With Laurent segle And from London and Gerard Reed from Berlin. This is redefining.
Energy linutes today on really if an energy job.
What's your show? Where have you been invited? I was a Wisdom Try which is one of the largest managers of ETFs across the world. Wow Exchange traded pumps they might to command their podcast which is called The Commodity Exchange, and actually was. I thought it was good because listen back to basics talking about how you invest in this energy and transition, what you need to look out for going forward, also in terms of fossil fuels, what it means for that, etcetera, etcetera.
So the episode is cool Energy Transition to Global Investment Guide.
Let's listen to your interview.
Welcome to the Commodity Exchange, a podcast where we bring you insights from the world of commodities. Whether you are an investor, I just want to learn more about the topic. I'm Abin Taher Director Macroeconomics and Thematic Research at Wisdom.
True and I'm as Short head of Commodities and macro and economic research here at Wisdom True. Welcome Gerard. It's a pleasure to have you on our show. So I understand you wear many different hats, and what do you tell our audience a little bit about what you do in your own podcast and some of the other projects you have on Yeah, and.
I suppose is three parts of my business life. So the first one is really I come from the finance industry and I'm a partner in business called Alexa Capital, which is one of the leaders in Europe in and around corporate finance in this energy transition space. That means we're raising money for companies, we're selling projects, and we're doing na So that's my first hat. The second half
really is I'm involved in scaling businesses. I think this is a unique opportunity in our lifetime to have a really big impact by creating new things that actually have a positive impact on our world. And I said, the third thing that I do is I realized that the energy transition is really complicated. It is not easy to change an energy transition. And we're trying to move the energy transit. By the energy transition, I mean we're trying to move from a fossil fuel based system to call
a clean energy based system. That's not easy and it's not easy for lots and lots of reasons, and because it's so complex, I just decided, look, and this is probably about ten years ago, I said, I'm just going to help educate people and give them an independent view of what was going on. So I've been a very active blogger and obviously I have the podcast, and I'm also involved in a think tank called the Energy Transition for And again I do this because again it's complex.
I think a lot of our audience is familiar with the energy transition given the number of shows we're dedicated to the topic, but we'll always have new listeners. So why don't you tell us a little bit in your own words about what you believe the transition is, and more importantly, tell us why you think this mega trend presents an attractive investment opportunity.
So let's take a step back. I by accident got into the whole renewable space twenty years ago, and I had an investment client who asked me to look at the solar business. And I came back to him and said, don't invest. He said to me why, and I said, well, the economics of solar make zero sense and never will.
And he said to me, Jared, I need you to meet the founder, and actually met the founder of the business, and the founder explained to me why Solo was going to revolutionize the world, and it actually is in the process of doing that. Right when you think this year, for example, we're going to have five hundred gigawa's the solar installed across the world. We've never seen an energy technology come to market as quick as this, never you
think of it. You know, nuclear at the peak in its seventies, you were probably building thirty forty giga what's a year. So just to put that out of that, that's the first point I say. But let's see where this came from. This technology would really not have got to market and to scale without a whole part of subsidy programs in the United States, in Spain and Italy, in Germany, and also with the help of the Chinese.
The Chinese have produced and scaled the technologies like we've never seen in the history of mankind, and the subsidy programs in a lot of the Western countries. What they did was saying, now, what was a very expensive product to get to market so that there was a market for it and the prices went down. That was the start of it. So for me, at the beginning, it really was part of the green movement and a little bit about cleaning up the environment stuff like this. Twenty
years on, it's not about that anymore. And I don't use the word transition anymore. It's not a transition. It's a revolution. And in the revolution, businesses people die, and there's winners and losers, and we're seeing the beginning of that already, and that makes it, by the way, a difficult place to invest. I just think of it like
this energy. You look at some of the valuation to some of the companies, the gas companies out there, you could actually say, from a historical point of view, they're trading up very low multiples. Why well, there's a little bit of caution about the future in those businesses. And then you know, saying well, okay, let's put money in a solar business. Then you look and say, well, the margins of those businesses are so low do we really want to be in that? So it's a difficult place
to invest. But I just want to say it's a difficult place to invest because there's a revolution going.
Our observations that Wisdom Tree was that this energy transition were equal a revolution gained a lot of momentum in traction with investors back in twenty twenty one twenty twenty two, but are cooled substantially in twenty twenty three. However, just as you say, the investments in the physical assets in clean energy are now close to double those in fossil fuels when they were kind of equal in twenty sixteen, and solar adoption has clearly eclipsed most people's imaginations a
decade ago. You including, there seems to be a huge dichotomy there. The energy transition or revolutions seem to be powering it, but investors seem less interested. Is this what you see as well? And why do you think that's the case.
I won't say it's less interested. I think what's happened is that what we've had is a Chinese government who made a strategic decision fifteen years ago that they have to dominate these new energy technologies. What do I mean by that? I mean China doesn't have its own gas, doesn't have its own oil, and as to import them. In particular, oil is really the biggest oil import from the world. And they look at this from a strategic point of view, and they say, we don't really want
to be continuing to import this Number one. Number two is there also is a view from the Chinese government really that they believe they should be at the center of the world. And if you'ret the center of the world, then actually you need to do good things for the world. And so the good thing for the world is could
do something for the environment and lead on that. And then the third thing that is related to that is industrial policy in China, centralized industrial policy, which means that they've got full support to go and scale and take it a ten year of view. A lot of companies in the West take six month view these days, right, So we've never seen anything like that in terms of companies.
And now the result of this is that you've got massive capacities of solar panels, wind turbines, batteries, inverters, you name it, core components of this energy transition, and they're all made by Chinese companies. And by the way, these Chinese companies, we never heard of them fifteen years ago, and now I look and I go gold wind Envision, bigguse wind turbine manufacturers in the world, c atl BYD, biggest battery manufacturer in the world bid biggest EV manufacturer
in the world. You can go on and on and on about what China has done, but what China has done is and also does is they say, listen, if we're going to really dominate these technologies, we have to get to such scale that people aren't going to compet. So I can't compete because people like me and the finance world say I'm not going to give you a capital. So the result of that is we don't have manufacturer of any of these core technologies in the Western world,
with the exception really a Tesla. Okay, with the exception of Tesla. The rest is in China. And that's what makes it very difficult to invest. How do you compete with the Chinese? And you can say, I can put a subsidy on it, I can do this, that and the other thing. But the investors really like putting money in a factory just because you're going to get a subviously, knowing that you won't compete with it, you know what
I mean. That's what makes it very difficult. And the other thing is that you have hype circles in this space you talked about twenty twenty one, twenty twenty two massive hype cycle. The world's hydrogen. You know, hydrogen is going to be the next big thing. We're the leaders in it, and we've got plug power, we've got ballard, and we got this, and there's share prices of all collapsed. Okay.
And also, by the way, we had the whole spack movement as well, again crazy evaluations in around companies that had nothing or very little, and you have a crash, which is probably similar in this space to the crash the Internet boom or BOST, but very clear, out of the Internet boom of BOST came a whole pile of great businesses right, including Amazon. So I'm not negative about it. I'm just saying there's an opportunity now to pick winrors.
Jared, speaking of hype cycles, one thing that's very hyped up right now is the AI wave, certainly, and I saw statistic recently from the International Energy Agency which said that one query submitted to chat GPT requires ten times the amount of energy as a simple Google search. It's a good memorable way to just remember how energy intensive the AI revolution is. And of course, with more data centers having to be deployed, more devices with AI capabilities
and so forth. But this also potentially has an impact on the energy transition becauseally some of those data centers good turned towards renewables and maybe that's a new source of demand. How do you see the impact and the increased use of energy from the AI revolution on the energy transition?
I look at it very positively. And the reason I say that is because it's all about electricity and what any form of data center or software does it and power electronics. It enables you to control powerflows. I can see data centers being part of the solution going forward. Let me let me explain what I mean by that is, I can tell you, like I'm in Europe, if I use CHATCHBT in my morning, it's really quick. I go
and use it in the evening it's really slow. Why is that Well, because we're using US data centers in the morning and guess what, You're all sleep and then when you guys all wake up, then guess what happens to get slow? Now where am I coming from this? That's already happening within this, which is your moving demand in data center based on where you have capacity. But I'm also going to come to another point. You're going to do this based on electricity. So where's the cheap electricity?
Oh yeah, there's too much wind in the UK, let's go there. So we're going to flexibilize a lot of what we're seeing from the Googles and the Microsoft to this world. We're going to use them as part of the solution. And I'm very happy about the fact that these guys are actually putting their hands up and saying we're going to leave this, We're going to do this. They're not shying away and sort of saying, oh yeah, yeah, yeah, we're going to just buy carbon credits and keep our
heads down. They're actually putting their heads up and saying we're going to be part of the solution. And tech is part of the solution. That's what I want to say on that whole issue. And it's very clear if you look at who the big energy user is going forward, or it used to be the big chemical companies, it
was Dow, it was BSF, and it's not. I mean, the big big electricity us is going forward are Google, Microsoft, Accessia, right, And we have to make sure that they're part of the solution going forward rather than the And the other thing I would say is if you want to think about cleaning up our energy system, you have to electrify as much as you can. And electrifying as much as you can means actually that what you need to move into a world is where everything is connected together and
it is powered by AI. So I can walk into the house, guess what, the house senses that I'm there, and the heating system goes on and then it actually goes Oh. But by the way, there's no sun out there today, so I'm not going to charge your car. I don't want to think about that. But the AI will enable decisions like that to be made and automated going forward. And that's the world that we're going into.
And by the way, that lends itself very well to let's call it flexible side of renewables, because the reality is solar is the cheapest form of electricity producer in the world. But the problem is it's not there at night. Well guess what, we don't use our data centers at night. So there's ways around it. That's what I want to say. I look at it positive, don't look at it as negative. Anyway.
The sector that is electrifying very quickly, and you just said it is cause that need to be charged electric vehicles, and they two go through their own ebb and flow
in terms of the press they receive. Of course, recently there's been some negative press, perhaps more so out of the US, where EV adoption might be a bit slur compared to parts of Europe or indeed China, but the world at large, you know, overall, we're on track to sell seventeen million evs in twenty twenty four, and if you compare that to twenty twenty be so close to three million sales. So we're on this very strong growth trajectory,
certainly in the electrification of road transportation. Give us your take on how you see the EV industry. Is it breaking or is it accelerating?
Oh, it's accelerating. And by the way, it's a little bit like the solar industry in the past. What you tended to have was a boom of three years, and then what would happen would be would slow down, it might even go almost negative or flat accelerates again. But there is always one market up and one market down. That's where it is, right So yeah, okay, you know the German market is down this year somewhat, the Chinese market is up this year, right. The trend is very, very,
very clear. And I think the most interesting thing for me in and around EVS is if you think what's happened is EV's manufacturers have focused on the upper end of the market. So if you think of a Tesla, it started at a model S and the cars are pretty expensive and it's normally right, that's what you do when you bringing new technology to market. You go with the upper end and you try to make as much margin as possible. Okay, well, we've seen in the last
year forty percent reduction in the cost of batteries. Have we seen forty percent reduction the price of EV's? No? Why not? Because you know well BYD and Tesla actually have very strong margins in this business, and that actually enables them to keep that. Yes, they can push down prices if they want, but the point about it is
they don't necessarily need it that. There's the point I'm also making is there is more room for prices to go down to these evs, and so the parity between evs an internal combustion engine at the upper end of the market is there already. And for those of you who are buying an expensive car, I mean, I just look at myself. I would just I'll never go back
to internal combustion engine. When I've got a car that does three hundred and fifty miles over five hundred kilometers in range, it's sort of game over for me already. And if I look at the driving experience of these cars and compare them to these the old cars, way,
so you can't stop. You've been trying to improve the internal commessation engine for one hundred years at this point in time, and we've got the law of diminishing returns set in a long, long, long while ago, while you haven't the opposite in the EV space, which is you still have technology improvements and cost reduction going forward. So my own view is it's really unstoppable at this point in time.
I guess you and you have to look at China as an example that, right. I mean, the compact in the small cars are already cheaper in EV format in China than they are in internal combustion engine format, right, So I guess it's already written a blueprint for the rest of the world.
And it's is you're talking right on that already. And by the way, but there's a cultural thing in China versus the West that we need to understand. In the West, we've had internal combustion engines for one hundred years and people really love them. It's part of the culture of
society right now. China doesn't have that, and everybody is used to for the last fifteen years driving around in electric scooters where you know, you had extension cables coming out balconies down to charge a car, so everybody has had that experience of it. Now, we would never do this in the West. You know what, you want me to put an extension cable down to power my scooter
for them was normal. So for them to then go for electric scooter to an electric vehicle, it's just normal for them to go to an internal combustion engine, which is no easy, dirty and a different expense. That's for them to step backwards. So to just think of the mentality, and that's why in the first half of twenty twenty four, fifty percent of Chinese newse car sales were hybrid, you know,
with a large battery and are fully electric. So yes, they're ahead, they're ahead and adoption, but they're also ahead and production.
Looking at your website for Lexic Capital, you have why called one hundred and fifty page book called Investing in the Energy Storage Revolution. Give us a little summary, tell us why you think energy storage is so important in a world of renewed books, and where do you think the storage revolution will lead to the most opportunities. Basic principle in human development.
Is all around energy storage. Okay, you build a gas terminal that's energy storage, a coal boker, a fridge, these are all means to store energy and they have driven Manchi for in particularly the last hundred and fifty years, the innovation and energy storage. It's incredible. If I look in the last fifteen years, there's one technology, one storage technology has revolutionized our world, and it's called a lithium ion battery. Our modern lives are dependent on a mobile
phone that has one of those batteries. And I can go on and on and on about where batteries are. I think I counted my own home in the region of four hundred batteries though. So that's the first point. The second point, though, is that if you want to go and see what's happened in terms of lidium IE in the last say decade, what's happened is performance improvements cost reductions has opened up new markets. So if we talked ten years ago and said George, do you think
we're going to actually electrify aviation? I would have laughed at you. I'm not laughing anymore. The reason is because I'm looking at what's going on in batteries. I'm seeing the innovations in a realm of motors and paraelectronics, and I go, not only possible, but you know, you can see already there's a pathway to not just drones with short distance airplane rides being electric. And it's not because of climate, it's because of technology change, and because the
economics of it make a lot of sense. That's what going for. We go forward and we say, okay, storage prices keep going down, Well what does that mean? At some point in time you might say, well, if I'm sitting in Nigeria today and I don't have electricity, do Nigerian government have a decision to make. Do they continue building out the power grid the way we've built it, or maybe they go, mayebe won't do that because that's a bit expensive. Let's actually go and put in solar
and batteries. Let's think about it in a different way, and I said little in my batteries, but I said energy storage broader, because there is a huge amount of innovation taking place in that whole wider energy storage space. And again, every energy transition needs some fall of storage. You think of it moving from the horse and cart to the forward model T when you couldn't do this
without the gasoline infrastructure be import in place. So as it stands now, as we're moving from a world where we burnt everything through internal combustion engines or burnt whatever it is for heat purposes, we're now worring to a world where you're electrifying. So that means we're going to have to find other ways to electrify. And there's, as I said, massive innovation taking place in that wider storage area, and that's why I think everyone needs to look at it.
That's really interesting. I was thinking back to the energy crisis that started in twenty twenty two in Europe with the Russia Ukraine War. We used to gas flowing on tap, and then suddenly we had to stop that because of the Russian supply and go to firstly through shipment from
liquefied natural gases. So I guess there's some similarity. So are you saying that when countries and there are a lot of countries who are at a much earlier phase of development at the moment that don't have a big grid infrastructure at the moment, if they're planning their energy needs for the next twenty years, they're better off focusing on storage and combining with renewables.
Is that is that I.
Would say they have to rethink the way we build an energy system and just take a point that the energy system that we have in placed, the electricity system that we haven't placed today, was designed over one hundred and fifty years ago. Ultimately, why should we use a one hundred and fifty year old design. You should look at it a different way, and I guarantee that you come up with a quicker way to electrifyz society and
a lower cost way. That's where I'm coming from. And storage and so are going to be really critical parts of that. But there are other technologies as well, but those two are obviously just from a commercial point of view. These technologies are commercial straight away and they're just getting cheap.
Do you think there's enough battery building capacity for that new part of.
Yeah, listen, absolutely, I do. A'm not worried about the capacity in the market or anything like that, no wish whatsoever. I'm not worried about the materials either. There was obviously concerns in and around cobalts at some point in time, but if you actually look, the market will very quickly away from cobalts. And if you look at the materials that are used in the battery, there's a lot of them out there, right and there's a lot of particularly lithium.
Obviously it's a core lithium. There's a lot of lithium coming out there. I would have even maybe been concerned a little bit about copper because it takes quite a while to get copper minds out onto the market. But you're also seeing innovation in the mining space. When you really think about it. In the oil and gas space, it's had share what is that, it's decentralized drilling. Well, we're sort of moving to the same thing in the mining space as well. There's just huge innovation in that
area that we're not even thinking about. I'm also very positive in and around that, and if you take the
bigger picture of it, there's a lot of criticisms. Again, where do you get all the materials from Oh my god, it's not very sustainable in the same thing, go, well, sorry, that's actually not true, because we're going to reuse ninety five percent of these materials again, so you're actually going to get a point where it's all point you won't need to actually take any more stuff out of the ground. And if I compare that to whatever, if I'm talking about coal or gas rot, you just keep taking it
out of the ground. You have to keep drilling every year. You know, you can't reuse it. So it's also from stainless sustainability point of view, actually these technologies are very, very very interesting. And again, to take the solar poddle, what is solar it's basically silicon, it's sand and there's some silver in it and not some other stuff that you can also recycles. And these products last a long while, right, You put up solar panel up a roof and it'll
be working thirty years later. Very simple technologies, very scalable, that's what we like.
Sure, So I guess we're certainly seeing a lot of investment in things like solar and wind, which I think it would be fair to say have become mainstream energy technologies, But there are other innovations that aren't necessary mainstream but do have great decarbonization potential if done correctly, you know,
things like biofuels, hydrogen, carbon capture, and so forth. Do you think the world is striking the right balance at this point in time between investing in these mainstream energy transition technologies like wind and solar and looking at these other emerging technologies that have great potential as well.
In some ways, a lot of these technologies are a distraction, because if we have the technologies out there, we should just implement them as quick as possible. And I'm not saying that you don't put money into carbon sequestration and all that type of stuff. That's fine, but the economics of it are just so far away. And also I would argue that I don't see any revolutions in those areas. I don't see a revolution in hydrogen. I don't see a revolution in the nuclear space. I'm not saying that
we don't meet them. I'm just saying I don't see the revolutions in those areas. If you ask me what could I get wrong by view of the world, I think you probably see something like geothermal would be the one that could be the outsider. And the reason for
that is geothermal. At the end of the day, you're just taking heat from the ground and using it, and you're probably going to be using it to heat water if you use it the heating system or something like that, or you could use it in the turbine if if it's warm enough. Well, why that's really interesting is because what's the revolution in the last ten years. The biggest revolution and energy the last ten years is shale oil
and gas drilling. It's drilling technologies, and those drilling technologies can be brought into the geothermal space, and I think that could be really really that's the one I put my money on where I really keep an eye and I say that could be the one that really is an outsider, that could be sort of part of this revolution, could have a very very very big impact building tree there.
We see a lot of investors accessing the energy transitional opportunity while the commodity is route.
Now.
Everything we want to do with the energy transition, you know, building solar power, wind energy, and so forth, all of that is enabled by the raw materials, you know, which are commodities. How do you see the investment opportunity in the world of commodities as it relates to the energy transition.
That's how I also invest. I invest in the commodities because remember when I just said, we start up when I said, it's very difficult to invest in companies that are trying to compete with China, and there's a lot of companies in the Western world that are trying to compete but don't have competitive advantage. So if you look in the mining space at materials that are needed in this transition, it's without a doubt a very interesting place
to look at. Just take the case of silver. You can invest in silver because of the fact that it's a precious metal like gold. I don't I look at it and go it's a precious metal, and its biggest industrial use is now solar panels, and that market is just going to get bigger and bigger and bigger. That's why I take the view on that. And I would
also say the same with litium. Right you look at it, you say we're going to use lithium for the next ten years, it's a growth opportunity for ten years for any lity of mining company right just nowhere around it. And again you can go and look at the other battery metals in a similar way. So that's the way I do look the words. So definitely, I'm totally whiching up. I would say that there's not enough money going into those areas. That's the concern I would have a little bit.
It's just that people look at them and go, oh, they're dirty. So you've got a whole pile of sustainable funds and you know they I don't see them having real tinto in their portfolio or anything like that. But we have to realize that these are really we can't do this without taking stuff out of the ground.
It's interesting you mentioned silver. I came because an article a few weeks ago indicating that something has built a new solid state battery technology that uses a lot of silver. So, in addition to all the uses that we got in photo of it takes which you at point is the biggest industrial source of silver demand probably going to have batteries also competing for that space if this is true. Was to see whether you have any intel on whether that a solid state.
You're going to use more and more silver and electric cars, so there's no doubt silver is going to be used increasingly going forward. I'm invested in it, so I'm a believer.
I guess then extension of that is battery technology, as he has pointed out, was largely lithium mind technology, which is really revolutionized things. But within the lithium in battery, there's lots of shifts in technology you mentioned earlier, and nickel and cobbot heavy chemistry shifted towards litiumine phosphates technologies. We're probably going to see a lot more shifts in
the future the solid state. How do you think we could go about identifying potential winners of tomorrow or is that just a fruitless task and just you know, is there something to you know, go in terms of investing in big baskets of commodities for the equities involved in the space, I.
Can only tell you that what I did in the past, and I went through a period where I was investing heavily in the battery metals and I did well, and then I got too stuck in my work to actually put the work in. But I was in cobalt really really early. And the reason I was in cobalt was because I understood that these high performance cars needed cobalt going forward. I then didn't do as the research I needed to do, and guess what, Then suddenly we had
lithium AIND phosphate. The Chinese did amazing innovation in this area to really bring the energy performance of these batteries up almost to the level of the cobalt batteries, but to do it at a much lower cost. So the only thing I can say is you have to really look at what the science guys are doing. They're all putting out technology reports and they're giving a direction of where they're going, what they're thinking, and all that type
of stuff. There's four or five big battery manufacturers and you need to follow them closely and see what's on roadmaps. That's what I would say in terms of that. But what is clear is that lithium is there, and lithium is there to stay. I don't see anything displacing it for another decade. And the reason I said it is because the there's so much room for improvement. Right if you just take on the anut side of the battery, you move into more and more silicon, which is cheap.
It also gives better performance. The stuff like that going on. There's road maps you can see you talked about solid state batteries, a lot of talk about it. I think you're still a decade away from from really having commercial products there in the market, except for there's probably some interesting niche markets for that first move of products for that markets that I think it's very early in my view.
Jared, you host the podcast Redefining Energy. It's a podcast I would strongly recommend to our audience for those who haven't listened to it yet and are interested in the topic. Before we let you go, I just love you for our audience. Just give us your take on what sort of topics you would like to think more deeply on the energy transition going forward. What are you looking forward to exploring a bit further, whether it's on your podcast
or in just your work in general. And where a can our audience find you, whether it's weblinks or social media accounts.
Well, let's just start with myself. If you want to find me, just find me on LinkedIn and just feel free to reach out to me. Right. I'm available for well listen, I'm available for interesting discussions with people. And I'm also quite happy to you know this that I really want to get involved in scaling business and help this transition. So if I can help people with that,
more than happy to have a conversation. In terms of what really interests me going forward, what interests me really is being able to make sure I have a good understanding of what's going to happen going forward and what the best parts are. I really think that the areas that are of great interest to me is what do we do in decarbonizing buildings and decarbonizing industry. I think they're the real interesting things going forward. It's not about
building solar wind parks anymore. That's still it's easy to do. But how do we take a building and improve energy efficiency in it and improve energy performance? How do we do the same any industry. How do we make sure that this energy transition is low cost, just and enabled
us to have a competitive advantage. There are the areas that I really really want to focus on, and I'll tell you if I look at what I love in terms of conversations, I just want to have good conversations with entrepreneurs and people who are really interested in this space, wherever they are in the world. Because it's a global transition. As I said, he it's a revolution, a technology revolution, and we have a lot to learn from each other and we just share those learnings.
Really excellent and we look forward to having more such conversations there. Thank you so much for your insights today. It was a great conversation. We enjoyed it.
Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple Podcast, Spotify, or the platform of your choice.