it has been estimated that by 2050 the weight of plastic in the oceans will be greater than the weight of fish.

The need to move away from oil is clear. The odds of an aggressive and violent public backlash against oil companies or any company or politician seen to be in any way responsible for the twin threats of climate change and plastic pollution are high.

The world desperately needs a solution. The need for a revolution in renewable energy and energy storage is critical.

The absolutely wonderfully good news is that we are seeing a revolution in renewable energy and energy storage.

Reason number two: a hidden benefit of the electric car revolution

The cost of lithium-ion batteries has fallen by 80 per cent since 2008. These vehicles are now on the cusp of being commercially more viable than cars with an internal combustion engine. If the costs of lithium-ion batteries fall by another 80 per cent over the next ten years, the choice of an electric car over a petrol car will be a no-brainer. I believe that projections related to the rise of electric cars underestimate this. In fact, I reckon, that by 2030, very few new cars won’t be electric.

There is a hidden benefit in the rise of electric cars. When the batteries are no longer of any use for cars, they can still be used for other purposes, such as storage for the national grid, to kick-in when the sun isn’t shining and there’s no wind.

I read that this secondary use for lithium-ion is akin to taking old batteries from a torch and putting them in a remote-control device for the TV.

The opportunity this creates is massive. Bloomberg projects that by 2025, the cumulative capacity of used EV (electric vehicle) batteries will be 200 GWh a year. To put that in context, one GWh, or Gigawatt hours, provides enough energy for around three quarters of a million homes. So 200GWh is a lot of homes.

But that is 2025, forward wind the clock to 2030, or 2040 when most of the electric cars bought in 2030 are no longer in use. The implications are dramatic.

I read that some EV batteries such as those used by Tesla, are so efficient that they will not have a second life. But that is surely a good thing, if you care about climate change, more efficient lithium-ion batteries should be celebrated.

Investors

What should investors do? While keeping an eye on the dangers of over-hype, look at the leaders in battery production, lithium mining and regions where lithium is in high supply.

The list of reasons why you should not invest in Tesla is long - but I can’t help but think critics overlook the value of the expertise that the company has in AI and lithium-ion batteries. As for lithium miners, Albemarle is the company that gets the most plaudits. A triangle overlapping Chile, Bolivia and Argentina seems to be where most of the world’s lithium lies. This could create a region as wealthy as the OPEC countries.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

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Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.