A TPDEARR Article
Trans-Pacific Dynamic Equity Allocation Research Report
We humans are energy consumers, and cannot subsist otherwise; it’s only natural. One might even say it is the element of our nature. Though this is no rationale for being wasteful with energy, it is also an unavoidable natural truth; we will consume energy to survive (metabolism) and we will utilize it to construct and participate in our society—it powers our buildings and machines. Though the debate about environmental and climate destruction from human society is well-trodden, it has come to our attention that some of the basic scientific principles underlying the energy discussion and paths forward are misunderstood (or absent from awareness altogether!) and have thus become prohibitively disruptive to the conversation. In this SEP.24 TPDEARR Natural Elements article we will address a fundamental axiom about the nature of “energy” to help provide the perspectives necessary to view natural resource market evolutions in a helpful context. After all, without understanding how energy, itself, is, how can we hope to anticipate the impact of innovations on its applicability to the future of society?
So, sit up straight, stop slouching, eyes forward, get your writing utensil out and start taking notes! There will be a quiz at the end and failure will close doors and block off opportunities for you; your attendance and participation will be graded!
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…obviously not, but does the thought of serious classwork stress you out or get you pumped? What does your emotional response indicate about your motivation and approach to expanding your investment knowledge base?
… well, nevertheless, onward! Hopefully you’ve had your coffee because we like to cover ground quickly.
Energy Excrement
Don’t be gross, we’re talking about… okay, we’re talking about exactly what you think. But it’s not “gross” or “bad” or “undesirable”, it’s guaranteed. Energy is never destroyed or created—the law of conservation of energy should hopefully ring a bell. It seems we (humans) gloss over and forget this basic principle all too often. Input always comes with output; we’ll surely belabor the point again.
Modern human society requires energy consumption, and the consumption of energy is a process that reorganizes and redistributes the energy inherent in matter through physical and chemical transformations, then spits it out again reformulated on the other side. Energy is ever destroyed; energy is never created. In all biological organisms, in goes the food (matter = energy); out comes the excrement1 (still matter, just altered; now, potentially ready to be consumed as energy by a different organism); only some of the outputs do we value positively in our energy infrastructure.
This input-output dynamic is not restricted to biological metabolism, though. What happens when energy is transformed outside of a body? Take fire and the process of burning, for example.
Inputs = matter/fuel, oxygen; outputs = heat, CO2/gases, smoke/ash/matter. It’s not biological metabolism, but it’s still energy reformulation.
If a human wished to utilize this particular energy reformulation process (burning) to help complete a task, they could harness the energy by capturing the output/excrement (e.g., heat, gas) in a container of some kind, then use the contained heat and pressure to physically affect something else… perhaps to heat a vessel of water… perhaps even to the point of steaming…
This basic formulation is not just academic. We humans are very seriously addicted to energy; we always have been. Forever looking for a way to avoid applying our own bodies to our toils, humans utilized the energy from animal power prior to figuring out how to get energy from burning things. The thinking that led to attempts to control heat to produce steam—ultimately, the invention of the steam engine—was an epoch-shifting event that reshaped humans’ intellectual relationship with directed energy use. We went from being able to use the energy-equivalent of a few times the strength of a human, to harnessing the energy-equivalent of hundred-to-thousands of human bodies in a single machine. It opened up our eyes to new ways of conceiving of our physical existence and our ability to manipulate the physical world, unfurling a pursuit of ever-greater energy expenditure that finds us where we are today: hooked on energy and trapped in an environmentally-destructive civil infrastructure. Manipulation of energy got us into this mess, and it is also our only hope of saving ourselves. There are too many mouths to feed on Earth for continuation of the status quo, or regression, to be viable options, so onward through the next energy regime we must go, kicking and screaming if it must be so.
To re-stress the basic principle we are analyzing in this article: in utilizing “energy”, all inputs produce some type of output; no such input produces zero outputs. As long as we continue to utilize external (non-bodily) energy resources, we must grapple with the energy excrement fundamental to the process. Harmful outputs of energy use are what threaten the ability of humans and other animals to survive in a planetary atmosphere whose composition is finely tuned to biological needs. It is not the burning that is the problem, per se, but the outputs/emissions that are released from the burning: the energy excrement. Hold this idea close as we move through the following. We investors can be well served by improving our comprehension of the scientific principles that underlie the systems through which we guide our capital.
Shine On Me
Millions of miles away though it may be, our star is very much a part of our natural world, and a core natural element of our existence. In our energy use, solar panels (and photovoltaics/PV in general), which are probably the most commonly known alternative energy generation method, use as input solar irradiation, and, though they may not emit outputs during their functioning, they do have a carbon footprint and greenhouse gas emissions associated with their production. Solar panels generally recoup the carbon “costs” of their manufacturing after about 2-3 years of operation, then can continue to provide almost entirely clean/output-less energy for over a decade thereafter. Perhaps more surprising is the fact that generally long-lived solar panels can even offset more carbon emissions per acre than the same amount of space planted with forest! So, PV is an incredibly valuable tool not just for generating electricity, but for countering human-induced climate devastation; the energy excrement is relatively very minimal.
Obviously, solar panel deployment has skyrocketed over the past number of years due to plummeting costs and increasing awareness of environmental harms. According to the International Energy Agency (IEA), PV accounts for ~2/3 of total renewable energy deployment globally, which sets another new record for annual capacity additions (510GW in 2023) for the 22nd year in a row.
Now we must focus our PV attention herein on China. The PRC established as much new solar capacity in 2023 as the entire rest of the world combined in 2022; China is the renewables elephant in the room. Responsible for an estimated 60% of all new renewables capacity installed over the ensuing half decade, China is on target to surpass its 2030 goal for solar and PV deployment this year, six years ahead of schedule. Potentially more significant (to markets and investors, perhaps) is China’s centrality in renewables supply chains. Even despite what have been unprecedented capacity expansions throughout the US and Europe over the past few years, China is expected to retain control over at least 80% of renewables supply flows via its sprawling extraction and refining sectors. As Western companies slather on the incentives and government support to bolster renewables operations and try to compete with Chinese manufacturers, such as with the US’s landmark 2022 Inflation Reduction Act, China actually phased out government subsidies in 2020-21 and is now producing solar PV in a competition-supported relatively free-market environment at an even greater and more extraordinary rate, so much so that ultra-cheap supply gluts are spilling out everywhere! Nationalists abroad, such as in Southeast Asia, or the US, decry this cheap PV “dumping” that’s flowing out of China as destructive to domestic industries which can’t compete with such low prices, which is certainly at least partially true, but it’s a tricky situation. After all, irrespective of who profits from the endeavor financially, isn’t cheaper, more advanced, and broader-spread deployment of PV technology a good thing for humanity writ large? Some may be upset at who is benefitting from rapid solar innovation and market dominance, but none ought be upset that Chinese efforts are dramatically reducing the cost and availability of the technology for everyone around the world.
Indisputably, cheap PV (with low energy excrement) is a good thing for humanity; it’s good for Mother Earth and atmospheric cleansing; it’s good for consumer costs; it’s good for the continuation of modern human society. Conversely, other than competitive pressures imposed on firms in business environments that can’t keep up with low-cost Chinese output, the manufacturing of PV and renewables products also has other drawbacks. All PV and new renewables technologies rely on Rare Earth Elements (REO) to operate their sophisticated machinery, which must be dug from the ground. We do not have alternatives to REO; REO are the sustainability-enablers we have collectively decided upon, and upon which we have designed the next generation of technological evolution for our species. Nevertheless, mining and extraction are inherently destructive events to natural spaces2, and also currently use equipment and transportation procedures which are carbon-intensive. So there are immediate drawbacks (and excrements) in the renewables process, but the majority of these drawbacks exist prior to the actual deployment of the electricity-generating machines themselves; this mismatches (in a positive way) the energy excrement profile of fossil-fuel usage, which is continuously emitting of carbon pollution.
We need electricity to power our buildings and cities; this is non-negotiable. So the questions of how and where to provide the electricity are what solar PV seeks to answer, and maximizing this provision is how capitalists ultimately determine the capital flows that enact the manufacturing and usage of the relevant technologies. Since solar panels are essentially installed “in place”, it matters where the sun is falling. Take a look. Some of these sunny zones are not like the others…
Australia, a relatively wealthy nation, has abundant solar reserves, and, perhaps most importantly, it has regional proximity to massive Asian commercial markets and an ongoing free trade agreement with China, which is no small matter in this respect. Geopolitical uncertainty and trade/tariff wars between the dueling economic superpowers (US-PRC) have not fully restricted Australia’s opportunities in its economic arrangements with Asian counterparties, such as with China. More than 80% of the solar panels in Australia are imported from China, and less than 1% are made in Australia itself, so the entire industry is virtually reliant on this trade partnership. These underlying dynamics strongly support our recommendation of [SEP.24 Squad Asset #1]. As battery technology and electrical utility system innovation continues to evolve, the ability to store and transport solar energy from the Australian outback to other parts of the nation, and the wider Asia-Pacific region, will expand. The time to capitalize on this opportunity is now, and more than one firm is likely to gain an advantageous foothold. The amount of geographic space that is potentially available to collect energy in the form of solar irradiance is far too vast for one commercial entity to acquire in one fell swoop, so the market will undoubtedly remain fragmented at least for the next few years. Longtime3 TPDEARR readers will surely recognize this fragmentation as good evidence for market competition to fuel innovation and crafty capitalism; fragmentation and opportunistic trade agreements are promising bets for investment profitability, particularly in industries undergoing such rapid evolution that regulatory guidance struggle to keep apace.
The world is already interconnected via undersea cables, particularly of the data/internet variety (which have their own set of geopolitical and security concerns), so laying down electricity distribution lines is not a novel undertaking altogether. However, embedding new infrastructure that connects countries’ electric grids requires navigating the tangled mess of licenses, Memoranda of Understanding, environmental reviews, certifications, approvals, funding arrangements, power purchasing deals, governmental regulations and trade deals, among countless other unforeseeable obstacles. To put it mildly, it is a lengthy process. The AAPowerLink is one such process, already more than 5 years underway, which will ultimately export power generated from solar arrays in Australia’s Northern Territory under the sea to its destination in Singapore. As a private venture via the firm SunCable, the project is essentially a part of the billionaires’ agenda, as opposed to the government’s, and so will remain viable across political election cycles, as it still might take a few years to begin operations. Electricity exports will also need to be supported by ongoing development in ancillary markets, such as advances in (long term) solar electricity energy storage, and the AAPowerLink project is blazing a trail that will only become cheaper and more accessible as solar generation technologies continue to drop in price and spread more broadly. It’s a fragmented market with myriad untapped opportunities.
There is an endless amount to discuss in the PV arena and we have no intention of boring you to death, so we’ll nip that bud right there and move on, but not before another reminder of the relationship between (non-negotiable) energy usage in human society and (highly variable) energy usage emissions; we require the former and our political and capital willpower determine the later. Humanity still generates ~60% of its electricity by burning fossil fuels4; we still have a long way to go to curb the environmentally destructive effects of our behaviors, and market opportunities abound throughout the trans-Pacific for firms and investors eager to “leap” to the next energy infrastructure regime.
Final Thoughts
Despite consecutive record-breaking years of renewable energy generation deployment globally, the sector should still be considered relatively nascent. Subsidies from federal governments are commonplace across the world, which distort market dynamics (i.e. hampering true price discovery, skewing supply/demand, distortion of input cost basis, etc.), but are more-or-less common and necessary to get new industries off the ground, especially with so much at stake. As these subsidies wane and lapse they cede autonomy to firms with solid market positioning and commercial support; the industry will still continue to grow even without government stimulus. Guidance on how to trade “green” power, such as that which has been recently released by the PRC, serves to usher commercial efforts into manageable pathways for all domestic and regional participants. Interregional power sharing is a growing phenomenon, made possible by technological advancements and federal oversight, but nations are still in the process of working out the nitty gritty details so that it can be advantageous for both exporting and importing destinations, be they domestic or international. It is difficult to find substantial resistance to these mass electrification trends… anywhere.
The human quest for more energy will not end, lessen or diminish in any way, it would seem. As we uncover new, more-eco-friendly ways of harnessing and managing energy and its excrement, we will also find new ways of expending energy in magnitudes previously unexplored. Do you think humans don’t want to travel further afield in outer space? Do you think we won’t want to make bigger, faster, more explosive rockets and bombs and defense artillery? Do you think we won’t want to make more supercolliders and supercomputers and previously unthinkable super-machines with unprecedented power usage? We are not a species of gradual and responsible diminishment; we are an animal who craves for more, and the energy dimension of this craving is fundamental. Since we have collectively decided (via the aggregate accumulation of industrial development over the past century) that electricity is our Energy of Choice, forget not its centrality in all natural element considerations. Fossil fuels do not power buildings and computers, electricity does. We don’t burn natural gas and coal to stay warm; WE BURN IT TO GENERATE ELECTRICITY5! Though the burning of fossil fuels to utilize energy and generate electricity will never disappear altogether, it is a process that will be ever-more supplanted by more environmentally-friendly means (which continue to experience dramatic cost reductions) until it makes up a minority segment of humans’ total energy mix… that is… if we choose long-term species’ survival over other “priorities”.
Put your money where your mouth is.
Have a nice week everyone!
- …along with heat, always. Metabolism is a heat-generating process.
↩︎ - Since extraction operations always transpire in rural areas, native and aboriginal peoples are disproportionately disadvantaged by mining for elements. Land use and best practice for this purpose is always contentious.
At its base, the “math” of the situation appears to hinge on the tradeoff between either preserving a natural space for its intrinsic and cultural qualities, or unearthing it to acquire the critical, and we will repeat, CRITICAL, minerals necessary for the sustainable energy revolution, such as PV deployment. The preservation of nature is the greater goal of the green/eco-revolution, so it’s a difficult sell to connect the exploitation/mining of nature to its preservation, but that is the situation we are in. We MUST change our energy mix use to become more sustainable, which we only know how to do with REO-intensive technologies. We cannot pause human society and we have no other options. As infuriating as it may be, we humans must dig up more ground and must produce and deploy increasingly large numbers of advanced equipment in order to survive. If humans decide to instead preserve all the proverbial sacred burial grounds and fail to adequately update our energy excrement existence (by digging up ground and implementing REO that we find), there may be no discussion of the sacrifices made by humanity to respect and uphold traditional native values because no new history books will be written for a species that goes extinct. It’s not a secret that ecosystemic collapse would result in our collective demise; we are a fragile biological organism and we are bound into our food chain just like every other.
↩︎ - …in all humility, the TPDEARR has only been published since 2022, so this isn’t actually a long time, but we do harp on the benefits of market fragmentation repeatedly, so the point still stands, tongue-in-cheek-ish though it may be.
↩︎ - In order to reach Net Zero Energy targets by the year 2050, the share of fossil fuel electricity generation needs to drop by at least half, to <30% by the year 2030. This will be extremely difficult to achieve, especially as entrenched fossil fuel/carbon-intensive interests will stretch out their political capital and massive resource chests to maintain commercial profitability from selling fossil fuel products as long as possible. “Think of the jobs that will be lost!” they exclaim, trying to cajole constituencies to their side, as if a few thousand jobs should be weighed equally against the fate of humankind on planet Earth. Many of these fossil fuel companies are putting efforts into positioning themselves in the new energy regime, but they will not do so to the extent that the up-front costs will jeopardize their current operational profitability, which would damage investor sentiment and might be cataclysmic to corporate stability; they could wind up collapsing faster than the biosphere ecosystems that support our species. It must be judged from their behaviors that they will continue to mine and sell fossil fuels as long as there are buyers, and fossil fuels are still cheap inputs. As the cost to generate a kWh of electricity from renewable sources continues to drop, the benefit proposition of using fossil fuels will continue to dissipate… hopefully.
↩︎ - Obviously, we also burn fossil fuels for transportation, particularly the transportation systems that constitute our intercontinental network of trade. Decarbonizing this sector is clearly important… and is to be discussed another day… ↩︎
tkscm, limited 
