“The energy and digital transition will destroy the environment in unprecedented ways. Ultimately, the ecological cost of building this new civilization is so enormous that there is no guarantee of success. Your power has blinded you so much that you have lost the humility of the sailor before the ocean and the climber before the mountain. You forget that the Earth will always have the last word.” — Guillaume Pitron,
Renewable and green energy are very trendy. Driven by climate change and other environmental concerns, Environmental, social and governance (ESG)-focused funds reached $3.9 trillion in assets under management (AUM). End of September 2021. The “World Energy Investment 2021The report expects these assets under management to proceed to grow in the approaching years.
Among the report’s most interesting findings – and there aren’t many – are the next:
“Policies remain a key driver for many energy investments.” . .”
In other words: investments in renewable and green energies will not be determined by economic guidelines, but by political ones.
So what’s flawed with that? Sometimes governments must take the lead and offer tax credits, grants and other carrots and sticks in the shape of legislative and legislative measures to bring in regards to the needed changes. The technological advances in green and renewable energy during the last 40 years are impressive.
- In 1981, the biggest wind turbines had a rotating diameter of 17 meters and generated 75 kilowatts. In 2021, GE Renewable Energy’s giant Haliade-X wind turbine has a rotating diameter of 220 meters and a tower height of 250 meters and may generate 12 to fifteen megawatts (MW).
- The price per kWh of lithium batteries has fallen from $7,650 in 1990 to around $160 per kWh in 2021. At the identical time, the energy density, i.e. the quantity of electricity stored per cubic meter, has increased sixfold.
Why shouldn’t the momentum proceed? Our world will rise to the challenge and achieve high and laudable environmental goals. The future can be wonderful.
Not so fast.
Five to 10 hectares of land are required to generate one MW of solar energy. If New York City uses around 53,500,000 MW of electricity, perhaps 5,350,000 acres of solar panels can be required to power the town. That’s an area in regards to the size of the state of New Jersey.
A single 3 MW wind turbine can contain 335 tons of steel, 4.7 tons of copper, three tons of aluminum, etc Over 700 kilos of rare earth materials. This doesn’t include the aluminum and copper cables or the associated poles and electrical infrastructure that deliver electricity to the patron.
As for the operating environment, most wind turbine blades are product of non-recyclable composite materials. When they’re retired, they’re cut up and disposed of in landfills.
Supply problems: lithium and rare earths
Lithium is the fundamental ingredient within the rechargeable batteries that power Teslas and other electric vehicles (EVs). Global lithium metal production was roughly 82,000 tonnes (MT) in 2020.. As the UK and certain US jurisdictions begin phasing out sales of traditional gas-powered cars in 2025, their demand for lithium will increase sevenfold by 2030, from 200,000 tonnes to over 1,400,000 tonnes. And lithium demand can even grow elsewhere, be it for batteries in electric vehicles, for batteries for tools, computers and households or for lubricants and glass production.
There is not going to be enough lithium to satisfy demand now or in the longer term. Lithium can be briefly supply for no less than a decade.
The supply of the rare earth metals required for solar and wind energy is proscribed. Neodymium, dysprosium, indium, selenium, etc. are only available in a number of countries. Rare earths hide a dark secret: mining and refining them is an energy-intensive process and causes significant pollution, amongst other environmental and social costs.
Energy problems
What about coal energy? When will this expire? Probably not too soon. In the United States, coal-fired electricity generation is anticipated to extend by 22% in 2021. Worldwide, a rise of 9% is anticipated, reached an all-time annual high.
As Keisuke Sadamori, IEA Director of Energy Markets and Security, noted: “Many countries’ commitments to achieve net-zero emissions…” . . “We are likely to have a very strong impact on coal – but these are not yet visible in our short-term forecast, reflecting the large gap between ambition and action.”
The United States and the EU have their very own problems with domestic production. Copper is a necessary metal for green and renewable energy. Although the United States is a major source of copper, it continues to be a net importer. Copper mines in Arizona and a copper-nickel mine in Minnesota have run into trouble as Joseph Biden’s administration has asserted its influence over the approval process. The government also temporarily paused the sale of latest oil and gas contracts. Such decisions will make the United States more vulnerable to provide shocks.
Likewise the EU’s decision Shut down coal-fired power plants, reduce the usage of nuclear energyAnd Rely on green and renewable energy comes against a backdrop of greater potential for disruption. At the top of August and starting of September 2021, Europe experienced a heat wave. The increase in energy demand coupled with the shortage of wind caused natural gas prices to rise 325% in comparison with the previous yr. The push for carbon neutrality by 2050 has made domestic energy supplies unreliable and increased Europe’s dependence on Russian natural gas.
Surplus of electrical vehicles
Nevertheless, investment funds proceed to flow into green and renewable energies. As an advisor to the board of Unicus Research, I participated in a four-month research program in a segment of the sector, the electrical vehicle industry. My job was to maintain asking, “Okay, then what?” It was one revelation after one other.
For example, the electrical vehicle supply chain is hardly a major example of ESG considerations. Think illegal mining and child labor along with the environmental degradation attributable to mining. Such excesses are difficult to reconcile with the electrical vehicle sector’s supposed ESG ambitions.
Another problem: The electrical infrastructure is unable to satisfy the ability needs of a rapidly growing fleet of electrical vehicles. Power grid failures in Europe, California and Texas show the fragility of the system. When California’s electric grid collapsed attributable to peak demand this summer, the state’s electric vehicle drivers were asked to not charge their vehicles.
What if lithium battery technology just isn’t yet suitable for cars? Much smaller lithium batteries have acquired a nasty repute. Samsung’s Galaxy Note 7 phones were notorious for his or her explosionsthey were banned from airplanes and e-cigarettes and other lithium batteries from checked baggage. The Chevy Bolt EV was recalled, leading to billions of dollars in damage to GM’s balance sheetand even Boeing had problems with its 787 lithium batteries.
Lithium battery fires burn at over 3,500 degrees Fahrenheit. They can’t be extinguished with water. Lithium battery fires are so hot that they split water molecules into hydrogen and oxygen, making a flammable hydrogen gas cloud. Their heat can damage or destroy the tendons that give prestressed concrete slabs their strength. These panels may be present in parking garages and apartments in addition to on bridges. Where will electric vehicles park in the event that they will not be protected in parking garages?
The counterpoint to those views is after all the carbon-neutral vision of renewable and green energy.True believers.” I wish the true believers were right, but we cannot ignore the issues of rare earth scarcity and associated pollution and sell wishful considering as investment advice. This applies to state lotteries.
What now?
So what does this mean for us advisors? Like it or not, trends within the foreseeable future favor mining and refining in North America and Europe. Traditional energy corporations could also be undervalued. This is a possible opportunity. Those corporations which have begun the vertical integration process from mine to battery should survive.
Green and renewable corporations attract an excessive amount of investment. Overall, they’re overrated. Many pension funds spend money on ESG funds. These funds have an excessive amount of money and pursue too few high-quality investment opportunities. Many electric vehicle, renewable energy and green energy corporations will fail.
Companies that depend on long supply chains and third parties for batteries, chips and rare earths face a difficult future outlook. All of these things are hard to search out, their costs are rising rapidly, and the present logistical bottlenecks will persist no less than until summer 2022.
The corporations or funds that supply ESG compliance and adopt sustainability standards face two risks: the high cost of compliance and potential litigation for assertion and non-compliance.
Guidelines remain crucial. As long as governments and huge pension funds favor ESG-certified corporations and green, renewable and ESG funds receive tax incentives and tax breaks, money will proceed to flow their way. But in some unspecified time in the future these tax breaks and incentives will dry up or now not cover the difference between returns from government-sponsored investments and more unrestricted market opportunities.
Then we’ll see which green and renewable energy corporations can live as much as the hype.
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