Wind energy is the second largest renewable energy source
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As the COP26 meeting held in Glasgow demonstrated, world leaders are facing tremendous pressure to cut carbon emissions by phasing out fossil fuels and adopting renewable energy sources. This shift may lead to a substantial increase in the overall global demand for electricity, as people choose electric cars instead of gasoline-fueled cars and use electricity instead of natural gas or coal for heating.
David Morrison, a senior market analyst at the trading platform Trade Nation, estimates that the world "will need approximately two to three times as much electricity as it currently produces." Therefore, it is no wonder that huge sums of money are invested to meet this additional demand in a sustainable manner. The expenditure has begun to bear fruit.
Nick Scullion of Foresight Capital Management pointed out that the operating and equipment costs of renewable energy plants are falling. In many parts of the world, renewable energy is entering what he calls the "Goldilocks Moment", and its cost is close to, and in some cases, comparable to the cost of fossil fuels.
Of course, many technical challenges still exist, especially in grid connection and storage, but these problems are being resolved. This background bodes well for companies at the forefront of renewable energy technology and equipment manufacturers in the industry.
According to BP's "World Energy Statistics Review", solar energy is the third largest renewable energy source in the world, second only to wind and hydropower. Nick Boyle of Lightsource BP, Europe's largest solar developer, said it has experienced a "rapid rise" in the past decade.
Boyle pointed out that "the cost of buying solar panels now is 1/12 of the price 12 years ago, and the typical size of solar panels has increased from 200 to 250 watts per panel to 500 watts." The efficiency of the panel is also higher, the best "capable of capturing 20% of the energy from solar energy, which is higher than the previous 13%."
In general, "from equipment to power generation, the cost of solar energy is falling in almost all aspects," Boyle said. As a result, the technology “can now compete with coal in many markets, even if it is not subsidized”, making it the most economical form of renewable energy. Part of the reason is that the emergence of large Asian companies uses economies of scale to drive down prices. Small and medium enterprises elsewhere have previously dominated the industry.
But technological advancement that allows energy companies (and consumers) to "value for money" is another key development. Boyle expects that these improvements will continue with the advent of double-sided panels, which can capture reflected light from the ground.
Double-sided panels are not the only technology that can increase the attractiveness of solar energy. Kevin Chin of Arowana believes that three radical technologies are currently being developed. As the efficiency of silicon in solar cells approaches its limit, researchers at the University of California, Berkeley and the University of New South Wales are experimenting with adding perovskite to silicon. Perovskite materials contain a crystalline structure, which makes them highly solar efficient, and at the same time they are more versatile than silicon. The early results were so promising that oil prospectors in the Hunt family established their own company, Hunt Perovskite Technologies, to commercialize the development of perovskite solar panels.
Chin believes that floating solar farms can also become popular. Although they are currently "strange", they are "more economical to install" and have advantages in places where "land is expensive" (such as Singapore). They are also more effective than terrestrial plants, "because water has a cooling effect", which can help them absorb infrared light better.
Perhaps the most interesting development is "anti-solar technology": solar cells that generate electricity by emitting infrared light at night. During the day, the panel is cooler than the sun, absorbing light and heat; at night, it will be warmer than its environment, so it will radiate heat. Although the researchers admit that such panels generate much less energy than ordinary panels, but they will be the source of all-weather power supply.
Chin admits that wind power is “not developing as fast as solar power” because the technology, engineering, and equipment advancements in this field are often “progressive”—especially when compared to the rapid development of solar energy changes. However, wind is still the second largest source of renewable energy. Although onshore wind farms are controversial due to their impact on the landscape, "offshore wind power is becoming more and more economical."
Chris Holmes and Chris Tanner of JLEN Environmental Assets Group agree that in most developed countries, “offshore wind farms will become a major part of the energy structure”, and further cost reduction comes from “the shift to larger capacity platforms and the use of larger machine". They pointed out that although older turbines tend to generate about 1.6 to 2 megawatts of electricity each, today’s turbines can generate about 5 megawatts of electricity, and “some turbines in Sweden can even generate up to 8 megawatts of electricity. ". Several manufacturers are developing software that helps predict wind speed and direction so that turbines can be adjusted to maximize output.
Turbines that are "bigger than a skyscraper" and software improvements that allow turbines to operate under a wider range of conditions are areas of technological improvement. But bladeless turbines can also help wind power, Scullion said. This type of turbine can capture wind vibrations without the need for blades or mechanical motors.
Not only do they look more beautiful, allowing them to be used in a wider range of fields, but the removal of the blades also eliminates the risk of birds being caught by the turbines, which is also undesirable for wind farms.
Scullion said that hydropower is not only the largest renewable energy source, "it is also the oldest... we have been using the power of rivers." In addition to generating energy by driving turbines, hydroelectric power has an additional advantage that it can be used to store electricity. This technology, called pumped storage, involves using electricity generated during periods of low demand to push water up hills or between reservoirs at different altitudes, and then release it to flow down and generate electricity when more is needed.
Stuart Murphy, founder of the tidal energy project TPGen24, said that rivers and dams are not the only way to harness the energy of flowing water. Tidal energy, essentially "hydropower stations in all directions to capture rising tides and low tides", has the potential to "provide energy 24 hours a day"-unlike wind and solar energy, wind and solar energy depend on the weather, time and season.
In a country with a relatively large coastline like the United Kingdom, this means that it can provide a lot of "constant baseline energy." The latest system being developed allows energy to be stored, so it can also respond to changes in demand.
Ashley Slade of the engineering consultant Expleo Group agrees that tidal energy has great potential and can eventually meet "half of the UK's energy needs." However, the technology is currently being hindered by some obstacles, such as the need for large, complex investigations and up to ten years of construction time. Working in the marine environment is also challenging: just putting a piece of seaweed in the wrong place "can reduce efficiency by 20%." Despite this, several major companies are still working to make the technology more economically viable, using composite materials and vertical turbines to improve durability and efficiency.
The last major source of renewable energy is biomass, which involves the conversion of agricultural products into energy; a common process is to convert sugar or corn into fuel ethanol. Although purists may argue that biomass is not a suitable renewable energy source because carbon is released when the fuel is burned, Holmes and Tanner of JLEN point out that when a crop is first planted, carbon is emitted from the air. The fact means that the net impact on emissions should be zero. They pointed out that the rise of carbon capture technology and the use of carbon recycling for food and beverages means that biomass is now "carbon-negative".
Another form of biomass energy is anaerobic digestion, which uses special bacteria to decompose waste such as animal manure, cow manure, and discarded food. Although the process "has been known for decades," they pointed out that recent technological advances have made the process more efficient, producing more raw materials and releasing gas. Manufacturers are getting better in adjusting the range of raw materials to further increase production. Chin said that biomass has great potential in heavy industry. Mining giant Rio Tinto is the first to introduce a process that will allow biofuels to replace coal in the process of converting iron ore into steel. “70% of the emissions in steel production occur in coal.” Rio is working with the University of Nottingham to further develop it.
Cheap power generation is not the only technical challenge facing renewable energy. Chris Kimmett, director of Reactive Technologies' grid business unit, said that the generated electricity also needs to be integrated with the national grid so that the system is stable and consistent enough to generate enough energy to meet demand.
Until recently, the short-term stability of the grid also depended on inertia: not only were turbines and industrial motors powered by oil, coal, and natural gas very good at generating constant energy, but they were also able to keep running for a short time even if they were driven by power plants.
However, since solar and wind energy do not provide the same degree of inertia, the amount of electricity they generate varies every second. Essentially, a grid powered by renewable energy is “like a motorcycle, not a steam train,” Kimmett said.
In 2020, the State Grid tried to use the opportunity of a sharp decline in overall demand to try a fully renewable power grid for a few minutes. “It turned out that it was not stable enough, forcing it to reduce the proportion of renewable energy to 83%.” To solve this problem, “artificial intelligence” is needed. Forecast supply fluctuations" and "fast batteries that can compensate for output drops".
Dan Travers and Laurence Watson, heads of data science and technology at the British technology accelerator Subak, said that progress is being made in both areas. Several companies are trying to use machine learning to enable renewable energy companies and the grid to more accurately predict production fluctuations in order to charge batteries when expected production drops. In addition, the price of lithium-ion batteries, which are increasingly used for short-term storage, is falling sharply, "thanks to the economies of scale brought about by the growing demand for electric vehicles."
Although lithium batteries are ideal for very short-term energy storage, other battery technologies have great potential for long-term energy storage. Travers and Watson were particularly impressed with the start-up company Form Energy, which developed a "water-based air battery system" that can store and distribute energy for up to 100 hours at a much lower cost than lithium-ion batteries. For longer seasonal storage, hydrogen-containing batteries look promising.
Carlton Cummins, co-founder and chief technology officer of battery expert Aceleron Energy, said that advances in battery technology will help renewable energy continue to "exponentially" grow. However, a problem brought about by the rapid changes in technology is that "many renewable energy companies worry that investing in batteries will only make them obsolete."
More importantly, many batteries produced by companies such as Tesla "cannot be upgraded to take advantage of post-purchase innovation." Therefore, several companies, including Aceleron, are developing batteries that are easier to upgrade.
Many renewable energy technology companies are not publicly listed. However, ordinary investors do have access to large oil prospectors, who are investing large amounts of money in renewable energy while selling their traditional fossil fuel business.
For example, Royal Dutch Shell (London Stock Exchange stock code: RDSB) recently invested heavily in the acquisition of a majority stake in the Emerald Floating Wind Power Project, which aims to generate 1.3 GW from a floating wind farm 35 to 60 kilometers off the coast of Ireland.
Partly due to its untouchable status by investors focusing on environmental, social and governance (ESG) issues, Shell’s 2022 price-to-earnings ratio is 6.8 times and its dividend yield is 4.5%, but since it includes renewable energy, it should be re-rated.
Another oil company that is actively dominated by renewable energy for the future is BP (London Stock Exchange ticker: BP). Thanks to its CEO Bernard Looney (Bernard Looney), BP began to sell many of its fossil fuel projects to fund investments in solar and wind energy projects. It owns half of Lightsource BP, which specializes in solar projects and technologies. Similarly, this strategy should help investors buy reliable income streams at discounted prices today—BP’s 2022 price-to-earnings (p/e) ratio of 6.2 and dividend yield of 5.3%—and benefit from changes in attitudes in the future. Because reducing stigma will increase valuations.
Nick Scullion of Foresight Capital Management likes Clearway Energy (NASDAQ: CWEN), which builds, operates and maintains solar and wind power plants and battery storage facilities across the United States. Scullion believes that Clearway will be the main beneficiary of President Joe Biden's Infrastructure Act.
He believes that the bill is an "absolute game changer" because it contains various tax incentives to promote the development of renewable energy. Revenues increase by about 5% every year, which is enough to justify the fact that the company's 2022 P/E ratio is about 20 times. The stock also offers a solid dividend yield of 3.7%.
Denmark's Vestas Wind Systems (Copenhagen: VWS) has played a more pure role in the development and engineering of renewable energy. It specializes in the design, manufacture, installation and service of offshore and onshore wind turbines.
Vestas has a 20% share of the installed onshore turbine market and the offshore turbine market, more than any other company, servicing more than 50,000 turbines with a total capacity of more than 100 GW. Its 2022 price-to-earnings ratio is about 30, but revenue growth of about 50% in the past four years is sufficient to justify this.
A riskier bet is VivoPower International (NASDAQ: VVPR). VivoPower focuses on technologies and engineering related to electric vehicles, batteries and solar energy. Although VivoPower is not yet profitable, its revenue has grown rapidly, jumping from US$13.6 million in 2019 to US$40.4 million in 2021, and analysts’ sales forecasts are still encouraging.
The company is working on various projects, from solar farms in the United States and Australia to electrification and decarbonization of the mining industry. VivoPower still has enough cash on hand to survive the next few years.
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