Commentary

Alternative Energy Update

February 3, 2022

Dear Clients and Colleagues:

The last time we wrote about renewable energy was in February 2021, right after the deep freeze in the United States (U.S.) that created havoc in energy markets, particularly in Texas. At the time, many criticized wind and solar as not being reliable sources of power, and over the last year, a lot has happened.

Clean energy stocks are down, and the U.S. has seen its first increase in coal-fired electricity generation since 2014. Additionally, the market is selling off, which creates some uncertainty; will we see a repeat of the clean tech bust that occurred more than a decade ago? In short, we do not think so, but rather believe the current correction is an opportunity.

The chart below shows the Wilderhill Clean Energy Index. It is a dollar-weighted index of publicly traded companies whose business stands to benefit from society’s move to cleaner energy and conservation. It is down 28% year-to-date and down over 65% from its peak in February 2021.

As you may know from reading our weekly commentaries, we believe in the present and future role of renewable energy. An important milestone occurred in 2013 when the world added 143 gigawatts (GW) of renewable electricity capacity, compared to 141 GW added from new plants that burn fossil fuels (including nuclear).

A new record for clean energy capacity was anticipated for 2021, as 290 GW was added, which is double what we saw in 2013. The International Energy Agency (IEA) notes, “By 2026, global energy renewable electricity capacity is forecast to rise more than 60% from 2020, to over 4,800 GW, equivalent to the current global power capacity of fossil fuels and nuclear combined.”

Solar power was the most important source of new capacity in 2021, with around 160 GW

In terms of growth for 2021-2026, China should add 1,200 GW of new capacity, four years earlier than its target of 2030. India will double its rate of growth for the period 2015-2020 and will have the highest rate of growth. The U.S. and Europe will also see higher growth rates than what we saw in the last five years.

This is driven by ever-stronger government commitments. The rising cost of fossil fuels also makes clean energy more competitive. In fact, 2021 saw the first increase in coal-fired electricity generation in the U.S. since 2014 due to the strong demand and the high cost of natural gas.

In terms of costs, despite rising raw material costs, renewables remain the most competitive options.

Renewables Downtrend Costs

Bloomberg Powder River Basin 8800 BTU Coal Spot Price FOB/Gillette Wyoming

New York Mercantile Exchange Natural Gas Future contract

In last year’s commentary, we noted that at the end of 2020, 27 U.S. states had renewable energy targets, including eight that had a 100% clean energy target. In 2021, five more states were added to the 100% club.

In the U.S., renewable energy sources increased from 19% to 20% for all of 2021, and should increase to about 24% in 2023.

We hear a lot about hydro, solar, and wind, and we have exposure through a few companies, such as Innergex (INE:CN), Schweiter (SWTQ:SW), and Landis+Gyr (LAND:SW). Less discussed are other forms of renewables, such as deep geothermal (note, we do not consider nuclear power to be a renewable source of energy).

Deep geothermal

Geothermal power is a key component of our energy future, as it is endless, green, and most importantly, base loaded to counterbalance solar. The caveat has been the scarcity of geothermal beds close to the earth’s surface. If only we could go deeper and longer. We have had the answer for a decade. Companies are now perfecting the adaptation of oil and gas fracking techniques to create deeper and longer geothermal looping systems to access the earth’s endless source of heat. Refer to last year’s commentary, published on May 6, 2021 for more details.

Ormat Technologies (ORA: US)

Since 2008, we have held Ormat Technologies (ORA US, ORA IT) in our portfolio, a world-leading geothermal energy company. Ormat Technologies was founded in Israel in 1965 to pursue its objective to further develop renewable energy. Active in the geothermal field since the early 1980s, the Integrated Two-Level Unit (ITLU) was a vital development in maximizing the thermodynamic efficiencies of lower-temperature resources. The patented ITLU design revolutionized the industry, and to this day, distinguishes Ormat from other companies. The company has been public since 2004, and has established its headquarters in Reno, Nevada. Further, Ormat is an energy producer with 1,015 megawatts (MW) of production globally (up from 933 MW last year). In addition to its geothermal expertise, Ormat is now a leading player in the field of energy storage and management with 83 MW of installed power. Its 2023 goals are to increase electricity production to about 1,265 MW and its energy storage to about 325 MW.

Gas capture

Methane is produced from decaying organics (i.e., food waste, livestock, and fracking). Methane negatively produces 25 times more heat capturing units in the atmosphere than carbon dioxide (CO2). Converting captured methane into a natural gas equivalent (renewable or redeem gas) and then using it for transportation is actually carbon emission negative if we account for manure emissions. A mix with regular natural gas provides a complete carbon neutral gas, offering the U.S. energy infrastructure a potential carbon neutral future. As such, the five largest U.S. utilities have committed to zero carbon emission by 2050, renewable natural gas being core to the strategy.

Clean Energy Fuels (CLNE: US)

Based out of Newport Beach, California, Clean Energy Fuels Corporation owns and operates more than 560 natural gas fuelling stations across the U.S. and Canada, with over 1,000 fleet customers like Amazon, UPS or Waste Management. Clean Energy is a leading Renewable Natural Gas player with about 65% market share.

Biffa (BIFF: LN)

Biffa plc is a waste management company headquartered in High Wycombe, United Kingdom (UK). It provides collection, landfill, recycling, and special waste services to local authorities, and industrial and commercial clients in the UK. Biffa is the second-largest UK-based waste-management company.

The company is a leading player in capturing organic gases and turning them into energy. Biffa operates over 90 MW of generation capacity. In addition, the company is building two energy from waste (EFW) facilities; the first one will be ready in 2023 and will produce 42 MW, enough to power around 80,000 homes. The company is also investing in solar power with a goal to produce up to 100 MW by the end of the decade.

Hydrogen

The greenest of all molecules certainly holds great promise. Fuel cell, coupled with an electric motor, is two to three times more efficient than an internal combustion engine running on gasoline. Fuel cell costs have decreased by 70% since 2006.

A few of our companies, other than Clean Energy Fuels, participate in the hydrogen economy include Iwatani (8088:JP) and Hexagon composites (HEX:NO). You can read more about these companies in our commentary on May 6, 2021.

Have a great weekend.                                                            

The Global Alpha team