What comes after fracking?

China is investing heavily in solar power

The whole notion of fracking has rightly caused quite a stir among readers.

Many argue that we’re scraping around for hard-to-recover and expensive energy at the expense of our environment.  And for heaven’s sake, there’s a great big sun up there producing free energy for all. If we can’t find a way of harnessing that, then perhaps we should all be doomed.

But there has to be some middle ground here. Sensible energy policy that makes the most of today’s technology to recover fossil fuel, but at the same time, invests in renewable energy. It is certainly the case that we can’t carry on like this indefinitely.

China knows this and has leapt into action on renewables. This marks an important change that investors like you and I will have to adapt to. Over the coming decades, the world is going to have to shift its focus away from the oil industry, to the key commodities involved in renewable technologies.

This is a seismic shift, and it’s coming on fast. Let’s look at some of the ways that China is starting to outpace its competitors on the big stage, and how we can play it.

China is betting big on solar

Ernst & Young has just released the results of its regular renewable investments survey. It seems that China is now the place to go if you want to invest in renewables. In fact, Chinese planners, led by new premier Li Keqiang, have made renewables a key part of their ten-year strategic plan for the country.

According to Bloomberg, “Developers in China installed a record 12 gigawatts of solar panels in 2013, almost matching the total amount of solar power in operation in the US, and may exceed that in 2014”.

So in just one year, these guys have installed productive capacity that practically matches total US solar energy production. And by the end of this year, they’ll have more than doubled it!

I guess it should be no surprise that China is taking this seriously. It’s the world’s largest electricity consumer, and not only that, it has a huge pollution problem – just on Wednesday Li Keqiang “declared war” on the smog that plagues many major Chinese cities, and his government has already introduced some of the world’s toughest rules on building and fuel efficiency. China is moving very quickly to clean up its act, because with rampant air and water pollution, it has to.

And this is great for Western countries. China has been singularly responsible for practically halving the cost of photovoltaic solar panels. In much the same way as Korea brought flat screens to the masses – so China is now bringing solar panels.

What’s more, China is set to escalate wind power generation from 14 gigawatts last year to 18 gigawatts this year. The Chinese want to become energy self-sufficient, and by gum they’re making fantastic strides towards making it happen.

Soon, black cabs will be green

Another news story that caught my eye this week was Chinese automotive group Geely’s acquisition of Emerald Automotive, a UK start-up which manufactures hybrid vans. As the Sunday Times observes, that’s yet another slice of Britain’s high-tech automotive industry gobbled up by the Chinese.

Geely is the firm that bought struggling taxi cab manufacturer Manganese Bronze last year – therefore I suspect that it won’t be long before we see hybrid black cabs in production.

So China is well ahead of the West when it comes to sustainable energy production, and they’re starting to gobble up downstream technologies too. There’s no doubt that the Chinese have vision. Why on earth would they want to import expensive foreign fossil fuels indefinitely? Not when there’s free, sustainable energy to be had.

But of course, they have to invest a massive amount of money in bringing this sort of technology to the masses. We’re talking serious investment in commodities – commodities such as silver for photovoltaic cells, or heavy metals for the production of fuel cells.

They can’t mine all this stuff on their own shores. And that brings me onto the third story that caught my eye this week.

To do solar power, China needs Africa

Zimbabwe used to be known as the breadbasket of Africa, but I’m sure you’re well aware of how the country has since been corrupted. It’s been converted from regional powerhouse to pauper – from breadbasket to basket case.

Businesses in Zimbabwe have been taken over by a corrupt government, while foreign ownership of many firms has been usurped through ‘indigenisation laws’. China is the only country exempted from these laws, which force all foreign investors to cede 51% of their shareholding to carefully-selected Zimbabweans.

Chinese companies aren’t just interested in Zimbabwe for its silver. The Powerway Renewable Energy Company plans to invest $160m in a new solar power plant in Zimbabwe. Having aggressively invested in solar R&D, now Chinese companies are seeing how the technology works in bright African sunlight. And guess what? China is even planning to set up a modern high-tech military base in the diamond-rich Marange fields of east Zimbabwe.

To my mind, the West is really missing a trick here. Unlike China, we continue to focus all our efforts on the petrochemical industry at the expense of the rising stars.

Now, don’t get me wrong. I’m all for the oil and gas industry. It’s fantastically important, and as an investment area I’ve got it well covered. I mean, I’ve even helped David Stevenson write a report about the investment case for fracking. But what excites me even more is this developing theme of commodity investments in the renewables industry.

So how do we get involved? Well, precious metals offer a useful play on the theme. Silver in particular. But more generally, I think we’d do well to follow China’s lead in investing directly in Africa. Of course, this is more easily said than done. But there are opportunities for private investors there for the taking. Towards the end of next week I’ll show you two of them.

But before that, on Monday, I’ll be taking you through an assessment of Tesco and its latest strategy to keep up with the modern world. We’ll look at its vision to become a ‘multi-channel retailer’ together.

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  • Cliff

    While I’m all in favour of new technology, I find photo-voltaics a daft idea in northern Europe. Why? We do not have enough sunlight to justify the investment. Now China may have invested heavily in PV, they probably need to due to the smog, but simply installing a high price -low productivity power technology does not make it a good investment, merely poor allocation of capital – a trait that our Chinese counterparts are quite good at. In the UK, we subsidise PV to the tune of 15p per unit to encourage installation, yet coal fired base load is 4p. (ref. National Grid) Any industry which needs this much subsidy to run is a bad investment – wind power suffers from the same issues too. Roll on shale gas. asap.

  • mikeT

    @Cliff – from what I’ve read (with no guarantee of reliability), the “new generation” of solar power generators is bringing unit costs down to that of conventional fuels. This makes sense to me as, without understanding it at all, technological developments are inevitable (and graphene, as ever, plays a part). Anyone have any more info?

  • CKP

    I’m really not convinced about the investment case for silver. The largest industrial consumer of silver -film photography has now more or less disappeared. Thanks to stainless steel it is no longer used in many manufactured items. Jewellery and investment demand is low. There are far better electrical conductors. There is a niche use in medical dressings but the quantities are low.
    Annual silver demand for solar pv peaked in 2011 due to massive Chinese subsidies but this still only represented 19% of peak photographic demand in 2000. Even if pv silver consumption rose over 5x in the absence of other major users mining supply will meet this demand and more easily. Newer electronic goods use far less silver solder than before and these goods are being increasingly recycled to recover the valuable metal content.

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