There has been plenty of media over the last few days regarding Australia’s commitment to net zero by 2050 which enables the PM to officially commit at the COP26 Glasgow conference.
It has been billed as the last chance to achieve net zero emissions by 2050.
Although the media would have you believe that Australia is the bad guy and we are the worst in the world, the leaders of big-emitting Japan, Indonesia, Brazil and Mexico – and above all China – have ignored the “royal nudges” and will stay at home.
Even the Kiwis aren’t going because they are yet to get their farmers over the line with reducing emission from their Dairy sector.
So What Is COP26?
COP stands for Conference of the Parties, and will be attended by countries that signed the United Nations Framework Convention on Climate Change (UNFCCC) – a treaty agreed in 1994. The 2021 meeting will be the 26th meeting, which is why it’s called COP26.
Andrew Forrest (FMG) has been promoting Green Hydrogen by painting Glasgow cabs with ads for his hydrogen plans.
Does It Present Investment Opportunities?
Yes.
Net zero emissions do not mean zero emissions. Some emitters will unavoidably need offsets.
Decarbonising won’t be easy for Australia, which is unlikely to follow a straight line to net zero by 2050. Whilst the technologies are there for the world to easily achieve the target, investments in the mechanisms and infrastructure is yet to provide the pathway to a smooth transition.
Its all about a sensible transition. This is why traditional energy companies like Woodside are doing well as LNG will help enable the transitions.
For Australia, the transition will also be enabled through the safeguard mechanism in the government’s Emissions Reduction Fund which provides a potential source of increased carbon emission trading in Australia that, critically, puts a price on carbon abatement. Government is currently tendering for a “Carbon Exchange” to enable carbon to easily trade and once this happens the transition becomes a little easier. Putting more market forces behind decarbonisation would reduce the inevitable costs of decarbonisation that would then give Australia a better chance of grabbing the opportunities – in solar, hydrogen, batteries, critical minerals, carbon capture and storage – of a low-carbon world.
Turning the investment tap off to investment in traditional energy investments isn’t the answer either as demonstrated with the energy crisis in the northern hemisphere. Australia has the unique opportunity to ensure investments are well timed. If we move too slowly or too fast we are likely to see chaos in energy markets as we have seen in the northern hemisphere.
Where Might The Opportunities Be?
Green Energy: Fortesue FMG ,Province Resources PRL, Global Energy Ventures GEV
Nuclear: Paladin PDN
Wind, Solar, Hydro: Genex Power Ltd GNX
Battery Materials: Independence Group IGO
There are a couple Australian ETFs (with international investments) that stand out for a broader exposure.
CLNE gives investors a diversified portfolio of 30 of the largest and most liquid companies involved in clean energy production and associated technology and equipment globally.
ERTH comprises a portfolio of up to 100 leading global companies that derive at least 50% of their revenues from products and services that help to address climate change and other environmental problems through the reduction or avoidance of CO2 emissions. This covers clean energy providers, along with leading companies tackling green transport, waste management, sustainable product development, and improved energy efficiency and storage.
Genex Power Limited
Genex Power Limited engages in the generation and storage of renewable energy in Australia. It generates power through hydro, wind, and solar projects. The company was formerly known as Allied Resources Limited and changed its name to Genex Power Limited in August 2013.
As shown below, the company has a number of renewable projects either complete or progressing through the planning and construction process.
Probably one of the more exciting projects is the pumped Hydro project.
Pumped hydro effectively uses excess solar or wind energy to pump water to a storage which in turn is available for “on demand” hydro electricity generation. They also have a battery project with a link to the presentation below.
Whilst the project is a number of years away, it will be a valuable addition to its asset base.
It is certainly not without its risks.
Like any large utility type business developing assets, they usually carry a lot of debt and Genex is no different. Whilst the interest on the debt in these type of businesses is generally fixed in nature for a number of years a rapid increase in rates is likely to flow through to impact on profits at some point. However it’s not out of the questions that once there is a proper price on Carbon, companies like Genex will receive a premium for their product.
Recommendation
Buy at current levels 0.235 cents
Price Targets
Canaccord 0.36 cents (30/08/21)
Ord Minnet 0.29 cents (27/08/21)
Risk
High
Time Frame
Medium – Long
Battery Energy Storage Presentation
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