The Sell-Off: What is Next for Clean Energy?
The broad-based Invesco WilderHill Clean Energy ETF is off 60% from its peak in early 2021. Riskier stocks on the clean energy spectrum have fallen even more. For a more in-depth perspective, please see Peter’s commentary titled “What is Next for Clean Tech Companies” which explores how the beat-up equity markets will impact clean energy companies going forward and their strategies.
To start off this week’s podcast, Jackie and Peter discuss the recent changes in the oil market, including the European Union’s decision to ban Russian oil and the news that OPEC+ will pump more oil this summer than initially expected.
Other content referenced in this week’s podcast includes:
- From the Energyphile collection, the Standard Oil Bulletin about the end of coal.
- Peter’s written and audio story from the Energyphile collection “Hubris Defined” – A cautionary tale about arrogance based on the Standard Oil Bulletin of October 1914 about the ease at which coal would be replaced by oil.
- The WSJ article “Silicon Valley Investors give start-ups survival advice for downturn.”
When we ask what is next for clean energy, we can look to the past for clues. In fact, Peter took a journey through his Energyphile collection of artifacts to make a discovery. You go back to the eve of the First World War and much of the discussion around fuel for ships was that coal was out and oil was the new energy source. Well, that didn’t happen quickly. A century later and much of the discussion, including on this podcast, has been that oil is on its way out and renewables are in. Surely, they are, but on what timeline?
In this episode, Jackie and Peter talk about this interplay between old versus new – clean tech vs. incumbent. Peter recently published an article in the Financial Post “The Stock Market has Turned Against Overhyped, Clean Tech Companies… And It’s About Time.”
Peter doesn’t write the headlines but can explain the meat of the article.
“I think that analysts in the market are saying not only clean tech, but any tech software companies, and other types of tech companies have been overhyped and overvalued, certainly the multiples have been through the roof, and that the current set of circumstances, rising interest rates, inflation, economic slowdown is really taking the risk profile of the average investor down substantially. So, any technology stocks that are risky or don’t have a lot of revenue, if any revenue, no cash flow, are basically based on expectations of future profitability. They’ve lost a lot of value.”
One example is the WilderHill ETF Index which tracks a basket of different types of clean energy companies invested in hydrogen, electric vehicles, renewables… that ETF is down a whopping 60% compared to early 2021. “I like to measure it, relative, the peak of around February, March of 2021. That’s when Joe Biden came in and we’ve talked about it on the podcast, there was all the expectations about trillions of dollars of stimulus for various sectors of the economy, including the green energy economy,” says Peter.
In some cases, the losses have been much deeper.
“We talked about cleantech stocks in early 2021, around that time that they were at the high, but people have lost a lot of money,” notes Jackie. “Remember the SPAC craze. The Special Purpose Acquisition Company, which allowed a company to be taken public without going through a traditional and long road show and IPO process. So, we had this trend in that period where there were these technology companies, a lot of them clean energy companies, that raised tens of billions of dollars at that peak. There was a company we talked about called QuantumScape which made solid state lithium batteries but didn’t expect to have a commercial product until 2025. They IPO’d at $24 and then they rose to $114 at the end of 2020 at that peak, and today, it’s a $12 stock.”
If you don’t have cash flow and profit, are the public markets the right place to be in a sea of red ink quarter after quarter?
Please review the ARC Energy Institute disclaimer.
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Episode 157 Transcript
Male Announcer:
The information and opinions presented in this Arc Energy Ideas Podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Female Announcer:
This is the Arc Energy Ideas Podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, and welcome back. So Jackie, I mean the whole interplay between the incumbent energy systems, oil and gas and coal, versus the whole clean energy thing is just really interesting right now in the wake of the whole Ukraine, Russian invasion, right?
Jackie Forrest:
Definitely. Yes. It’s been a topic that hits every podcast, almost.
Peter Tertzakian:
It hits every podcast. And you know one of the intriguing things that I think about is, for most of the past half dozen years before the invasion, there’s this notion, we’ve talked about it a lot on the podcast that it’s, the end of oil is nigh and the new era of clean energy is coming in. I had to go back to my energy file collection of interesting artifacts and we’ll post this one. I’ve got the card that talks about the standard oil bulletin, which was really the Chevron Corporation, Standard Oil of California from a hundred years ago on the eve of World War I and talking about how coal was out and oil was in. The whole idea that these things happen quickly, and even when that transition was made from coal to oil, it still took a long time.
Jackie Forrest:
For the shipping, right?
Peter Tertzakian:
Yeah. In the shipping. And so, I think that there was parallels almost a century later. We’re thinking, “Okay, oil’s out. Renewables are in,” and nobody, certainly not you nor I, are going to debate that the adoption of things like wind and solar has been absolutely remarkable and amazing and should be encouraged. But the notion that fossil fuels were going to die out very quickly was one that is, I think, steeped in a fair bit of hubris, which also prompted me to write that story Hubris Defined, which was a whole story around that card.
Peter Tertzakian:
So here we are today, and we want to talk about this interplay between old versus new, clean tech versus incumbent, and how that is but before we go there, I think we should talk about what’s going on right now in terms of some of the oil news.
Jackie Forrest:
Yeah, definitely. Lots of big news last week on the oil markets. So May 31, the European Union made an agreement to ban seaborne imports and Germany and Poland pipeline imports, so there are some countries that receive Russian oil via pipeline that will continue to, but Germany and Poland aren’t going to. So most experts out there and agencies are assuming this probably would mean that there’s about a two million barrel a day loss of Russian exports. Now this is going to happen in the next six months, so not all right away, but there’s lots of uncertainty in terms of this number, because, so far, a lot of these barrels have actually ended up going to India and China. So when people say they’re not going to take the oil, it doesn’t mean that someone else doesn’t buy it, so the question is, is that going to continue to happen?
Jackie Forrest:
Now, the EU did put some restrictions on shipping insurance. That is aimed at stopping people from shipping Russian crude, so that may reduce how much can get into Asia. But anyway, so it’s two million barrels a day is probably a high number, assuming there might be some amount that gets onto the sea and goes to other markets.
Peter Tertzakian:
Yeah. I know that hearing the reports that India is only happy to take deeply discounted Russian oil and actually put it in storage. I mean, India is a huge refinery center, right?
Jackie Forrest:
Yeah.
Peter Tertzakian:
They have the big tankers of crude oil pull in from all over on coastal refineries. The products come out, like diesel and gasoline and all sorts of petroleum products, and they get shipped out. So for those refinery operators in India, this is just a bonanza.
Jackie Forrest:
Yeah. It is funny, right? The Europeans don’t want the crude from Russia, but if you send it to India, refine it, then they’re importing the same molecules, just rearranged through a refinery into-
Peter Tertzakian:
That’s right.
Jackie Forrest:
But actually, some data from S&P Global showed that the imports into India of Russian crude are up by something like 800,000 barrels a day, with the data they were tracking, so that’s definitely happening. By the way, when people say two million barrels a day, that’s assuming some of that, but I guess the question is how much of that will happen.
Jackie Forrest:
The other thing that could happen is Russia may just stop sending the oil and say, “Hey. Well, if you don’t want our oil, we’re going to turn off the taps,” so we’ll see if that would happen. I mean, this summer would be a really difficult time to do that. Historically, Q3 is a very big quarter for demand, and so that would be really problematic if they were to try to cut the oil off a little sooner.
Peter Tertzakian:
Yeah. Yeah, well, there’s a number of things at play. I think whether or not they do that will also depend upon the course of the war. I think as long as the war is going well from their perspective that they may be less inclined to do that sort of thing. I don’t know. I mean, it’s all very geopolitically charged.
Jackie Forrest:
Yeah, for sure.
Peter Tertzakian:
But the other big news is the OPEC side, right?
Jackie Forrest:
Yeah. So June 2nd, a little bit later, last week, OPEC decided to ramp up supply. It looks like they’ll be adding about 1.3 million barrels a day of production around this summer. Now this would require Saudi Arabia to produce at 11 million barrels a day, so this is viewed as being the top end of what they can produce sustainably. There’s been a couple of times they’ve gone over that level for a month at a time, but most people don’t think that they could sustain production for many, many months beyond 11 million barrels a day. We’ll see what they can actually produce, but this would imply that there wouldn’t really be a lot of spare capacity after this summer, if there was an outage somewhere that was unplanned or something like that, but it is good news.
Jackie Forrest:
We’ve talked about it before that there were concerns that the relationship between the Saudi and the US was getting quite strained. In the past Saudi would’ve volunteered adding supply to the market sooner than this, so I think it is good news. It’s a signal of increasing cooperation between the us and Saudi, which I think is good for geopolitical stability in the Middle East and the oil markets.
Peter Tertzakian:
Yeah, we’ll see what happens when President Biden goes to visit later this month. Oil is not homogenous, we’ve talked about like that. There’s different grades of oil, much as there’s different types and grades of coffee. So when we talk about Saudi’s spare capacity, at the margins, when they say, go from 10.5 to 11 million barrels a day or more, you’re starting to get into grades of oil that are heavier and heavier. Is that not right?
Jackie Forrest:
Yeah, generally. For Saudi, especially, as they bring on those last barrels, they tend to be heavy. Yeah.
Peter Tertzakian:
Right, and so there’s only a certain number of refineries also that can take that. So just because Saudi pumps more oil doesn’t necessarily mean that the price of oil will go down because it’s very grade specific and, as I look at the prices, I mean, this news has really caused not a lot of impact.
Jackie Forrest:
No it hasn’t. I think part of the reason is, well, you’re adding 1.3 million barrels a day. Now remember, they were going to add that over four months and now they’re adding it over two.
Peter Tertzakian:
Right.
Jackie Forrest:
They’ve accelerated that. But, at the same time, we just learned that the EU, their decision here, probably could result in a two million barrel a day loss of supply. I think that’s part of the reason.
Peter Tertzakian:
That’s part of it.
Jackie Forrest:
Yeah, and then I think the other thing that isn’t really being talked about too much, is I think this really reduces the chances of an Iranian deal by the end of the year with the US. If they’re going to be working so closely with Saudi Arabia, it’s probably harder for them to make a deal with Iran. I think those barrels are probably less likely to come into the market.
Peter Tertzakian:
Yeah. No, it’s all very intertwined and the Saudis are basically in a proxy war with Iran and Yemen, and so it’s all very, very complicated. But I would say there’s even one more factor, and that is the news that Shanghai may be opening up and the Chinese economy may revving back up, and therefore, the demands pull for oil, all of a sudden, has become a little more robust than it was, say, even a week or two ago.
Jackie Forrest:
Definitely. Yeah, and especially as coming into this, the third quarter is always the big demand. Demand isn’t even throughout the year. There’s quite a profile and it usually grows quite a bit in the third quarter, so now we’ve got China coming back. All of this said, to summarize this section is, although we’ve got this new supply from Saudi Arabia, which is welcome, it still looks like a very tight market with very little spare capacity, and generally, that means the high prices stick around.
Peter Tertzakian:
Yeah. The higher prices. $116 as I look at the screen right now. Okay, well, we talked early on when we opened up this podcast about how difficult it is to get off the incumbent energy commodity. A hundred years ago, it was difficult to get off coal and make that switch to oil and mobility. Today, the switch is from the incumbent oil into renewable, and there are all sorts of clean tech technologies. We want to talk about the market fall, right, that’s happened, certainly, in the clean tech space.
Jackie Forrest:
We are going to post an article that you wrote Peter, and it was titled, in The Financial Post, The Stock Market has Turned Against Overhyped, Clean Tech Companies, and it is About Time. So that’s a controversial title.
Peter Tertzakian:
Well, yeah. I don’t make up the titles when I turn it over to the newspapers so that is a little bit sensationalized, but actually, yeah. I mean, I think that, generally speaking, analysts in the market are saying that, not only cleantech, but any tech software companies and other types of tech companies have been overhyped and overvalued, certainly the multiples have been through the roof, and that the current set of circumstances, rising interest rates, inflation, economic slow down, so on and so forth, is really taking the risk profile of the average investor down substantially. So any technology stocks that are risky or don’t have a lot of revenue, if any revenue, no cash flow, are basically based on expectations of future profitability. They’ve lost a lot of value.
Jackie Forrest:
Yeah, when they were pretty frothy. Let’s talk about two sections here. First, we’ll talk about the context for the market fall and just give some numbers there to help understand how much markets have come down, and then the implications from your commentary. So we’ll start off with the context. The WilderHill is an index, or an ETF, that tracks a whole basket of different types of clean energy companies, right? Like hydrogen, electric cars, and renewable energy, and it’s down about 60%, versus its peak in early 2021.
Peter Tertzakian:
Yeah. I like to measure it, relative, the peak of around February, March of 2021. That’s when Joe Biden came in and we’ve talked about it on the podcast, there was all the expectations about trillions of dollars of stimulus for various sectors of the economy, including the green energy economy. That in conjunction with the notion, again, that electric vehicles are going to rapidly take and displace market from combustion vehicles, so that’s the peak. From that peak, the WilderHill index, which is an exchange traded fund that has a broad basket, as you mentioned, of these sorts of cleantech companies, and some bigger companies, they have fallen 60%. But that’s an average. I think you can say that these sorts of broad basket indices are not really telling the full story, because if you look at the riskier end of the spectrum, or the riskier portion of the basket of stocks they represent are down even further, some are down 80%, 90% from that February of last year high.
Jackie Forrest:
As a side note, we talked about cleantech stocks in early 2021, around that time that they were at the high, but people have lost a lot of money. Some people really did buy in at that peak. I don’t know if you remember the SPAC craze.
Peter Tertzakian:
Oh yeah.
Jackie Forrest:
The special purpose acquisition company, which allowed a company to be taken public without going through a traditional and long road show and IPO process. So we had this trend in that period where there was these technology companies, a lot of them clean energy companies, that raised tens of billions of dollars at that peak. I just wanted to remind you that QuantumScape we talked about at the time, because I wanted to go revisit their stock price.
Peter Tertzakian:
Oh, the battery company. Yeah.
Jackie Forrest:
Yeah. They’re a solid state lithium battery, so this is a company that didn’t actually think they’re going to have a commercial product until 2025 when they went to IPO or through this SPAC. Well, they didn’t IPO, I guess they went through the SPAC, but became a public company. There’s a lot of promise with the technology because it could increase the safety quite a bit, no liquid electrolyte. We’re hearing about Teslas on fire here this week, so you don’t have to worry about that. It also could be, potentially, much higher energy density, so there’s a lot of promise with the technology, but the reality is this is a company that isn’t going to make any money for the next, at least, three years or so. They IPO’d at $24 and then they rose to $114 at the end of 2020 at that peak, and today, it’s a $12 stock.
Peter Tertzakian:
Wow.
Jackie Forrest:
So some people have lost a lot of money. The ones that invested at that peak.
Peter Tertzakian:
Yeah. Yeah, and it’s not limited to the battery companies, it’s in the hydrogen space, similar stories with fuel cell companies, electrolyzers, electric vehicle stocks. I mean, Tesla’s the headliner. It’s off peak, but the ones that are basically pre-revenue, certainly not profitable, there’s a whole list of them. Many of them are off 80, 90% as well. The fact that people have lost a lot of money, a certain investor class, means that they’re not likely to come back for quite a while and that’s one of the implications of all of this, is that when people go sour and they lose money, they’re not coming back anytime soon.
Jackie Forrest:
That’s a lot of money due lost, and I did want to say, if we just narrow in since the start of the year, that’s when the other markets started to come down, so to your point, technology stocks in general. They really didn’t have an issue until the beginning of this year where, the overall market is down about 10%, but NASDAQ, which is a measure of more tech related companies, right?
Peter Tertzakian:
Yeah. They’re tech biased.
Jackie Forrest:
They’re down about 20% and WilderHill is down a similar amount since the beginning of the year, so-
Peter Tertzakian:
Since the beginning of the year.
Jackie Forrest:
… that’s when those stocks started to really have trouble.
Peter Tertzakian:
Yeah, well, a lot of funds measure their year to date YTD performance, but I think it’s important to measure from peak exuberance, which was last year, and the amount of money that’s been lost since then. Now of course, not everybody buys at the peak hangs on and sells at the bottom. I’m just saying though, along the way down, there were certainly still buyers that were coming in, and it’s just been a painful slide down for the tech sector as a whole, and certainly, included in that are the cleantech companies. So the grill question is, okay, the technologies are actually still very exciting, say whether it’s the quantum scape or the fuel cells or whatever, it’s just that the valuations of, and the price you would pay for, these companies has come down. So that has a whole series of knock on implications that we need to talk about.
Jackie Forrest:
Right, so you had, in your commentary, yet all is far from lost, a good clean out of an overhyped market is a positive thing in the long term, so I guess those people that lost the money may not really appreciate that at this point, but for the health of the overall sector, I agree with you. This was too frothy. I don’t think actually a lot of these SPAC companies should have ever become public companies.
Peter Tertzakian:
No.
Jackie Forrest:
If you don’t actually have cash flow and profit, I don’t think the public markets are the place you should be. You’re going to report quarter after quarter of red ink, right?
Peter Tertzakian:
Yeah.
Jackie Forrest:
So I think things got a little overheated.
Peter Tertzakian:
Well, that’s what’s happened, and so a lot of the companies were also financed and that’s where they got their sources of capital at the peak. Then, because the expectation was there that the stock is always going to go up and I can continue to finance my company at progressively higher and higher share prices. But now that’s not true anymore, so we enter into a phase of, what I call, capitulation. In other words, the company’s management and the boards of directors realize that, “Uh-oh, we’re going to have to make the money that we raised from all these people over the last 18 months last longer, because we may not be able to go back to the trough to get more money.”
Peter Tertzakian:
So right now, again, this is a broad statement on tech stocks that don’t have revenue and cash flow and profitability, is that they’re going to have to capitulate and get out of denial that the market is probably shut for further financing. I expect it’s going to happen here. It is happening. I’m already hearing reports of that.
Jackie Forrest:
Right, that’s going to result in, what you call, hunkering down, where you basically have to say cost control, slow things down now. That is a problem if you’re a company that’s five or six years away from actually having a commercial product, because it’s still going to take a lot of money to commercialize your product. But if you’re close to getting to a commercial product, maybe by hunkering down you can get there, right?
Peter Tertzakian:
Well, you can, it just depends what your burn rate is and how liberal you have been with your spending. These sorts of environments all of a sudden prompt the boards of directors to bring edicts down onto the company management, to cut costs and be much more mindful. I think this is a healthy dynamic. I mean, we’ve seen this many times in other sectors of the economy and now it’s come to the tech side of things and it just instills a greater respect for the capital and how it’s spent and spent more efficiently to achieve commercialization. It also puts the onus on the companies to drive towards commercialization faster.
Jackie Forrest:
Yeah, to get to profitability faster.
Peter Tertzakian:
To get their products out to… And so this is, potentially, a positive for these sorts of companies, is that, “Okay. We don’t have as much money. We’re going to have to be a little more frugal and we have to get to market faster, which is for the benefit of getting these things commercialized.”
Jackie Forrest:
Yeah. Yeah, it’s true. When money comes easy, you don’t necessarily treat it as a finite commodity. I did want to say there was this Wall Street Journal article last weekend, which actually spoke… This was more focused on tech companies, but it basically was titled Silicon Valley Investors Give Startups Survival Advice for the Downturn.
Peter Tertzakian:
Hmm. There you go.
Jackie Forrest:
It basically said that venture capital firms, so these are firms that are investing in some of these earlier stage companies, and usually these are private companies. It was telling that these companies need to cut their costs, preserve their cash and forget your hope that other investors will swoop in with big checks in the future. In fact, one of them, and this is coming from Sequoia, one of the Silicon Valley’s pretty well known firms, apparently their PowerPoint got leaked and was quoted in this article. But it basically said, “We don’t believe this is going to be another steep correction, followed by a V-shaped recovery like we saw after the pandemic.” They advise companies to cut expenses quickly and expect it’s going to be a long recovery that they’re not going to have access to capital for a while.
Peter Tertzakian:
Yeah. I mean, I think if we use history as an example, certainly when we saw this movie before 20 years ago, it took 5 to 10 years for the money to come back and the excitement to come back. Now that’s not a blanket statement, and I think that takes us to our next point, which is what I call Darwinism, survival of the fittest. Good companies will still survive through this. Good companies with management that knows how to be more efficient, lean and mean so to speak, and take it through, and they’ve got a quality product that’s driving towards commercialization, they will still be able to raise money. So it’s just that the market is going to be a lot more selective, and I think that’s a healthy thing too.
Jackie Forrest:
Yeah, no, I think you’re right. There’s how many battery companies that are probably not going to make it, and the ones that aren’t financed or didn’t have enough cash to be able to get to that commercial product, may not make it through this cycle, because they can’t go back and get more money when they run out.
Peter Tertzakian:
Right. I think there’s going to be more money available to the good companies and they will be financed with, potentially, longer term minded investors rather than the types of investors that were hyping up these stocks, including meme stocks that are here today gone tomorrow. So again, a healthy dynamic.
Peter Tertzakian:
Then I also think you’re going to start to see consolidation of the good companies. I think this is typically what happens is that if you have two battery companies that have more or less the same technology, they’re competing with each other, they come together, create efficiencies, create a stronger company and move forward, and I think we’re going to start to see that. You’ll also see acquisition of some of these companies now that the prices are more reasonable by some of the larger strategic established big companies, and that’s healthy too.
Jackie Forrest:
I think you’re going to see a lot of that actually. If you think about companies like Shell, BP, Total Energy, I think that’s what they’re called now, TotalEnergy, but they have been strategically acquiring clean energy and saying they want to get into that space, but they’ve been paying up.
Peter Tertzakian:
Sure.
Jackie Forrest:
And now they’re going to look at this. They still have tons of cash flow from their oil and gas business, and they’re going to be able to, maybe, swoop in and get-
Peter Tertzakian:
And buy some of these in.
Jackie Forrest:
… some of these and, hopefully, their cash flow will allow these technologies to be advanced.
Peter Tertzakian:
Yeah, and it’s not only going to be the oil companies. It could be bigger battery companies acquiring smaller ones that have key technologies and so on. Now, one of the interesting things, certainly we’ve seen this in the oil and gas business every time there’s a big downturn, is that the employees, all of a sudden their stock options are out of the money. When the price of the shares are high, everybody’s cheering and watching the screen five times a day to see how much money they’re making. As soon as your stocks are out of the money, your options are out of the money, you don’t even want to watch the screen anymore. In fact, then you start looking for another job potentially, and so there’s also this high grading of employees amongst the stronger companies, and you see-
Jackie Forrest:
Right. Yeah. The good people go to the ones that can-
Peter Tertzakian:
Exactly.
Jackie Forrest:
… show that they have a runway here to develop their products.
Peter Tertzakian:
Right. Yeah. In an area where there’s a shortage of good employees, I think this, again, is a very positive thing where the stronger companies get the best employees to commercialize their products faster, and then that accelerates the whole transition dynamic eventually.
Jackie Forrest:
Yeah, and getting good people is a real problem, I think, for any business these days, whether you’re a restaurant or you’re a technology company. I’ve heard this a lot from these companies in this space, but really, these are new areas. How many battery experts really are there out there, or electric car, or autonomous car vehicle experts, or CCS. So in this environment of scarce people, I think it’s going to add to the velocity of the employee shuffle here because there are very few good people here, and those companies that can attract them are going to want to get the best people.
Peter Tertzakian:
Yeah. so all this dynamic does is create higher quality companies, and from an investor’s perspective, there is what’s called flight to quality. In other words, even though the investors become more discriminating, and investors that sat out this frenzy and exuberance and were wiser and said, “well, I’m not paying those sorts of crazy share prices for these stocks,” all of a sudden now, they’ll take a second look and say, “Okay, things are now looking a lot more reasonable. There are really some high quality companies here that a lot of promise.” So the next generation of companies I think are going to be stronger as a consequence of this, and that’s why the headline, I think it’s a good thing that this is happening.
Jackie Forrest:
Yeah. Well, and I do think a lot of those big institutional investors that have the really big pools of capital, I don’t think a lot of them were that exposed to this because they saw what was happening. They don’t tend to go after cycles like that, so I do think, and I’ve validated this by talking to some institutional investors, that there’s still a lot of long term capital, that’s interested in deploying more money into this space. I think what we’ve learned is clean energy is not for day traders, and you have to have that long term perspective and the big institutional providers, whether they be big pension funds or groups that take a tenure view are, I think, going to still be pretty interested in this area, and more interested, because things aren’t as frothy, right?
Peter Tertzakian:
Yeah. It’s to the benefit of these clean energy companies to have an larger anchor of sophisticated institutional investors with patient capital that can help them grow, rather than the more speculative investors that just come and go and create volatility and hype and so on.
Jackie Forrest:
It’s not healthy for the market.
Peter Tertzakian:
It’s not healthy for the market.
Jackie Forrest:
Well, let’s finish off with the long term foundations for energy transition investing quickly in a way. I still think, and this is just following up on this point that there are still some really good reasons why over the longer period this area is going to do well. I’m looking at some forecast here from Bloomberg New Energy Finance and, depending on their scenario, the spending in this space is going to go up four times over the next… The annual amount of money spent in new capital projects in clean energy and energy transition is going to go up somewhere between four and eight times between now and 2040. So there’s going to be a lot of growth, and I think the long term investors will see that.
Jackie Forrest:
I do think we’re going to get a lot of policy support. We already have some and part of this cycle was really because there was this expectation that Joe Biden was going to bring in all these policies and he didn’t, but I still think that policy help is going to come. I don’t know if you’ve been following this, but there is some rumor now that, although The Build Back Better bill in the US was scrapped, there is a growing possibility that there’ll be a smaller bill come out, a bipartisan bill, that both parties will support, with some of the really important things like tax credits on, on clean energy and smaller incentives.
Jackie Forrest:
We think of what’s going on in Europe, here in Canada, the policies are still going to be quite supportive for investing in this space. I think, because we just discussed, there’s still a lot of institutional capital interested. Higher oil and gas prices actually help a lot of these technologies. It makes more sense to use alternatives to natural gas and oil if they’re expensive. I still think that there’s a lot of opportunity here. It maybe the end point would be that these energy transition and energy technology stocks and companies are down, but not out.
Peter Tertzakian:
No they’re not down, and not out by any stretch. Some will be, the inefficient ones. I would question these sorts of growth numbers and spending and debate them. I don’t have a conclusion how much it’s going to be, but one thing that the situation that we described creates, are leaner and meaner companies that are going to be more mindful about how they spend their money, especially in this inflationary period and that’s the healthy thing. So that means that whatever the top line amount of dollars that are going to be spent on Cleantech, that it will be spent more prudently, which means that a dollar will go further in actually creating the innovation and the commercialization that’s needed to make them more mature.
Jackie Forrest:
Well, ultimately, that speaks to them being more profitable more quickly, and if you’re a profitable business, you’re probably going to be more successful. Right?
Peter Tertzakian:
Yeah, Yeah. So I think that’s the end point, but there’s no question. I think certainly over the course of this year, probably into next, there’s going to be turmoil. There’s no question, as the dynamics evolve, so near term pain, long term gain.
Jackie Forrest:
Well, we’ll wrap it up. Thanks for joining the podcast. If you enjoyed it, please rate us on the app that you listened to and tell someone else about us.
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