List of Global Warming Stocks

Aug 22 2013 Published by under Renewable energy finance law

1. Basic Criteria

Given what I know from writing about renewable energy and global warming here, what stocks would I invest in? The main goal would not be to make a lot of money (though that would not be a problem if it happened). The goal would be to contribute with my money to the fight against global warming.

For one, I recall having read Warren Buffet’s autobiography (see my post “Warren Buffett and Energy from the Gobi Desert“).

I learned from reading that: When investing in stocks, you should take a long term view. Buy the stock with the intention of holding it for ten years or more. Never mind short term fluctuations and quarterly results.

Another point of the Warren Buffett school of investment is simplicity. Since one is trying to project ten years into the future, keeping things as simple as possible helps.

From the various topics discussed on this blog I will choose one stock each.

Disclosure: I have no position in any of the stocks discussed below, but plan on buying some in the near future. Readers should kindly refrain from buying anything on this list, so as to avoid raising the price at which I am going to build up my positions.

2. Desertec

The Desertec Industrial Initiative has 19 shareholders and 17 associated partners, many of them publicly traded companies.

Out of this list, I recommend buying stock of Munich Re.

There are a couple of points that make this an attractive choice.

For one, Munich Re is a Global Fortune 500 company, at rank 92 in the latest edition. They have excellent ratings from all rating agencies. Moody’s gives them a stable Aa3 (excellent) since 2005. One can be fairly confident that they will be around ten years from now.

I also like the fact that the record for last year and the average analyst prediction until 2015 says they will pay over 5% in dividends.

As noted before in this 2011 post, Munich Re has studied the relation between global warming and natural catastrophes since 1973. This is their core business. And they found a clear increase in natural disasters. I leave it as an exercise for the reader to figure out what more disasters mean for the business of a World class reinsurance company, since it would be somewhat lacking in taste to point that out directly.

I also recall that Munich Re has decided in 2012 to invest billions of Euros in renewable energy, since that is a reliable and profitable area for investment. They obviously need to invest their insurance premium income (float) somewhere, and the fact that they are a major renewable energy investor warms my heart considerably for Munich Re.

But most of all I like their engagement in the Desertec project. They are one of the central players. As Margaret Heckel describes in her book about Desertec, Munich Re was at the center of setting up the Desertec Industrial Initiative. This may also be a good time to repost a Youtube video of CEO Jeworrek talking about Desertec:

2. Electrical Vehicles

In the field of electrical vehicles I would like to buy Tesla. I like their strategy of going down from the top. I think their CEO Elon Musk alone is worth investing in this company.

Unfortunately, right now many other people have already had the same bright idea, leading to high stock prices for Tesla. It would have been nice to buy this at $15 a couple of years ago, but the party is over already.

So the next best thing would be to buy Daimler. They own a 10% share of Tesla stock since 2009. That gives Daimler access to Tesla’s technology, which will accelerate the transition from stinking gasoline cars to electrical vehicles for Daimler. They already have a delivery van and a small electrical vehicle ready, something Tesla will need several more years to achieve.

Daimler, like Munich Re, is a Global Fortune 500 company, at place 23 in the latest edition. The Moody’s rating is A3, which is not as stellar as the Aa3 of Munich Re, but still safely in the “investment grade” category. They have been around for a long time, and they’ll be around ten years from now.

Similar to Munich Re, Daimler has paid over 5% in dividends last year and is expected to pay around 4% in the next couple of years.

Update October 15th, 2013: I am sorry for having recommended Daimler and retract the above statements. They are part of the German car industry, which tries to delay the transition from stinking gasoline cars to electrical vehicles in the EU legislative process. I have changed my mind and will certainly not buy any Daimler stock. See more at this post.

3. Solar Installations in Japan

As mentioned in the last post, as a consequence of the new feed-in tariff system, there has been a “rocket start” for solar in Japan, with 20.91 GW of new solar approved from July 2012 to May 2013. Most of that is in large-scale installations. The feed-in tariffs are still set at levels around three times of Germany. With nuclear power way down, Japan urgently needs new capacity in the coming decade.

Therefore, it would be great if there was a publicly traded company that was investing exclusively in setting up and operating large-scale renewable energy installations in Japan. That would enable investors to take advantage of this very favorable environment.

Unfortunately, I am not yet aware of such a company.

There is SB Energy, however. From the Softbank English homepage:

In October 2011, SoftBank Corp. established SB Energy Corp., a wholly-owned subsidiary which produces electricity from renewable energy sources. With a view to encouraging the use and promotion of renewable energy across the nation, SB Energy announced the plan of building renewable energy power plants in more than 10 locations in Japan with total installed capacity of over 200 MW (mega watts, 1 MW is 1,000 kW). Under the plan, SB Energy is testing various business models encompassing construction, management and operations of renewable energy power plants. Models to be experimented include the one where SB Energy as an independent power producer rents a land from a local government and commissions an Engineering, Procurement and Construction (EPC) contractor to design and build a power plant and procure materials, and another model where a special purpose company is established to undertake project finance for building a power plant. All the electricity produced is sold to regional electric power companies under the terms defined by the Feed-in Tariff introduced on July 1, 2012.

Of course, Softbank CEO Masayoshi Son is also the main sponsor of the Japanese Renewable Energy Foundation as well as the main force behind the “Asia Super Grid” proposal.

SB Energy has plans for around 200 MW of large-scale renewable energy installations, and has already opened some smaller solar parks in the range between 2 and 3 MW scale. It would be nice if they offered some stock to the public, but right now they are a 100% subsidiary of Softbank.

So the next best thing is to just buy Softbank stock for the time being, and wait until SB Energy goes public. Softbank is a Global 500 company, at place 257 in the latest edition.

Unfortunately, Softbank’s rating has recently been downgraded to “junk” (non-investment grade) as a consequence of a costly takeover of Sprint. And the SB Energy part of the whole group is of course rather small.

Therefore, while investing in Softbank stock seems to be the best way to do something for renewable energy in Japan right now, one needs to consider that there is more risk involved than with investing in Munich Re or Daimler.

5. Renewable Installations

For a model where I hope to see SB Energy in ten years, there is Enel Green Power (also a shareholder in Desertec).

They had had revenue of EUR 2,688 million last year, leaving them with a consolidated net income of EUR 431 million. Installed capacity from renewables is 8.689 MW, produced by over 740 plants in operation around the world, with an annual production of 25 TWh.

31.71% of the stock is publicly owned; the rest is owned by the Enel group, a fortune 500 company at place 52 in the latest edition, with a (weak) investment grade Moody rating of Baa2. As noted in an earlier post about Enel, 34 GW of their 97 GW production capacity is renewable energy. And only 22% of revenues from their renewable capacities came from subsidies at the time (2011).

I think this is the way to go right now for an individual investor that wants to own stock in a company investing exclusively in the operation of renewable energy installations.

Of course, such investors may also choose to use Mosaic (if you are based in the United States). These are relatively stable investments in individual installations.

The problem with that, however, is that these are cash-based investments over a long term. The risk of high inflation rates lies with the investor. And you can’t easily get out of such an investment if you want to for some reason or other. With a stock, you can sell it anytime you want.

The same is true for investing in projects of the Greenpeace company “Planet Energy” (if you are based in Germany). You get a stable cash based investment that leaves you with the inflation risk and no easy way out.

6. Solar panels

If you invest in companies building solar panels, don’t expect to see your money back. This is one investment area where the desire to do something about global warming should be the main motivation, and the desire to make money should not be a motive at all.

Of course in a couple of decades solar energy will beat all other forms of energy by large margins. Growth rates are exponential. Prices are coming down faster than anybody is able to keep up with.

But there are still much more solar panel companies than can expect to survive the coming decade’s cut-throat competition. It’s basically impossible to know which maker will be still around a decade from now.

If one wants to take such a risk, there are a couple of considerations for mitigating it.

For one, don’t buy any stock of a company not based in China. Clearly Chinese makers are taking over the World market.

Second, buy the leader in market share. That would be Yingli Green right now.

Don’t expect any dividends. Don’t expect any investment grade ratings. Don’t expect anything but high risk and high return, as in high return in the contribution to the fight against global warming.

7. Mongolia

One of the topics I have discussed here is Mongolia and the potential for energy from the Gobi desert.

There is no stock you could invest in right now that would contribute directly to such a goal.

However, one could consider investing a small amount in the Oyu Tolgoi project, which would mean buying stock in Turquoise Hill Resources.

The idea would be that this is the largest project in Mongolia, the largest project in the Gobi desert, and it will be the largest consumer of energy in the region for the next decade. As pointed out before, the Investment Agreement gives them the right to use renewable energy, instead of building a stinking coal power plant, or at least in addition to building a stinking coal power plant.

This would be a highly speculative investment. The Mongolian government is still unable to provide the necessary stability for the project. On the other hand, there is a lot of copper and gold at Oyu Tolgoi. Eventually, Rio Tinto and the government will find one way or other to actually get it out of the ground. And the Mongolian economy will grow substantially in the next decade. Investing in this project would seem to be a relatively secure way to get a piece of that action.

8. Conclusion

In my first global warming science fiction novel “Great News” (FREE PDF file here) I have one of my characters make a multi-million short term profit from a highly leveraged speculation on a small German company called “Kraftsaft”. In my second global warming science fiction novel “Tasneem” (FREE PDF file here) I have one of my characters become seriously rich from investing early in Bitcoin, and I have the main villain make a lot of money from global warming by investing in a Dutch specialist in dike technology, as well as in farming in Northern areas previously unsuited for the purpose.

Kraftsaft doesn’t exist in the first place. And my aim here is not to ask how you can increase your net worth. Don’t ask “What can global warming do for me”. Ask “What can I do against global warming”.

And if you think this little list is useful, please consider contributing to this effort by spreading the word, or by helping improve it in the comments. And please look at my novels mentioned above.

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