Monday, October 21, 2013

How Edward Guinness' energy Portfolio Climbed sixty seven in One Year

How Edward Guinness' energy Portfolio Climbed sixty seven in One Year
The Energy Report: Edward, welcome back to The Energy Report. What ar the prospects for energy today?

Edward Guinness: The prospects for energy these days ar nearly as good as they've ever been within the last 5 or 10 years. If you verify the drivers behind the trade, 1st on my list ar insufficiency and high costs of fossil fuels. I place second on my list energy security; third, the environment; and fourth, global climate change. of these factors stay a priority and a priority. And what has improved over the last 5 or 10 years has been the price and performance of a number of the technologies for installations within the house. thus after you verify the price of wind or star installations, wind installations on a per-kilowatt-hour basis have fallen by concerning thirty fifth since 2007. On the star facet, installation prices have fallen by some estimates by concerning eightieth since 2007. thus you've got seen a dramatic amendment within the economic potential of the choice energy trade.

TER: These prices ar the prices of materials, installation or the full package?

EG: i am pondering it on a levelized cost-of-electricity basis. that's taking into consideration the full package, and looking out at it on a per-kilowatt-hour (KWh) basis.

TER: Do prices vary considerably round the world?

EG: "Yes" is that the straightforward answer. as an example, there ar components of the globe that have far better wind resources. however some countries or regions pay a considerably higher value for electricity, and there the price hurdle energy must overcome so as to be extremely compelling is way lower.

TER: The prospects for renewable energy ar tied to the requirement to cut back carbon emissions. ar there any technologies that might effectively cut back carbon emissions enough to form coal acceptable as a power-generation fuel?

EG: that is a tough question. From our perspective, carbon emissions ar joined to 2 of the drivers for the fund, to the environmental facet of things and to issues concerning global climate change. At what purpose will coal become acceptable? that is a extremely tough conception to tackle. however what i might say is that there ar technologies that employment these days that i feel are often controlled to interchange fossil fuels over successive 50–100 years while not the requirement for dramatic enhancements within the underlying technology. i feel we've got the potential, significantly in star, for installations to be significantly higher in forty or fifty years than individuals ar imagining these days.

TER: ar any of the star stocks in your high ten significantly adept at exploitation those technologies?

EG: completely. they are preponderantly the makers of the star modules that underpin the arena at the instant. they are conjointly getting in the installation market and developing sites themselves.

We own variety of Chinese service stocks that have extremely driven the prices all the way down to the purpose wherever I feel rather more assured that star goes to perform lots higher than individuals expect. and also the reason is that for lots of shoppers these days, star has to a degree wherever it provides AN economic come back with none subsidies, and every one that we want to try and do over successive forty years is figure out the way to use it expeditiously. this might involve connecting star to the grid, developing energy storage techniques, operating in smaller networks or perhaps simply dynamical the method we have a tendency to consume electricity reception or within the geographic point.

TER: There ar many advances for star electrical phenomenon technology—thin-film technology, the potency enhancements, wide unfold top installations. that of your Top-10 firms ar operating in those areas?

EG: i might purpose you to Trina star Ltd. (TSL:NYSE), that could be a leading Chinese star module manufacturer. At the instant the merchandise is polysilicon-based, and that i believe can stay that method. i would verify SunPower corporation. (SPWR-A:NASDAQ; SPWR-B:NASDAQ), that is additionally polysilicon primarily based. it's dearer product however it's the highest-efficiency modules on the mass market these days. which means its product ar the foremost applicable for top use.

Another company leading the chart is China Singyes star Technologies Holdings Ltd. (CSSXF:OTC ; 750:HK), that could be a leading Chinese installer. It buys modules then deals with allowing and coming up with and grid affiliation. It connects the installations, whether or not they are top or greenfield, then usually sells those to a money capitalist or AN somebody.

I think the top future potential goes to be a parallel to the mobile-phone trade, wherever individuals suppose perhaps we'll have 5–10% of rooftops lined, then suddenly individuals are going to be locution 15–20%, then in forty or fifty years there'll be star electricity-generating material on most roofs or buildings. an enormous range of buildings ar suited to it: housing estates, big-box retail, factories—vast expanses of flat roofs on that panel-based installations work. long term, I expect the domestic top market to maneuver toward integrated star tiles, however i feel that is in all probability another 5 or 10 years away.

TER: Your Top-10 list is extremely heavily weighted with wind and star. What concerning periodic event, hydro, wave energy and geothermal? ar any of those technologies wanting promising?

EG: i feel a number of these, significantly a number of the large-scale ocean technologies, have real promise, however they are a good distance aloof from delivering. Most of them ar an extended method aloof from having the ability to deliver a price estimate, including a competitive price.

There ar periodic event installations in situ these days. There ar a restricted range of websites internationally wherever the chance is kind of massive, however we do not see this as a giant game changer internationally. Wave energy may be, however at the instant, the price is concerning 10–15 times that of star and it's still much at the image stage. And these installations operate in one amongst the world's most hostile environments: Salt water and moving components do not combine. and that is why lots of the image installations have either not worked or need quite vital maintenance schedules. Right now, there's no listed company that that's a significant a part of the business, thus i do not see any investment opportunities there however.

    "The prospects for energy these days ar nearly as good as they've ever been within the last 5 or 10 years."

Geothermal is extremely attention-grabbing. I see opportunities in typical geothermic, that is wherever you employ either quandary or steam close to the surface of the world to get electricity directly from a rotary engine. There ar variety of websites round the Ring of fireside within the Pacific or on fault lines in European country, however the house is geographically forced. There ar some of firms, and that we hold one, Ormat Technologies Iraqi National Congress. (ORA:NYSE), that's fine positioned. A second technology is hot-rock geothermic, wherever the energy supply is way deeper. it would be 5–10 miles at a lower place the surface. And during a similar thanks to sedimentary rock gas, you employ fracking techniques to frack the rock then you pump water down, that then goes through the fractures created within the rock to come back make a copy extra wells, and you extract the warmth from abundant farther down therein method. There ar variety of image sites and some of listed firms with exploration prospects, however they are extremely risky. The profit is there ar lots a lot of sites globally with the potential for manufacturing long, low cost electricity exploitation this technique.

We have a few of hydro holdings, Verbund silver (OEZVY:OTC) and independent agency Energética Delaware Minas Gerais (CIG:NYSE). i am terribly inquisitive about ground-source heat pumps as the way of reducing energy consumed within the home. we have a tendency to hold one ground-source apparatus company, WaterFurnace Renewable Energy Iraqi National Congress. (WFI:TSX), that ought to be fine positioned as new housing within the U.S. begins to select up. we've got a sensible metering holding, Itron Inc. (ITRI:NASDAQ), and one biofuels holding of a Peruvian biofuel company, Maple Energy Plc (MPLE:LSE), that produces its alcohol from sugar cane. On the battery technology facet, I even have a Li mining holding, North American nation Li corporation. (CLQ:TSX; CLQMF:OTCQX), as a result of i feel that the prospects for Li costs and Li producers ar terribly engaging.

Another space i feel is extremely attention-grabbing is offshore wind. We're simply commencing to see massive numbers of offshore wind installations go into, and it's still a fairly little share of the rotary engine manufacturers' business models. we've got exposure to 3 of these rotary engine makers, however it's a region i am involved concerning, and also the price of offshore wind installations looks to be concerning double the price of AN onshore wind installation. we have a tendency to ar paying an outsized value for the convenience of not having the intrusion of onshore wind turbines, let alone the challenge of operating during a hostile offshore setting wherever the in operation prices ar abundant higher.

TER: are you able to offer ME a summing up on the wind and star holdings in your Top-10?

EG: one amongst my holdings is AN electrical converter manufacturer, SMA star Technology silver (S92:XETRA), in all probability the world's highest-quality electrical converter manufacturer. Inverters ar the key piece that links star installations to the electrical grid. i feel the distinction in output are often the maximum amount as 100 percent between SMA's inverters and different firms' inverters, that makes an enormous distinction within the political economy of a project.

On the wind facet I even have four completely different trades happening. First, I hold 3 turbine makers, Vestas Wind Systems A/S (VWS:COP; 0NMKL:LSE), Gamesa Corporación Tecnológica reserves (GCTAF:OTC) and Nordex SE (NDX1:GR). they need all done bright this year on the rear of rising order books. They've restructured and cut prices and they are currently starting to see the rewards.

I then hold some of Chinese wind utilities that ar building out Chinese wind farms. they are cashing in on the very fact there is been an enormous price competition among the Chinese turbine makers. they are ready to build comes that deliver 15%-plus returns. within the last 2 years, we have seen vital investment and enhancements to the Chinese grid and progressive changes to wind energy regulation—and that's feeding through to their bottom lines.

I've got 3 holdings in massive international wind utilities: Enel inexperienced Power (EGPW:BIT), Acciona reserves (0H4K.L:LSE) and ADP Renovaveis reserves (EDPR:LSE), all of that have portfolios of wind and different technologies across the globe that generate healthy returns. Those 3 firms ar listed in European country, Kingdom of Spain and Portuguese Republic, severally, and that is why you are seeing quite depressed valuations ensuing from issues on the economic state of affairs in those countries. i feel the restrictive setting goes to enhance in their home markets and, within the medium to future, the discount for stocks from those countries is probably going to diminish.

    "Any capitalist observing energy must rely on it as a long investment."

Another space of the wind house includes smaller wind developers or utilities, wherever they could be distressed however have managed to urge their assets in operation and ar getting in gain. the businesses there ar Theolia reserves (THIXY:OTC) and Greentech Energy Systems (0HFD:LSE). we have got an excellent Canadian utility referred to as Boralex Iraqi National Congress. (BLX:TSX) that operates wind assets in North American nation and is building out extra wind assets that i feel ar terribly engaging prospects.

The last company could be a little bit of a special case; it is a little wind utility within the U.K. referred to as sensible Energy cluster Plc (GOOD:AIM), that conjointly has thirty five,000 customers. We've gotten to grasp the management, and that we perceive the company's business model. i feel sensible Energy cluster has the potential to grow its client base to two hundred,000–300,000 over successive 2 years.

TER: terribly spectacular. speak to a small degree bit concerning FRG, that has been pushing the envelope on star and wind. is that the party over there for different energy?

EG: i feel the party is unquestionably quieting down. i would not describe it as over. And over the future i feel FRG is during a rather distinctive and quite engaging position. Its star industry's producing facet has fallen off quite dramatically, however the abundant larger a part of the star trade in FRG includes the installers and also the homeowners and operators of assets, and they are still doing pretty much. you have seen the subsidies cut; we expect installations this year are going to be within the 3–4GW level versus 8GW at its peak, however that also makes FRG within the high 5 on a rustic basis. The wind trade in FRG continues to be a manufacturer similarly as AN installer, and that i suppose the technological advantage that firms like Siemens silver (SI:NYSE), REpower Systems SE (a subsidiary of Suzlon cluster [SUZLON:NSE]) and Nordex have engineered over the last fifteen years count for rather more on the wind facet.

TER: you've got aforementioned you foresee vital potential for any growth in alternative energy. that firms ar possibly to expertise the expansion that you are anticipating this year?

EG: i feel it is the leading star firms. China isn't permitting new capability to be engineered unless it's vital technological improvement. Top-tier firms like Trina star and Yingli inexperienced Energy Holding Co. Ltd. (YGE:NYSE) are going to be primary beneficiaries of volume growth will increase. Last year we have a tendency to had around 30GW of world installations, that was identical as 2011. This year we're expecting somewhere within the 35–40GW vary. and that i believe we'll then move up to the 70-80GW direct successive 2 or 3 years on the rear of a far broader base of demand than we've ever seen traditionally. i feel SMA star are going to be a right away beneficiary of that. it's a good market share of world installations. i feel it'll maintain a decent market share which feeds directly through to its growth similarly.

TER: however has the choice energy fund performed this year?

EG: This year has been a standout year for the fund. We've had quite an few powerful years since 2008. We've been positioned joined of the sole pure-play funds within the sector. variety of our peers have moved  to speculate rather more generally in firms that ar tangentially joined to the choice energy sector, like General electrical Co. (GE:NYSE) and Siemens, wherever they are doing lots over simply energy. we've got a far a lot of targeted approach wherever we've got to speculate in firms that ar least five hundredth in energy. we have a tendency to underperformed on the method down and we're currently massively outperforming on the far. We're up sixty seven year-to-date and also the fund is actually capturing the expansion and recovery of the choice energy sector.

TER: however would you advise retail investors within the current market?

EG: i'm simply a humble fund manager. I strive to not advise investors if I will avoid it. i feel it's difficult, however clearly any capitalist observing energy must rely on it as a long investment. The risks ar clear and also the peril and volatility of {the sector|the world|the arna} are shown by the volatility of the fund performance. It's had powerful times once we went through the depression when 2008. And you'll see what quantity it snapped back currently. I still suppose there is a immense chance. I feel i am at the foothills of this recovery and also the high-percentage performers this year mirror however way down we've gone. I verify my job as attempting to climb that mountain.

TER: This has been a pleasant speak. many thanks for connexion US these days.

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1) Tom Armistead conducted this interview for The Energy Report ANd provides services to The Energy Report as an freelance contractor. He or his family owns shares of the subsequent firms mentioned during this interview: None.
2) the subsequent firms mentioned within the interview ar sponsors of The Energy Report: None. with-it Reports doesn't settle for stock in exchange for its services or as support payment.
3) Edward Guinness: I or my family own shares of the subsequent firms mentioned during this interview: None. I in person am or my family is paid by the subsequent firms mentioned during this interview: None. My company contains a money relationship with the subsequent firms mentioned during this interview: None. i used to be not paid by with-it Reports for collaborating during this interview. Comments and opinions expressed ar my very own comments and opinions. I had the chance to review the interview for accuracy as of the date of the interview and am chargeable for the content of the interview.
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