The Transition Has Started…

Wednesday, 21 October 2020
Melbourne, Australia
By Greg Canavan

[5 min read]

If you’ve been tuning in to our Beyond Oil conference, you will have seen James Allen’s keynote address this morning. If you missed it, click here to view.

Staying with the theme, I wanted to run a few more of your responses in relation to the idea that we are ‘transitioning to a renewable economy’.

Barry makes a very good point about how this transition will impact the tax take on energy production and consumption.

The Australian Government collects substantial taxes from the oil and related products. How will this loss be covered if renewables dominate the energy mix?

Also Australia exports gas and coal which generates foreign currency, which is needed so Australia can buy goods from overseas.

I do not believe that Australia has unique technology in renewables to be a world leader, also our labour costs are high compared to other countries.

These issues cannot be ignored, how will these issues be addressed?

Thanks for the email, Barry!

It saddens me to say this, but I have no concerns over the government’s ability to tax us. What it loses in taxes during the energy transition, it will make up for somewhere else.

On the point of Australia’s coal and gas exports, it’s a great point.

If you turned off the tap today, the Aussie dollar would collapse, interest rates would rise, and our economy would plunge into a depression. Barry’s right. We earn substantial amounts of foreign exchange from our coal and gas exports, and this enables us to continue borrowing from overseas lenders.

What many people don’t realise, however, is that this energy transition is more of a developed economy trend. The developing economies of Asia, where most of our fossil energy exports go, are still building coal fired power plants and will need our coal for years to come.

China might be telling the West it plans on being carbon neutral by 2060, but it’s nonsense. It also told us 10 years ago it would liberalise its economy and currency, and now it is more authoritarian than ever.

So while the use of fossil fuels may decline for domestic use, I see there being a home for our exports (in Asia) for many years to come.  

***

Annette writes…

Yes, I am optimistic about a world beyond oil! Scientists have been telling us for decades that we need to move away from fossil fuels and finally governments are starting to, albeit at a slower rate than they should have, listen to them.

As you stated in your email, Australia is in an ideal position to make use of renewable energy as we have plenty of sunshine and wind. It often saddens and frustrates me when I see British TV programs, set in various parts of Europe, where we see background scenes of multiple wind turbines across the fields and I think “Why aren’t we doing that?” (To such a large extent, I mean.)

I would be interested to hear more about solar power and wind turbine projects; also anything relating to electric vehicles. The latter being the main thing that got me interested in investing in Talga Resources, because of their potential to be developing a way of EVs automatically recharging as they drive along the road. I know this is still a way off into the future, but it got me excited!

Looking forward to the conference.

Thanks for writing in, Annette. I hope you’re enjoying the conference.

As you say, a lot of this stuff is still a long way off. But in many respects, the future is now. There is so much going on in the space, which is why we decided to investigate the issue from a non-ideological perspective.

This isn’t about what you or I think about the transition to renewables. Personally, I’m a lot more sceptical about the transition than many others. But as I often tell readers of my Crisis & Opportunity letter, it doesn’t matter what I think. The market is moving (evidenced by the wall of money moving into renewable technology) and as investors, we’d be mad not to investigate it.

So follow along and yes, you will hear much more about solar, wind, EVs and everything else that is a part of this historic transition. It’s still only early days. 

***

In addition to wind, solar and water, there is also hydrogen. Karl is a big fan. He writes…

Hello Woody,

I believe the future of energy is hydrogen.

It ticks all the boxes.

It is pollution free because it can be made, by electrolysis, from solar energy and water, including sea water.

Fuel cells plus electric motors are well established technology, and can be used to power the grid, all levels of transport from the biggest to the smallest, etc etc.  In the long run the grid may become redundant, as hydrogen can be made and used anywhere there is water and sun (which is effectively everywhere). We have existing infrastructure to transport it, and it presents an opportunity to supply clean energy to the world.

The changeover to the hydrogen economy presents huge investment opportunities. Because it is such early days, it is hard to identify where those opportunities are.

You may be able to identify specific investment opportunities. Fortescue for example is on to it. No doubt there are other early mover investables already out there. Hopefully you agree, and can find them for us.

I also believe that battery technology is, at best, an expensive, wasting, short term proposition. We have been trying to invent a battery dramatically better than the lead acid battery since the late 19th century, with obviously modest (and way overhyped) results. Throwing money at batteries, right along the production to consumption chain, is in my opinion, money down the drain.

I greatly look forward to reading your report.

Keep up the great work

Thanks for sending in your thoughts, Karl. My response would be not to back, or discount, any technology too heavily. There will be lots of competing projects. Will it be Beta or VHS? Who knows? Have a little bit on everything, because we simply don’t know how the market will evolve and which technologies will prevail.

But you can give yourself a leg up by following the experts. James Allen is our clean energy guru. As I mentioned, he delivered his keynote speech to the Beyond Oil conference this morning. If you haven’t seen it already, you can check it out here

Cheers,
Greg