Electricity Is Sexy Again
Investing

Electricity Is Sexy Again

You may have noticed that the way we travel from Point A to Point B is changing. And this is already impacting fossil fuels.

Last week, China said it’s working on a date to stop selling gas guzzlers entirely. It’s not alone in wanting to phase out vehicles that use gas and diesel. India, France, Britain and Norway are taking similar steps.

It’s a bold step forward. Especially because the biggest winners of the future … are rooted firmly in the past.

The real winners are making batteries or even the end-product, cars. Both are likely to become commoditized as competition and massive economies of scale win out. It always works that way.

But that’s the low-hanging fruit in the investment space. Investors should be thinking bigger, if they want to go for bigger gains …

Propulsion is changing. Fossil fuel is being replaced, albeit gradually, by electricity. And the production of electricity is a small, and surprisingly profitable, club.

It helps when profits are guaranteed and investments are often footed by rate-payers. It is no wonder utility companies are racing to grab as much of the pie as possible.

In California, three large public utilities companies are building 12,500 new electric-charging facilities. Unlike gas stations, they will put them in workplaces and apartment complexes, in addition to public spaces.

So far, the project has snagged $200 million in public funding. That is a drop in the bucket. They want $1 billion.

To get there, they are cozying up to environmentalists …

Max Baumhefner is a San Francisco attorney with the Natural Resources Defense Council. The primary goal of the group is to accelerate the electrification of the transportation system. He sees a common goal with public utilities companies.

Utilities “all want to eat the oil industry’s lunch,” Baumhefner told the Huffington Post. “So we’re happy to show them the way to the buffet.”

Utilities companies want to eat the oil industry’s lunch.

Utilities are benefiting from private investment, too …

Electrify America is an LLC born out of the Volkswagen diesel emission test scandal. As part of the settlement with the federal government, the German automaker will invest $2 billion to fund an aggressive rollout of a nationwide electric charging network.

The first phase starts this year with 450 stations across 38 states. The cornerstone of the project is involvement with local power providers.

Even when utilities win private-sector partnerships, someone else picks up the tab.

Bloomberg New Energy Finance, an internal research division at Bloomberg, predicts electric vehicle sales could reach 41 million by 2040, based on 35% market share. While that number seems large now, it may be conservative, given recent announcements from carmakers.

Volvo is going electric right now. Volkswagen, Mercedes and others will ease in by 2030. Country-wide bans will only hasten the transition away from internal combustion engines.

It will lead to increased demand for electricity … and increased profits and earnings visibility for utility companies.

The stocks have already begun to perform. As a group, they are up 15% so far this year, with dividends. That’s about three percentage points better than the broader market. Over five years, the Exchange-Traded Fund SPDR Utilities (XLU) is up 81%, including dividends.

Fossil fuels are on the way out. There is also no doubt what industry will be the biggest beneficiary. The surprise is these stocks are hiding in plain sight. Some of the ones I like are NiSource (NI), Atmos Energy (ATO) and Eversource Energy (ES). They can be picked up on pullbacks.

Utilities offer virtually guaranteed profits and low risk. The time to begin investing in the future of propulsion is now.

Best wishes,

Jon Markman

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Comments 7

anthony barbuto September 17, 2017

oil is dying…hooray. The lust for oil has caused more wars and intervention in other gov’ts by bullies like the USA, than any other reason. Do we really care if Mrs Muhammad in some Mid East country, can’t drive nor vote?…NO, not really,,,,we are over there, for the OIL…Now that Elon Musk and others have sown that the cost of going electric has diminished ( as much as 1000 x per Peter Diamandis of X prize and Abundance), the door is opening for electric cars and electric storage. Musk in his interviews has said ” I didn’t start Tesla just to make a car, I did it to lower the cost of the car batteries”….People poo poo Musk, but he is one of the FEW companies who has paid back gov’t loans that were given to him to “stimulate new economies”. In contrast, most loans given by Obama in his administration, went to his supporters, and mysteriously, most of them declared bankruptcy within two yrs and did not have to repay the gov’t ( see the book” throw them all out” for a listing of the players)…One commenter said that electricity does not come from batteries, it comes from other sources….TRUE…but as we switch from oil to wind, solar and other sources of power, we won;t need what ever oil is left in the ground. Remember we will always need oil for plastics and pharmaceuticals…but to burn it as fuel?……NO,,,,,Its time to go solar…thank Elon Musk for using the automobile for the iteration of the batteries ( for other things such as the Power Wall) and for orders of magnitude to reduce the unit cost…..This is basic Capitalism 100……Followers of Bernie and other Socialists……please note….I like this analogy; To CLEARLY see the difference between a closed/communist society and a capitalist society……GOGGLE pictures of the Korean peninsular, at nite. N Korea is almost totally dark and S Korea is bustling with lights. Where do YOU WANT TO BE, North or South…..Gov’ts have been subsidizing BIG OIL and other Military Industrial Complex ( MIC) companies too long. Its time to go back to FREE MARKET and see which electric companies brighten up the future….GOOD BYE OIL….GOOD BYE OIL Subsidies….!!!!!

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Ron reply_all anthony barbuto September 25, 2017

Nice try Anthony,
You seem to be using all the buzzwords
Show me how you can use electricity to get an Airbus or a 747 off the ground… Also… those huge container ships can not go very far on a single charge, so there goes those cheap Asian Imports…

I won’t even dwell on how you would get to Mars if we ever need to go back there.. (think about that one)

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richard September 16, 2017

I thought there wasn’t enough lithium in the earth to make it feasible to make enough batteries for all electric cars. If that’s true what’s the plan? All batteries eventually pose an environmental problem when they’re used up and aren’t any better at protecting the environment than harvesting oil. PS It is accepted that oil drilled out of the ground used for energy comes from the remains of dinosaurs hence the term fossil fuel. Has anyone calculated the volume of oil which is thought to exist and how many billions of dinosaurs it would take to create that much oil or asked if there isn’t any oil in a place does that mean there weren’t any dinosaurs ever living in that place? In both cases there seems to be some information not on the table.

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reply_all richard September 16, 2017

Fossil fuel comes mostly from fossilized remains of dead plants and vegetation and less from animal origins.

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Don Meiners September 15, 2017

I followed your logic about electrictricity replacing fossil fuels because of increasing production of electric vehicles and the electric utilities investing in charging stations. But, as far as I know Atmos Enegy is a natural gas only utility and would not benefit from the decline of fossil fuels. Atmos is doing well right now and is a good stock, but it has nothing to do with electric utilities as far as I can see

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Allen September 15, 2017

When you write off “fossil fuels” in favor of batteries you seem to write off the fact that batteries are built and charged by “fossil fuels”. Batteries will not run industry, nor will batteries charge batteries in our lifetime. Your thoughts?
Allen

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James Maynard September 15, 2017

Please provide information and your opinion of Brilliant Light Power and their product called SunCell.

Thank you,

JRM

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