Some of my past writings may have left you with the impression I exhibit Luddite-like attitudes toward new sources of cleaner energy. That wouldn’t be an accurate impression as I have been investing in alternative energy for a long time. I simply wish there was a more fact-based, rational discussion on the pros and cons. It seems we are only looking at the pros of alternatives and the cons of fossil fuels, which is not a good way to make decisions around critical issues.
For example, instead of a simple yes/no on carbon tax, why not a middle ground, like an energy stabilization levy on a sliding scale with the price of oil and natural gas? When the market price of energy is low, there could be a significant levy. If moderate, then a moderate levy, and if high then no levy. The carbon tax as it exists will be excruciatingly punitive when oil goes to $120-$150, as I expect it will, within five years. A stabilization levy would stabilize price to consumers, always incent some level of conservation for future generations while also stabilizing revenues to governments with high energy exposure, like Alberta, Saskatchewan and the feds.
Could we also consider more pragmatic goals around electric vehicles (EVs)? Targeting 100 per cent EVs by 2035 is impractical and I would suggest impossible, likely resulting in a Cuban-like historic vehicle fleet. There is limited benefit in lifetime C02 emissions from EVs, due to the carbon intensive nature of battery production. However, whether one believes carbon dioxide is ruining the planet or not, there is a benefit to improving air quality in large cities. Given that most families have two vehicles, why couldn’t one be electric and the other gas? One for short distance to and from work duty, and the other for long distance travel, eliminating the need of building out entirely different energy infrastructure, which itself uses a lot of resources.
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From an investing standpoint, there are a wide array of investable companies in the alternative energy space. I started investigating and investing during the last energy crisis of 2004-08. At the time, most companies in the field were speculative, and I didn’t do well. A lot has changed over the past 15 years and there are now numerous established investable companies.
Alternative energy
Alternative energy enjoys strong tailwinds with the most obvious being political, rightly or wrongly. Alternatives will also benefit from a fossil fuel supply crunch, which is inevitable sooner or later.
More importantly, there is estimated to be only 47 years of oil and 52 years of natural gas reserves. Coal is more abundant with an estimated 133 years of supply (source: Worldometer). More reserves will be found with exploration and better extraction technologies, but costs will increase with difficulty level. Fifty years may seem like a long time, but I started high school 50 years ago and it doesn’t seem that long. New energy technologies don’t come around every day. Nuclear and solar date back to the 1950s and wind energy is as old as the hills!
Nuclear appears to be the only currently available technology capable of displacing a significant amount of fossil fuels. Cameco*, a world leader in uranium production and processing, is now buying 49 per cent of Westinghouse Electric, a world leader in nuclear equipment and servicing. (For disclosure purposes, I have a financial interest in companies asterisked. I am not making recommendations, simply naming companies worth considering.)
As such, Cameco is transitioning to a vertically integrated nuclear supplier. I first purchased Cameco shares in 2008 and added more in 2012, at about $30. Cameco did not do well post Fukushima, but I held tight and added more in 2016 for $12. It is now about $45. Brookfield Renewable Partners, a division of Brookfield Corp* is the other Westinghouse purchaser. The Netherlands, Sweden and Ontario have recently announced nuclear initiatives.
Another way to invest in nuclear is through electrical generation. Most Canadian nuclear generation is owned by an Ontario crown corporation, but the United States has numerous such companies. The largest by far is Constellation Energy, followed by Duke Energy*, First Energy and Dominion Energy. Southern Company* recently completed two new nuclear plants.
An overlooked alternative energy source is geothermal. With its volcanic environment, Iceland produces 20 per cent of its electricity with geothermal. Ormat Technologies is the largest pure play geothermal company which I have owned in the past. It builds, owns and operates plants while also servicing others with engineering and equipment. Polaris Renewable Energy* is a small Canadian company that owns geothermal facilities in Latin America. While a tiny part of their overall operations, Chevron and Berkshire Hathaway* have geothermal investments.
In the next column, I will delve further into the wide array of potential alternative energy investments.
