Decentralised Energy and Power (Not Just Bitcoin)

I’m not one to comment too much on bitcoin’s price but wow! Have you been following it?

As I write this on Friday, bitcoin is up close to US$52,000. That’s an over 400% increase since last year.

Compared to the run-up in 2017, this one has been on stealth mode. The run-up has been mostly driven by institutional investors.

Among them, there’s PayPal who have included bitcoin as a payment option and have also launched a service allowing customers to buy hold and sell cryptos from their PayPal account. Square has also included bitcoin on their cash app, along with buying US$50 million in bitcoin for themselves.

And of course, there’s Tesla. They’ve recently chucked in a whopping US$1.5 billion, along with letting customers buy a Tesla in bitcoin.

Bitcoin is volatile but there’s a lot to like about it, including that it’s decentralised. Something that’s quite appealing after all the money creation we’ve seen from central banks.

But I don’t want to talk about bitcoin today.

As I’ve written in these pages before, in my mind, there are two major forces at play right now against one other: that is centralisation and decentralisation.

We are definitely seeing these two in money with bitcoin.

But there’s an industry that’s also undergoing a major shift from centralisation to decentralisation.

I’m talking about energy.

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Decentralisation in the Energy Industry

Until recently, electric power that comes into our homes has usually come from one direction. It’s a centralised model where a few utility companies generate power through their power plants and then distribute it into our homes.

I mean, in Australia you have the big three (AGL, Origin and Energy Australia) holding much of Australia’s energy market share.

But that’s been changing.

And driving the change are renewables, with solar in particular.

2020 was a record year for solar installations here in Australia, even with the pandemic.

According to data from the Clean Energy Regulator (CER), Australian homes and businesses installed 2.6 GW in capacity, about an 18% increase in 2019.

One in every four homes in Australia now has a solar panel.

More Aussies are turning to ‘behind the meter’ or as they are also called, distributed energy resources (DER) to generate their own power.

What’s pushing the demand?

Well, the pandemic. As people spend more time at home during the day and work from home, they want energy independence, and to decrease their energy bills of course!

This is turning the whole system on its head. It’s shifting the power from a small group of companies as players in the market increase.

For one, the pandemic, along with mild weather and people installing DER in their homes to generate their own power in decreasing demand. At the same time, it’s also increasing supply as excess supply is pushed back into the system.

More homeowners generating their own power is pushing down energy prices…and this is already starting to affect the bottom line of big companies.

I mean, things were quite telling during AGL’s half-year presentation last week. After telling investors of their after tax $2.3 billion loss of lower energy prices and that things are still ‘challenging’ CEO Brett Redman said:

Demand for decentralised offerings, whether that’s home batteries and electric vehicles or remote generation and storage on industrial sites, is really starting to take off.

In fact, things are shifting so fast that it’s taking AGL by surprise with AGL even looking at restructuring. As he said:

The external forces of customer needs, community expectations and technological change have always shaped our market. As we’ve said for some time, it is the speed with which these forces change our market that will dictate the velocity of our strategy. What we have seen in recent months is an acceleration of all of these forces beyond what we anticipated.

Something that was also echoed by Origin this week, with CEO Frank Calabria as he talked about how the energy transition is already affecting energy prices and their earnings:

As flagged in our recent earnings update, the near-term outlook for Energy Markets is more challenging. A mild summer has compounded already weaker demand and reduced volatility, gas supply costs are expected to increase, and wholesale electricity prices remain depressed, particularly as renewable supply continues to come online.

Energy is changing. Renewables are shifting the power away from big centralised companies and shifting the power onto consumers. And this is bringing plenty of opportunities.

It’s an exciting time for energy and renewables.

Best,

Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Port Phillip Publishing’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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