I would like to sanity check an investment theme/ line of thinking.
Renewable energy (Wind and solar) has become cheaper than traditional fossil fuel sources. Which means there is an economic driver to install more renewable energy.
However some of the big challenges preventing everyone just installing solar and wind projects everywhere appear to be around grid stability. As the % of intermittent energy sources in the grid increases the greater the challenge the grid operators have to keep the grid stable. From what I can tell, in order to make a high % of renewable energy viable on the grid (and unlock the cheaper energy that comes with that) a significant amount of energy storage will need to be connected to the grid. It also likely means that some transmission lines will need to be significantly upgraded to deal with the fact that wind and solar projects are typically not near current energy generation sites (Coal, Gas, etc).
From what I can tell the energy grids around the world are/will go through a massive change in how they operate which make new business models viable. Operators of grid connected batteries/energy storage systems can make money providing a variety of services to the grid such as energy arbitrage and grid stability services
While I do not know exactly how this massive change in the grids will play out, I can't help but think a lot more energy storage will be required regardless of the new business models and regulations.
While I think in the long term (>10 years) energy storage that shifts energy inter-day and inter-season will definitely be required (i.e. hydro storage, flow batteries, hydrogen/ammonia production or other ) . Some smart people did some analysis that suggested that in the near future(~5years) it is the rapid response, 2 to 4 hour energy solutions (i.e. Lithium Batteries) that will see the most use and capture most of the dollars.
So I am looking for a good way to gain exposure to this massive growth in required energy storage over a 10-20 year time horizon. None of the ETF's in this space look particularly attractive (but happy to be corrected on this). Looking at the leaders in battery production, lithium value chain and R&D it seems to be an area completely dominated by china. CATL in particular looks like it is a good position.
However I am hesitant to invest in Chinese stock.
So my questions to you are:
– Do you agree with the basic premise that cheap renewable energy will drive massive change to energy grids around the world?
– What are some of the best ways of gaining exposure to this theme?
– What are you thoughts on investing in Chinese stock in general and CATL in particular? What risks should people be aware of?
Cheers
