New Energy

The New Energy revolution

We recently started our analysis of the new energy revolution as energy is a foundation technology undergoing profound and rapid change. Changes to the foundation will have dramatic implications for countries, sectors and stocks.

The renewables revolution is the most important driver of energy markets for 200 years. Renewables are replacing fossil fuels in the same way as fossil fuels replaced plant and animal energy after 1800. Changes in energy supply have been one of the key drivers of history and hence of financial markets. The last energy revolution liberated humanity from the Malthusian trap and made possible a 7-fold increase in global population and a 13-fold increase in global GDP per capita. It enabled the UK, Europe and the US to rise to global prominence, and transformed geopolitics. This revolution will free humanity from dependence on fossil fuels and lead to a new flourishing of wealth and creativity. Geopolitics will be transformed by the decline of the petrostates and the energy leapfrog of China and India as they move straight to the new technology.

Consensus is extremely complacent about what is going on, and flat wrong in its forecasts for the speed of change. The key issue for markets is when is the tipping point at which renewables start to push fossil fuels out of the energy mix. That tipping point has already been passed in the EU and the US, and was reached by China in 2015. The global tipping point will be reached by 2020.

China is winning the renewables revolution, and will be the key driver of the transformation. This in turn will spark a belated reaction from the US, although it is hamstrung by vested interest in the old fossil fuel industries.

Implications for financial markets are wide: the slow decline of the entire fossil fuel industry; the transformation of the electricity and automotive industries; the rise of huge new industries in solar, wind, batteries, and electric vehicles; the inevitable flourishing of the defence industry in a period of geopolitical change; the change in the relative strength of energy importers and exporters.

We examine a series of issues related to this. For example – how far the transformation has progressed: we are moving beyond the ‘invention’ stage to the ‘surge’ stage, at which point markets traditionally get excited about the story. Meanwhile the performance of the new energy sector has hitherto been lamentable. We consider why is that the case, what are the themes which will work, and where are the best opportunities in this new area.

* Energy return on investment, Kingsmill Bond, 7 Mar 2017
The dawn of the age of solar
Solar energy
* The end of the ICE age, Kingsmill Bond, 2 Feb 2017
Electric vehicles
* Renewable intermittency, Kingsmill Bond, 13 Dec 2016
No barrier to transformation
Energy demand
* Marginal change moves markets, Kingsmill Bond, 21 Nov 2016
Marginal change is the driver of markets
Fossil fuel demand
* Marginal change moves markets, Kingsmill Bond, 21 Nov 2016
Marginal change is the driver of markets
Energy demand