ISSUE #6: May 15, 2018
The Outlook for Coal Just Got a Little Tougher
The coal industry has been struggling for a few years as the phase-out of coal-fired power plants in Europe and the United States has gathered momentum. Declining volumes and prices have led to a number of bankruptcies among coal miners over the past decade. It looks like the tough times for the industry will persist as the risks and costs for utilities operating coal-fired power plants continue to rise. This past week, one of the largest underwriters of property and casualty insurance will cease offering insurance for coal power plants, effective immediately. While the operating costs of running a coal-fired power plant continue to rise, the relentlessly declining costs of renewable energy mean that the final day of operating a coal-fired power plant is not far away, especially in the developed world.
Biofuels…Are We Any Closer to Success?
The road for biofuel companies, both public and private, has been a rocky one. After a round of significant funding (particularly from a number of silicon valley VC heavyweights) launched a plethora of biofuel startups a decade ago, the results have been dismal. In short, the challenge of producing fuel from renewable sources has been far more difficult than anticipated. The MIT Technology Review takes a brief look at where we have come from and what the future for biofuels looks like now:
Big Oil Starts to Hedge Its Bets
Some of the big European oil companies such as BP, Shell and Total are starting to make investments in clean energy companies and projects. In recent months, these fossil fuel behemoths have made investments in solar companies, wind projects and electric car charging technologies among other efforts. Clearly, this is a step in the right direction, but the overall magnitude of the investments remain small compared to the legacy business and we question the long-term commitment to this diversification strategy. This isn’t the first time we have seen this: BP and Shell once had investments in solar panel manufacturers and Total and Shell have invested in biofuel companies (with similarly dismal results as the biofuel efforts discussed above). On this side of the pond, oil giant Exxon Mobil has kept a much lower profile when it comes to investing in clean energy technologies and projects but the company claims that it is spending $1bn annually for research into green energy.
The Push to Build the EV Infrastructure
One of the biggest challenges facing the electric vehicle industry is the need to build out a capable and reliable infrastructure. Tesla has been able to overcome this hurdle somewhat by building out its own dedicated charging network. Now a number of large European auto manufacturers are setting up a joint venture called Ionity to build a fast charging network for electric vehicles across Europe.
Pikes EV Peak
As fans of all-things electric, we follow the electric vehicle (EV) race scene, with an eye to technological development trends, from the first Formula E championship, based on the European Formula One series, to an EV winning the famed Pikes Peak hill climb back in 2015. Pikes Peak is a serious battle of automotive technology meets nature and altitude, with its 156 turns over 12.4 miles. Discredited and defamed VW has been forced into the EV revolution, but seems to be putting both feet in, from plans for an EV version of the microbus to entering EVs on the global race circuit. VW just announced an EV to challenge Pike’s this summer. In short, the specs are almost unbelievable: under 2,500 pounds, fitted with two electric motors capable of 680 hp and 479 pounds/feet of torque, equating to 0-60 in 2.5 seconds. A key for this race is braking technology. Internal combustion engines require large and heavy braking systems, yet with EVs, regenerative systems capture braking energy back to the battery. Yes, the Tesla Model S with ‘Ludicrous Speed’ can get to 60 mph from 0 in 2.6 seconds, but the car weighs over 3,800 pounds. Pike’s Peak is late next month, and it will be interesting to see how this new VW race machine performs:
Energy and Water Nexus
Water and energy are completely linked, as traditional electricity sources such as nuclear power or thermal coal production require massive amounts of water for base-load power generation. Many rapidly developing economies require greater electricity, yet delivery can be spotty, as power stations frequently shut-down during drought conditions. For example, almost 90% of India’s thermal power generation is dependent on freshwater for cooling. As India’s economy grows, so will its appetite for energy and water, and freshwater resources are already scare across most of India. In contrast, distributed solar requires no water resources for power. If India can deliver on its aggressive solar power installation goals, they will achieve “more with less”, our very definition of clean tech:
You should carefully consider the Fund's investment objectives, risks and charges and expenses before investing. This and other important information is contained in the Fund's prospectus and summary prospectus, which should be read carefully before investing. To obtain a fund prospectus or summary prospectus, call (800) 700-9929. The Fund is distributed by Ultimus Fund Distributors, LLC.
Investing involves risk, including loss of principal. There is no guarantee that the fund will meet its investment objective. Because the Adviser's GEOS criteria exclude securities of certain issuers for non-financial reasons, the Fund may forego some market opportunities available to funds that do not follow the environmental themes inherent in the GEOS strategy.
As of 3/31/18, the Fund's top ten holdings are FANUC CORP (4.18%), Philips Lighting NC (4.11%), Xylem, Inc. (3.93%), Keyence Corp. (3.37%), TPI Composites, Inc. (3.54%), Umicore SA (3.32%), Sensata Technologies Holding NV (3.22%), Kornit Digital, Ltd. (3.10%), Raven Industries, Inc. (3.01%), and Itron Inc. (2.97%)
The opinions and analyses expressed in this newsletter are based on Essex Investment Management Company, LLC’s (“Essex”) research and professional experience, and are expressed as of the date of our mailing. Certain information expressed represents Essex’s opinion and assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future periods. Essex makes no warranty or representation, express or implied, nor does Essex accept any liability, with respect to the information and data set forth herein, and Essex specifically disclaims any duty to update any of the information and data contained herein.
This newsletter is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product, nor does it constitute a recommendation to invest in any particular security. Any individual securities listed herein do not currently represent any securities purchased, sold, or recommended to clients.
An investment in securities is speculative and involves a high degree of risk and could result in the loss of all or a substantial portion of the amount invested. The reader should not assume that investments in the securities described were or will be profitable. Past performance is not indicative of future results.
The information and data in this newsletter does not constitute legal, tax, accounting, investment or other professional advice. Certain information contained herein has been obtained from third party sources and such information has not been independently verified by Essex. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such third party information
Any projections, market outlooks or estimates contained herein are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events.