Last week Elon Musk introduced his Tesla Powerwall home and business energy storage unit to the public in an event that got less press than the release of a new iPhone. But the story is actually much bigger. Reliable energy storage combined with the continued growth of distributed solar energy generation, driven in part by SolarCity, could lead to a long-term renewable based power grid—the beginning of end of carbon based energy for electrical power generation.
The other big energy use of oil is as a transportation fuel. But combine a robust renewable energy grid with Tesla Motors‘s autos, or next generation electric cars, perhaps designed by Apple, which will introduce its first vehicle by 2020, or driverless cars fromGoogle, and a carbon-less energy future starts to look not only possible but commercially viable, and financially competitive with coal, oil and possibly even natural gas. Is it time to short big utilities?
Perhaps not yet. Utility stock prices may already reflect the challenges they face in the deterioration of their monopoly business model. What about oil companies? There too, it is early to be predicting the timing of the end game. While the key to the great renewables conversion may be storage, to complete the job will require an extensive global infrastructure build-out that will be costly, take time and which entrenched power utilities will fight against. So this isn’t happening in months or even a few years. However, with a retail battery big enough to power a home and less costly than a back-up gas generator, we may in fact already be at the end of the beginning.
Where to invest now? That certainly depends on the investment timeframe. Day traders will still have plenty to keep themselves busy in the ups and downs of the price of oil, now that we have discarded the “stable oil” paradigm and face a volatile market in that commodity. Long term stock pickers may find winners among the leading players in this sector, Tesla Motors TSLA +2.15%, SolarCity, Apple, and Google among them. But there are many other ways to invest into this sector.
Many of the businesses that will likely emerge as the winners in the space are still at a venture capital stage, an investment flavor not typically available to an individual investor, unless his neighbor happens to be starting a tech company in his garage. But the tech sector is embracing crowdfunding and sites like AngelList may be the perfect place to find the next energy storage or smart grid start-up.
And don’t write off the utilities yet. They have more knowledge of what’s happening than any outside investor can ever hope for. While they will protect their current business models as long as possible, they are also thinking through the shifts and working with their regulators to be ready to finance grid upgrades to transition to a more distributed future for generation, as well as investing in their own utility grade renewable generation. The grids will always be critical in industrialized nations so the utilities will be in this sector, one way or another.
In fairness, we also look at unconventional energy infrastructure so we still see a future for oil and gas, certainly for our ten year fund. But renewable investment opportunities are increasingly playing a role in our work as well as many other investment funds as they begin to understand how the energy sector is shifting.
“Drill, baby, drill” was a popular tag line during the 2008 election cycle, much more emotionally appealing than the administration’s current policy of “all of the above,” but the world may be ready for a Clintonesque “it’s the storage, stupid” moment. We may already be there.
(This news story is from Forbes)