According to Samuel Goldman, “You should never make predictions, especially about the future.” Well Sam, I’d wager even you would wander into the pundit pool about the future of alternative energy—because there is no alternative to not replacing fossil fuels as the world’s primary energy source in the near future.
The reign of King Oil and Queen Coal are coming to an end. This certainty is what makes investing in second- and third-generation alternative-energy technologies so important to investors. The inevitable transition to greener forms of energy is under way, and the scale of this crucial endeavor is measured in trillions of dollars.
You only need to understand a few data points to share this conclusion. First is the scale of the world’s population growth: The United Nations’ statistics on the world population expect 41% growth from 2002 to 2050, with a projected world GDP growth of 2.7% a year.
These numbers can be turned into opportunity.
A Prize Beyond the Dreams of Greed
Power creation and consumption is a business worth roughly $6 trillion a year worldwide. By 2050, power consumption will likely double. (This forecast doesn’t include a mass conversion of gasoline-powered automobiles to electricity power.)
Today’s global electricity production breaks down like so: Coal use is at 40%, natural gas is at 20%, nuclear is at 16%, oil is at 7%, and renewable use is at a mere 1%. Considering the politics of CO2 emissions, coal at 5 cents per kilowatt-hour becomes 10 cents per kwh, with the cost of carbon taxes and generally higher coal prices because of world power demand.
This makes the “magic number” or “grid parity” for alternative energy sources 10 cents per kwh—and wind energy is lower without subsidies—and multiple forms of solar energy are at or near this economic tipping point.
What About Oil?
The global demand for fossil fuels outside of energy production will change this formula more than anything else. For the first time in the age of fossil fuels, the United States is not the greatest daily consumer of crude oil. In fact, the emerging economies of Russia, China, India, Brazil, and the Middle East are consuming more oil per day.
This tectonic shift in oil consumption means that the U.S. is no longer the driver of oil demand in the global economy. For every barrel of oil it conserves, an emerging economy steps in to buy it.
In the wake of an exponential boom in demand, the world will have to discover a “new North Sea” oil field—i.e., 75 billion barrels of new oil—every two years to keep reserves growing ahead of depletion. The last time we discovered a monster oil field that size was 20 years ago.
The supply-discovery-demand math simply doesn’t add up.
The Future of Energy
Is there room for optimism here? Yes, in the sense that high prices are concentrating many minds on energy—it’s fast become the most important issue of our time.
Today, the average consumer is beginning to understand the centrality of energy to our existence: Take away the cheap energy, and it becomes clear that the world mankind spent the past century building is the wrong kind.
The right kind of world will produce its energy from zero-cost/zero-pollution energy sources—wind, solar, geothermal, nuclear, and, to a lesser degree, fuel-cell and nonfood-related biofuel.
Oil-based economies must become sustainable green-energy-based. The math is inescapable: There is not enough oil or natural gas to come close to meeting the transportation and electrical power needs of the 2 billion people that recently joined the world economy.
The not-so-distant future world will look like Denmark, which produces 20% of its electricity from wind. The future world will transfer sustainable electrical power from sunny, windy locales to dark and windless areas.
The future world will use lighting powered by white light LEDs that last 50 to 75,000 hours. The future world will plug its automobiles into outlets powered by solar panels or fuel cells located in company parking lots and shopping centers. Wal-Mart will offer to use the excess power it generates from its fuel cells and solar panels to charge customer cars as an incentive to shop there.
In short, we are in the early stages of creating a world free of dependence on fossil fuels, not because it’s the “right” thing to do but because it’s the only way this new world can work.
Investors will want to have a significant part of their portfolio riding this trillion-dollar transition. We’re going to see a new world, and your wealth and health will be determined by how you invest in it.
— Tobin Smith
Tobin Smith is the founder of ChangeWave Research.
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