Transition of power
As Bloomberg recently noted, a global transition to cleaner fuels is the only chance we have of avoiding the most catastrophic effects of climate change. An estimated $11 trillion of renewables investment will be needed in the next 30 years to make that happen, and investors, like you and I, want in.
Institutional investors are demanding and driving action too. At COP25 in 2019, more than 630 institutional investors, managing more than $37 trillion in assets, jointly urged radical change to tackle the global climate crisis. Hopefully more action and targets will be agreed right here in Scotland next year at the rescheduled COP26.
Bloomberg Green also recently published an article titled: “The New Energy Giants are Renewable Companies” and it is easy to see where the headline has come from when you consider that Big European oil and gas companies (the 16 oil and gas groups on Europe’s blue-chip Stoxx 600 index) have shed more than €360bn in market value this year while renewable energy stocks and technology companies focused on cleaner fuels have surged.
The gulf in performance between the two groups highlights how investors are betting on a transition away from fossil fuels. Oil majors such as BP, Shell, Repsol and Eni have lost around 60 per cent of their market value, each, this year in local currency terms so BP and Royal Dutch Shell are trying, with mixed success, to convince both shareholders, staff and the public of how it will execute their own shift towards greener forms of energy.
Industry and financial commentator Charles Donovan, a professor at the Centre for Climate Finance and Investment at Imperial College Business School recently noted that for years these oil majors had existed and thrived in a world where hydrocarbons was the only game in town, and regardless of the peaks and troughs of the market cycles, there was always a sense that strong market prices always come back.
But oil and gas isn’t the only game in town in this brave new world. There are other new ways that man-made engineered products and facilities are being deployed out in the harsh maritime environments and used to extract energy. Only, unlike the basins of the Paleozoic and Triassic periods and other such era’s, these new energy sources will never deplete nor be fully consumed. Institutional investors see these long term value plays and are putting money to work, with a notable impact on the balance of power in the energy industry.
Clean energy super-majors
The four large companies leading the charge as the new, clean supermajors; Enel, Iberdrola, NextEra Energy and Orsted, prioritised the building or buying of clean-power plants when those assets were still considered alternative and expensive. Instead of digging mines and drilling wells, they’re leading the race to electrify the global economy.
Smaller, or earlier stage technology developers are also benefiting from this refocusing of investment priorities as the world wakes up to the realisation that the climate crisis is real, it will not resolve itself and there is not a single silver bullet answer; instead we need to deploy ALL solutions at our disposal, and we need to deploy them NOW.
So, where does tidal energy and Orbital fit?
And this is where Orbital can fit in. If BEIS elect to introduce the appropriate market mechanics, ie the strike price and allocated capital is sufficiently robust, at Orbital, we believe it is probable (as replicated in the wind and solar sectors) that utility or infrastructure institutional money will be made available for project developers to begin the permitting process which in turn drives the economies of scale required to allow for ongoing cost reduction.
As noted in previous posts, we firmly believe that the Orbital levelized cost of energy is at a very attractive market entry point, without, or at least before, the benefit of economies of scale, volumes of installed capacity, supply chain learning or financial leverage. All of these factors, and more, will drive the cost trajectory down and the power output up.
In the last 3-5 years infrastructure investors have entered the project development market, both in the UK and globally, in order to secure rights to build and operate wind and solar assets at scale. We have also witnessed this investor class buying project developers and their pipeline of assets. Orbital view it as entirely credible that the tidal sector will experience the same form of convergence in terms of both technology choices and investment / return targets.
Just as wind and solar were once viewed as emerging but high cost technologies in the past, but now dominate new global power production investment and new low cost capacity, so too can tidal offer a new and predictable low carbon power source of scale for regions that benefit from strong and extractable tidal resource.
As such, while Orbital may not be in the list of new energy super-majors moving forward, it certainly targets being a key supplier of equipment to these super-majors and their future project developments. This would place Orbital into a club of large renewable focussed OEM businesses such as Siemens Gamesa, MHI Vestas, Goldwind and GE.
Will you and I still be shareholders at that stage? Let’s make this industry happen and find out!]
To find out more about Orbital Marine and to join them on their mission, head over to the company's pitch today.
Investments of this nature carry risks to your capital. Please invest aware.