Energy Tides are Turning

Some interesting and exciting news has come out over the last week regarding the current and future states of energy consumption and production. Chesapeake energy has filed for bankruptcy, just about every oil/natural gas firm worth naming (save Exxon Mobile) have written down the value of their assets including Royal Dutch Shell writing off $22 billion in value. Demand volatility is as high as it’s been (west Texas intermediate crude jumped 92% in one month, but forward month futures are trailing current prices) and OPEC is on the verge of a price war.

Conversely, Tesla has just become the most valuable automaker in the world handily surpassing Toyota through exceeding production and sales targets, weathering the pandemic demand drop (~5% vs +30% for the greater market), and looming concerns over fossil fuels long term stability. Chinese electric automaker NIO also has exceeded expectations and their stock has dramatically risen in the past week even considering the remarkable (unsustainable? unwarranted? Dangerous?) appreciation seen across the market. Plug power is reaching new heights in their fuel cell business as well. Built into all the changing valuations, both positive and negative, are heavy expectations of what the future of energy holds. While the market is leading actual production, it may not hold that way for long.

Renewable energy broadly holds about 1.5-2% of the energy market. If the broad market demographics that business schools around the world proclaim are correct, that means the next wave of adoption will come from early adopters (~13% of the population) and considering how much future expectations are being caked into pricing, I would expect the early majority (~34%) to follow quickly behind. And, being as energy is a commodity, it is reasonable to expect that administrative moves could accelerate adoption across the board. Renewables are already the prudent financial choice for consumers that can afford the upfront capital expenditures. With fossil fuels on the ropes and clean energy and goods gaining rapidly, we may well be at the inflection point that tips the scales are rebuilds a cleaner world.