PINNACLE DIGEST
BIG IDEAS. SMALL CAPS.
Goodbye Oil, Hello Renewables
November 22, 2015
Dear member,
In a world where almost nothing comes as a surprise anymore, it's little wonder things have
escalated to the point where ISIS is now dictating foreign policy.
France has reported it will limit the hugely anticipated UN climate summit, known as COP21,
scheduled to begin on November 30th, to core negotiations. It cancelled planned marches
and concerts that were intended to drive mass attention to the historic event. This comes in
the aftermath of the cowardly and barbaric attacks in Paris.
While mainstream media will focus on the end result of the summit, and the potential for a
terrorist attack, we're focused on the impact this global conference could have on Canada's
energy sector and consumers at large. COP21 will likely bring about a monumental energy
agreement for much of the globe.
The United Nations' Energy Agenda
In June of this year, we wrote about the UN and how global leaders, particularly from Europe,
were preparing to take advantage of depressed oil prices by implementing another carbon tax
concept.
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Fast forward almost 6 months and oil prices have remained depressed, hitting a low of $39.91
per barrel on November 18th. Additionally, renewable energy initiatives and commitments
from governments and companies around the world are gaining more momentum than
ever before.
Below is an excerpt from our June Weekly Volume titled A Global Fossil Fuel Tax? which
discusses the aim of COP21:
"...they reportedly plan to introduce new taxes on fossil fuel consumption while prices are
depressed. That way it won't significantly hurt our pocketbooks; at least not right away.
While the plan hasn't been implemented just yet, they reportedly will be introducing it to
roughly 190 countries in December at the most important UN global leaders meeting in years
(known as the COP21).
It appears that the main priority of this massive conference is to replace the failed Kyoto
Protocol with an all-encompassing energy control plan. This is to be accomplished in order to
quell global emissions growth by 2020."
* Read A Global Fossil Fuel Tax?
COP21
COP21 stands for the 21st Conference of the Parties and represents the annual meeting of
all countries which want to take action on climate change.
Click image above to watch the COP21 promotional video
As we discussed in our June overview of COP21, countries such as China and Canada have
been apprehensive towards commitments to support new carbon taxes. However, Canada,
unlike China who remains weary, appears to have made a rapid U-turn following the election
of the Liberal Party on October 19th. (You may be interested in reading our report on the
Canadian election titled, Trudeau Bets $1 Billion on this Sector)
Bruce Cheadle of The Canadian Press featured a few of Prime Minister Justin Trudeau's
stronger comments in respect to how Canada will prepare for COP21:
"I will be engaging with the premiers in the coming weeks to establish a strong position for
Canada so that people know that Canada's years of being a less-than-enthusiastic actor on
the climate change file are behind us."
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source: http://www.huffingtonpost.ca/2015/10/22/paris-climate-summittrudeau_n_8363478.html
Below is an additional excerpt from Mr. Cheadle's article:
"The Liberal election platform committed to supporting provincial measures, "including their
own carbon pricing policies," but did not provide longer term targets. It also promised to hold
a full first ministers meeting within 90 days of the Paris summit to develop "a framework to
combat climate change."
source: http://www.huffingtonpost.ca/2015/10/22/paris-climate-summittrudeau_n_8363478.html
The article went on to summarize the sentiment of delegates in favor of some form of carbon
tax:
"This week the Canadian Chamber of Commerce announced that more than 98 per cent of
delegates to its annual general meeting had agreed on a resolution to reduce emissions "by
using economic instruments, where the federal government is asked to work with the
provinces to adopt a national carbon tax or cap and trade system to achieve a reduction in
GHG by 2050."
source: http://www.huffingtonpost.ca/2015/10/22/paris-climate-summittrudeau_n_8363478.html
In a Wednesday, November 18th article from the Financial Post titled, Natural resources
minister vows to find 'sweet spot' between environmental agenda and oil patch concerns,
some interesting statements from the newly appointed minister, Jim Carr, were relayed:
"Carr said the Liberal government will be mindful that Alberta is in a "tough moment" as it
unveils federal energy policies, and will ensure that new environmental rules take into
account the resource industry's economic realities."
How the new Liberal government will find this balance remains to be seen. However, the
public will make its judgement once we see exactly which sectors and projects receive
funding and incentives.
New Carbon Taxes Coming
The stage has been set to execute the COP21 plan by implementing new carbon taxes
amidst a global supply glut in oil and a renewed commitment to renewables by many
multinational companies.
Suffice to say, we are confident Canada is preparing to usher in the most aggressive carbon
reduction policy in its history. The people voted for change, and Trudeau is going to give it to
them. With oil behemoths not nearly as influential in Alberta politics as they once were, and
with the pro-oil Conservatives relegated to official opposition, expect little resistance from the
public or private industry.
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The oil sands remain a target for environmental groups
Countdown to Renewable Energy Blast-off
We've talked about Canada's need to diversify its economy, particularly from a manufacturing
standpoint; and events such as the COP21 can act as a catalyst to achieve this
diversification.
The renewable energy sector is about to get some serious wind in its sails (no pun intended).
The question on every investor's mind should be this: can clean energy technology costs
decline fast enough to make the shift from conventional energy sources a reliable and
profitable one?
The latest data is showing that it has a chance, especially in today's politicized economy.
In a report titled Tracking the Energy Revolution: Global 2015 a think tank estimated that lost
opportunities from Canada's reluctance to adopt renewable energy on a wider scope cost the
nation CAD$8.7 billion in 2013 alone.
source: http://www.nationalobserver.com/2015/07/07/news/global-clean-energy-economysurging-and-canada-missing-out
The International Renewable Energy Agency forecasts that onshore wind, offshore wind, and
solar will compete directly with fossil fuels in most markets by 2025.
source: http://cleanenergycanada.org/trackingtherevolution-global/2015/
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Offshore wind energy parks continue to garner government
support
Clean Energy Canada is a climate and energy think tank housed at the Centre for Dialogue at
Simon Fraser University. Its latest report was titled Tracking the Energy Revolution: the Top
10 Trends Propelling the Global Clean Energy Transition.
The data compiled in this well-researched report needs to be read by all investors looking for
opportunity. We've highlighted our three most important takeaways below:
Fact #1:
"In total, investors poured twice as much money into new renewable-electricity projects than
into new fossil fuel projects." (in the year 2014)
Fact #2:
"According to the International Energy Agency (IEA), global greenhouse-gas emissions
leveled off in 2014-even though the economy continued to grow. It was the first time in 40
years that greenhouse-gas emissions stopped increasing without help from an economic
downturn."
While we know the truth about anemic global growth, this stat points to accelerated growth in
renewables.
Fact #3:
"Last year financiers moved USD$295 billion into renewable electricity-a 13 percent bump
from 2013."
Check out the below increases in renewable energy investments, which have largely been in
the solar space:
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chart source:
http://cleanenergycanada.org/trackingtherevolutionglobal/2015/assets/pdf/TER-G-Tracking-the-Global-EnergyRevolution-2015.pdf?download
Economic success in the solar industry has grown consistently. This past Tuesday, Nasdaqlisted and industry leader JA Solar Holdings Co. reported its third quarter earnings, which
showed an increase in shipments, net revenue, gross margin and earnings per shares.
Cleantechnica.com relayed the company's results, reporting:
"JA Solar's net revenue for the quarter reached RMB 3.8 billion ($601 million), representing
an increase of 41% over the last quarter, and 26.4% over the same quarter a year earlier."
Investment in clean energy has exploded since the mid-2000s, and China is leading the way.
China's adoption of clean energy can be witnessed in its growing investment in renewables.
Investment in the sector grew from $4 billion in 2004 to a whopping $89 billion in 2014. Often
the target of environmental criticism, China's capital allocation to green energy is impressive.
EU Doubles Down on Wind Energy
The European Wind Energy Conference took place this past week between the 17th and 20th
in Paris. While solar has seen the largest global investment of late, wind energy is expected
to provide the biggest contribution to the EU's 2020 renewable energy targets.
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In an article titled Wind energy is crucial for the EU's renewable energy targets, projected
capacity increases were reported:
"The EU currently has around 140 GW of wind power, including just over 13 GW of offshore
wind power capacity, which could rise to 210 GW by 2020 and 350 GW by 2030. These levels
of capacity would cover 14% of the EU's electricity demand in 2020 and up to 24% of demand
in 2030, according to the European Wind Energy Association (EWEA)."
In North America, the sexiest renewable energy company is Tesla. It can be argued that no
company in the world has as much cachet as Elon Musk's innovative firm.
Tesla's new Gigafactory under development in the desert of Nevada will be one of the largest
buildings in the world and "it will produce more batteries when it is fully operational than the
whole world was producing in 2013, as you can see in the graph below," according to Michael
Graham Richard. Click here to read his full report.
* Anticipation of this factory's completion has sparked interest in a number of junior resource
companies exploring for lithium in Nevada.
Tesla is a company inspiring people and industry. Its Gigafactory ranks 3rd on Clean Energy
Canada's list of the Top 10 Trends Propelling the Global Clean Energy Transition.
Clean Energy Canada reported that,
"Once operational, the plant will double the global quantity of lithium batteries that were
available as of 2013.
And that:
"Accessible batteries will mean more than just cheaper electric vehicles; batteries also make
it easier for countries, companies, and individual homeowners to build more wind and solar."
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Tesla Gigafactory - Drone fly over - September 2015
Click above image to watch video of Tesla's Gigafactory
Below is an excerpt from the executive summary of the Tracking the Energy Revolution report
from Clean Energy Canada:
"...the Tesla Motors Gigafactory, which some analysts expect will slash the cost of home,
vehicle, and utility batteries, disrupting at least three established business models and
reducing fossil-fuel dependence in each case."
Tesla's facility will be a net zero energy consumer. Its entire roof will be layered with solar
panels.
Promo image from Tesla
As incentives for companies to pursue clean renewable energy sources continue, and
technological advancements allow for accelerated adoption, expect more capital to flow into
this space. Under the new Liberal government, Canada will move to become a leader in this
sector, an area in which it previously lagged. While the conventional energy sector is not
going away anytime soon, and certain investments will make sense in that space for years to
come, we are in the midst of a titanic shift to renewable energy. This is a sector you'll want to
be a part of.
"The rising tide lifts all the boats."
- John F. Kennedy
All the best with your investments,
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