At Sharenet, we are committed to search through dozens of emails , research pieces and yes believe it or not, the internet, in the hope of finding the next exciting and profitable theme?. We have recently decided to start sharing these themes with our clients in the hope that it resonates with each investor on our platform. We will provide you with the option to either invest directly in the name/s concerned or provide an alternative like an ETF to which that stock is a constituent at the end of this brief.
A recent article on Yahoo Finance highlighted that the climate crisis in recent years has pushed Governments to faster transformation in reducing their carbon footprint. The interesting data point recently published suggested that due to COVID led lock downs global carbon emissions had fallen 17% compared to 2019. The US alone decreased by 31%, pretty staggering but unfortunately not sustainable. Over the last decade the climate crisis has also put financial strain on governments and businesses alike.The green transition drive , adoption of clean energy plays a massive role. The advancement in technology is helping drive this new theme. Its touted that the Global renewable energy market size is expected to rise $184 bn in 2020 to $226bn in 2021, at a CAGR of 22.7%.At the same time the demand of global oil is set to fall by 90k barrels per day, a definite step in the write direction.
The renewable energy sector has seen a tremendous movement of ESG style investing. So far this year the iShares Global Clean Energy ETF has moved up over 40% this year, while the US oil and Gas exploration & Production ETF (IEO) has declined over 40% this year. A staggering divergence and will likely drive wider movements should the Democrats secure the presidency for the next 4 years. Zacks Investment research believes new technology in this space could result in the creation of “ 22 million Jobs and generate $12.3 trn in activity” a staggering number by any metric.
This week we focus on a name that has come onto our radar. This share has in fact been targeted by Bloomberg’s No. 1 stock picker of 2019, Paul Wick. His fund has loaded up with 6.5 MILLION shares and also boosts ownership of 3.7m shares with James Simons Renaissance Technologies that has a long history of consistently outperforming the S & P Index. The company under discussion currently boosts the following list of clients , including Walmart… Ikea… AT&T… Panasonic… Google… Verizon… Safeway… Home Depot… and even NASA. It’s noted that 25 of the Fortune 100 companies are already using this technology
Let’s not stop there, it’s important to understand that in each investment case the size of the market share relative to the size that a company’s market share is an important topic of debate. In seeking big returns we want to focus on companies that are disruptors that will gain market share due to the strength of their innovation or product/service. The market we are talking about today is in the Renewable Energy Sector which is estimated to be just under $ 1Trillion. Our company of the week is Bloom Energy Corporation, BE ( current market cap of $2,5bn), listed on the Nasdaq – BE designs , manufactures and sells solid oxide fuel cell systems for on site power generation. This unique company was founded by a brilliant NASA rocket scientist. At the time he was working on a secret project to create a livable environment on the surface of mars. And in so doing he stumbled onto a new technology set to disrupt renewable energy as we know it. The scientist at the time was looking for a technology that could create both oxygen and fuel on the surface of mars, a near impossible challenge due to the nearly 95% carbon dioxide based atmosphere.
In his research he was able to develop a “tile coated with a special ink” that when channeled with electricity would produce two by-products – namely Breathable air and usable natural gases. The real genius came about when he decided to reverse the process by allowing the same air and gas to flow through in the opposite direction in the hope Electricity would be created and sure enough it did, it worked.
Yahoo Finance reports this technology is producing “ highly reliable , uninterrupted, 24/7 constant power. Many US newswires are touting it as the “ next big thing”. It has the potential to dramatically cut the cost of electricity for people not only in the US but the rest of the world. The process becomes pretty straight forward – stack more and more tiles and produce more electricity, this takes the form of a box or a cube. Just to note the box/cube doesn’t require any wind or sunlight, just good ole air and standard natural gas. It’s probably worth mentioning that NO combustion is required and most importantly produces NO sulphur dioxide, NO Nitrous Dioxide.
Big energy player Duke energy has already purchased 37 00 kilowatts (kw) of energy to distribute to its customers over the USA. Adoption has been very fast with hospitals ,tech companies and data centres already adopting this product. Walmart has placed these boxes at 30 stores and plans to roll them out in 4 other states, just to note they have 11 200 stores – so this has a lot of runway. AT&T have also replaced their traditional means of electricity use with the boxes at 34 locations. Ikea uses them in 6 locations out of their 313 stores.
Now the part that could really interest you, there are estimated to be about 128m households in the US. It’s an untapped market!! If BE were to capture 10% of the Household market alone it would translate into $30bn in revenue( current market cap $2.5bn), combination of commercial and household could reach a staggering $50bn. The technology is cheap and safe and will likely see adoption levels rise in coming years. The newer versions are producing a staggering 5 times more kWh while having reduced the box costs by 25%. Exactly what new customers want to see and hear.
At this juncture it’s important to compare solar vs the cube. For solar to produce 1 megawatt (MW ) of power it requires 100 00 square ft or 2 ½ acres, in comparison the box/cube would require only 4 parking bays to deliver the same result, are we seeing the solar disruption already It’s safe to assume this product has adoption and scale potential. The company is targeting a “cube/box’ Cost of $3000 per home in the near future. The additional benefits would include less capex outlays for power lines, removal of trees and transformers , it would just require a box. It’s as close to a plug and play scenario as you’ll get.
The icing on the cake is that the company is already going global having secured a partnership deal in South Korea with South Korea Engineering and Construction. The country suffers from poor air quality and is looking to reduce its carbon emissions. It’s estimated that over 400 000 people die a year due to pollution related respiratory illness. Of interest 80% of the world’s ships mainly run on sulphur based fuel (bunker fuel) and IMO2020 has plenty bottlenecks, the inclusion of this type of technology is touted to revolutionize the $1.3 trn shipping industry. A big deal has already been struck with Samsung heavy Industries, which is the shipping division of Samsung Group.
Bloom Energy has a staggering 251 patents which definitely creates some form a moat to its business. However ,like in most industries there are always disruptors and then there are followers. From the above information it looks pretty clear that BE is the disruptor in the space and the rest of the market is following, long may it last.
How to Invest:
Bloom Energy is listed on the Nasdaq , alternatively it can be found as a constituent under numerous US listed ETF’s.
Please feel free to contact our Portfolio Manager, Dylan Bradfield for more information on Bloom Energy or alternatively for more information on the ETF’s which hold Bloom Energy.