It’s one of the biggest megatrends in the world today…
And this sector is poised to grow significantly over the next one, two, ten, and even 40 years.
I’m talking about clean… or renewable… or green… or alternative energy. Whatever the name, it’s where the world is headed.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
And China is leading the charge…
Why does clean energy matter, anyway?
Renewable energy comes from resources that replenish themselves naturally and quickly. Think sunlight, wind, rain, tides, waves and geothermal heat. This is completely different from fossil fuels like oil, natural gas and coal, which take hundreds of millions of years to form.
As you can see in the following chart, oil, natural gas, and coal use has increased virtually non-stop since 1950. But it’s set to flatten out by around 2020… and then decline. Meanwhile, the share of wind and solar is projected to continue to increase rapidly over the following few decades.
Since the Industrial Revolution in the mid-1700s, the world has used an increasing amount of energy. Most of it has come from fossil fuels.
The search for fossil fuel alternatives surged in the 1970s, when oil cartel OPEC (the Organization of Petroleum-Exporting Countries) slashed its oil production quota. The decrease in production – and the fear of a supply crisis – doubled the price of crude oil in 12 months. The resulting oil crisis helped push oil-importing countries to research alternative energy sources.
Over the past four decades since then, scientists, entrepreneurs and governments have worked furiously to develop fossil fuel alternatives. But for years, wind or solar energy was little more than a novelty. And it was too expensive to make anything more than a tiny dent in fossil fuel demand.
But that’s changed. Today, the technology has finally advanced enough to impact global energy supplies. After years of research and development, the price of alternative energy has started to crash.
Clean energy has finally become price competitive with fossil fuel. You can see the steep drop in solar (photovoltaic) and wind energy prices below.
China is turning green
China is the world’s biggest polluter.
According to the World Resources Institute, China leads the pack of the world’s top greenhouse gas emitters.
In three short decades, China has evolved from a rural society, into the world’s second largest economy. This economic boom has come at a big cost: Toxic pollution on a grand scale.
Air pollution contributes to an estimated 4,400 deaths in China every day. Each year, the country has around 1.3 million new cases of chronic bronchitis and emphysema and around 600,000 new cases of lung cancer.
Last December, smog “red alerts” put pollution back at the top of peoples’ worry list in China. Beijing and the surrounding provinces experienced a steady smog haze that the government deemed a serious enough threat to public safety to shut down businesses, restrict cars and close schools around the capital city.
Logically, people in China are increasingly concerned about pollution-related health problems. China’s city dwellers often have to choose from a list of bad options: wear a protective face mask to do daily tasks, stay at home next to an air purifier, or leave town.
A recent survey of 3,000 Chinese city-dwellers by polling company Ipsos Mori found that 98 percent of them want to buy clean power. Of those, over 90 percent would be willing to pay extra for it. Compared to Canada, the U.S and the U.K., urban citizens of China appear far more willing to pay more for renewable energy, as the next graph shows.
The Communist Party knows it needs to control pollution if it wants to stay in power.
That’s why the government plans to spend US$364 billion on renewable infrastructure over the next three years. By then, China’s National Energy Administration (NEA) expects renewable power sources to make up about half of China’s new electricity production capacity. And by 2030, the NEA wants clean energy to meet 20 percent of China’s energy needs. And during the 19th National Party Congress last month, President Xi Jinping stressed that the government will continue to make efforts to protect the environment – and bring back blue skies to heavily polluted cities – and promote clean energy.
In short, the Chinese government wants to switch from coal to cleaner alternatives as quickly as possible.
So it’s installing enough solar panels to cover a football pitch every hour of every day, according to the World Economic Forum. It’s also installing one wind turbine every hour. Thanks to this, China’s solar power capacity more than doubled in 2016.
China is now the world’s biggest producer of solar power. It produces two-thirds of the world’s solar panels.
But it’s not just China making a big bet on renewables…
According to the World Economic Forum, India’s renewable energy capacity could double by 2022… with 60 percent of its electricity produced with non-fossil fuels by 2027. The country also opened the world’s biggest solar power plant in 2016.
All over the world (aside from the U.S., whose president is no fan of green energy), developed and emerging countries are turning to clean energy.
Between 2016 and 2040, investors around the world will invest US$7.8 trillion in renewables and green technologies, according to Bloomberg. And many billions more will be spent cleaning up the toxic waste from fossil fuel extraction and use.
In short, the future belongs to clean energy. If alternative energy companies aren’t on your radar yet, it might be worth taking a look today.