Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
The Fourth Transition
Published Date : April 27, 2018
The use of fire by primitive humans for warmth, cooking and protection 300,000 years ago enabled our species to ascend from the middle of the food chain to its top rung. Eventually, using wood as the primary source of energy gave way to coal in the 1800’s, and with it came the electrification of homes, streets and factories – greatly accelerating the progress of civilization. Coal rather quickly gave way to oil and natural gas in the 1900’s, ushering in the internal combustion engine and with it, the modern age of transportation. Today, we find ourselves on the cusp of the fourth great energy transition – and likely one of the most important developments in the history of humanity.
After decades of hype and false starts, global renewable energy, and specifically the combination of solar energy paired with lithium-ion battery storage, is rapidly approaching an economic tipping point. That reality has been driven to date by the deliberate efforts of governments around the world to address pollution and climate change concerns, which in turn has led to improved silicon technologies and better manufacturing economies of scale.
Today, approximately half of all new power generation capacity worldwide is renewable in nature. At the current rate of adoption, nearly two-thirds of the world’s population will reach the unsubsidized point known as “grid parity” by the middle of the next decade, and it is now reasonable to project that renewable energy could power almost all of the Earth’s middle longitudes by the middle of this century. Against this backdrop, it is no coincidence that Saudi Aramco, Saudi Arabia’s state-owned oil company, is being partially sold off to the public later this year.
Of course, the sun doesn’t shine at night and the winds don’t always blow, so broad adoption of these technologies will require the ability to store energy overnight, or even seasonally in less ideal locations. Long an Achilles’ heel, battery storage limitations are now being solved thanks in large part to the boom in electric cars. Currently, 14 new battery factories are under construction worldwide, including Tesla’s “Gigafactory” in Nevada. With their completion, these investments will help drive solar energy to be cheaper than electricity from any other source within the next decade.
The long-term implications are transformational. Beyond the obvious environmental benefits, low-cost, decentralized power will benefit the richest cities and the poorest, most remote villages. Off-grid homes, hospitals and schools will have electricity; farms in arid parts of the world will have irrigation; and worldwide connectivity will be possible. Investment-wise, some electric utility companies will surely suffer from this transition; and yet, de-risking portfolios of fossil fuels will remain premature for some time as oil, gas and coal still account for 90% of the world’s energy and will continue to play a major role in energy production for most of this century. Eventually though, investing in renewables will become more viable as grid parity is achieved. And importantly, since the sun and wind are available to every country on the planet, geopolitics could finally pivot away from the unstable grip of the Middle East and Russia by mid-century.
That might seem like too long of a wait, but the economic crossover point is coming much sooner; and when it does, it will mark a significant new era of nearly unlimited, clean, low-cost energy. The abundance that follows could be the biggest boost to civilization since the Neanderthals lit that first fire. And that is worth getting excited about.
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