The Last Energy Crisis

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In today’s Money Morning…poor timing, poor planning, but plenty of opportunity…the big names getting in on the action…a big endeavour with big potential…and more…

It was another night of carnage across markets.

Despite the slight bounce after the Fed’s monster hike yesterday, it seems the reality of the situation has set in. Investors are beginning to price in ongoing rate rises for the rest of 2022 — for better or worse.

As I explained yesterday, though, I don’t expect it will be long before Powell realises his fatal mistake.

Rising interest rates are only going to compound the economic pain right now. And once the Fed actually realises that, don’t be shocked if they do a complete 180 on monetary policy.

My overall point is that now is not the time to be obsessing over central bankers.

Keep up to date with what they’re doing, sure, but don’t treat their words as gospel. After all, it was only 12 months ago that Powell was harping on about ‘transitory inflation’. The fact that he was so wrong then has to make you question why so many think he’s right now.

But enough about the Fed, the RBA, and the rest of them.

Today, I want to talk about the biggest issue at play…

Energy.

Because, as every Aussie on the east coast can tell you, energy is by far the biggest inflationary issue around right now.

Poor timing, poor planning, but plenty of opportunity

It doesn’t take a genius to realise that Australia’s energy market is going through a rough patch. The decision to cut back on fossil fuels — particularly coal — in a bid to meet our climate pledge has not proved to be a smart one.

Whether you think this is a good or a bad thing, we can all agree that it has been poorly planned.

Turning off these fossil fuel plants with few reliable alternatives has left us in this current crisis. Granted, external events — like the war in Ukraine — have certainly compounded the issue too.

All in all, our politicians have left us stuck between a rock and a hard place.

And while they’re trying to make a big fuss about resolving the matter, there’s unlikely to be a quick fix.

Instead, what we really need is to plan for the future. Because if they really put their mind to it, this could be the last energy crisis we have to endure.

I’ve already talked at length about the potential for nuclear power. If we started putting in place a plan of action now, we could secure our energy future for decades with it.

But it certainly isn’t the only possible solution…

Earlier this week, The Australia Institute published a comprehensive report on the potential of renewable power in rural communities. In conjunction with the University of Sydney, the report showcases how localised renewable projects can economically enrich smaller communities.

Essentially, the proposal is that much of rural Australia could benefit from new ‘Renewable Energy Zones’ (REZs). As the researchers themselves note:

This historic transformation will literally change the landscape. As the old generators in coal regions retire, they are being substituted by clean energy and storage built in other areas. Most of the generators and associated storage and transmission will be built in localities that have never hosted large-scale electricity infrastructure before.

In other words, these REZs should help reduce our reliance on the typical energy grid. The end goal is to create an autonomous solution for each and every community. Meaning that each REZ generates the power it needs purely for people that live nearby.

It is effectively a decentralised energy network.

It’s an exciting opportunity that could overhaul many of the systems that have brought about our current crisis. And it’s for that reason that all investors should be taking notice…

The big names getting in on the action

Now, more than ever, investors should be watching this renewables push precisely because big business is too.

This week, we saw BHP, for instance, snap up a 40.5% stake in the Asian Renewable Energy Hub (AREH). This huge project — based in the Pilbara — aims to use wind and solar power to produce green hydrogen gas for export to Asian markets.

Don’t mistake this for some small pilot plant either. When it eventually reaches full capacity, the AREH is expected to generate 26 gigawatts of energy and 1.6 million tonnes of hydrogen. For context, those 26 gigawatts alone are equal to about a third of Australia’s total power generation per year.

In other words, this is a big endeavour with big potential.

The fact that BHP — of all companies — is now a big part of it is perhaps the most important detail of all. It’s a signal that the shift away from fossil fuels — no matter how important they are right now — is still coming.

As The West Australian reported on the matter:

Wood Mackenzie vice president Prakash Sharma said after a 100-fold jump in low-carbon hydrogen project announcements over the past three years, major energy players now seemed willing to raise the game on green investments.

He also noted TotalEnergies and Adani had announced this week a $US5 billion investment into the development of a hydrogen and derivatives business in India.

“The investments committed by BP and TotalEnergies confirm the industry’s confidence in hydrogen technology,” Mr Sharma said.

“Australia is home to nearly a quarter of all the announced projects and more capital will flow into low-carbon hydrogen projects in the future if they are backed by a firm off-taker.”

Mr Sharma described hydrogen as a wonder-fuel that could decarbonise all sectors of economy.

This, along with a slew of other innovations, is how we ensure we never have to endure another energy crisis.

It’s a chance for Australians to take charge on energy security once and for all.

And for the investors that can see this change coming, it’s going to be incredibly lucrative.

Regards,

Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

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About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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