As Portfolio Manager of the TD Global Sustainability Fund for Canada’s second largest bank, TD Canada Trust, Thomas George’s job is to guess the future of sustainability stocks for the benefit of his investors. In this interview we explored his ideas on what the cleantech industry will look like in the future.
What’s the current state of the cleantech industry?
I’d say there are a lot of things in the hopper, a lot of different ideas, a lot of different concepts. It’s very exciting from a technological perspective. We’re right in the vortex of a solar revolution. It’s coming, its here, it’s living. Really, I for one am very excited to see how and where prices evolve. Solar’s going to get to the point where it’s really going to have a solid impact on the way the world thinks about distributed versus undistributed electricity.
I just met with Nexterra last week. They’re the largest renewable energy developer in the U.S. They were 100% developing wind and now their pipeline looks very split between wind and solar. They talk in an exciting way about solar.
What is most exciting about solar to you?
How fast the costs are falling. It’s just amazing how fast the costs are falling. The opportunities that open up are amazing. The biggest pushback with regards to electricity is NIMBY (Not In My Back Yard). I don’t want a windmill in my backyard, I don’t want a nuclear plant in my backyard, and I don’t want a gas power plant in my backyard. No coal either, thanks. So NIMBY is a huge issue. And that’s the one thing solar has going for itself. It’s so inconspicuous. Its kind of like “hey, I’ve got some solar panels on my backpack, it’s not bothering you, it’s not bothering me.”
It’s the chill guy in the cleantech crowd.
Yeah, I don’t need interest groups trying to convince me that solar is going to affect my quality of life. There are huge lobby groups for wind, nuclear, gas, and coal. There are spinsters out there, but solar doesn’t need spinsters. They just need to keep making the costs lower.
So that’s exciting, but I would caution. It would be totally different than if I would say to invest in solar companies. I would actually say that that’s a bad transaction. So I’m very excited about solar, but I have very limited solar investment exposure.
Why is that?
Because what’s driving the cost of solar down is intense competition. It’s just like what happened to the RAM industry. No one made money, but everyone was making it. But that all being said, it’s going to offer great opportunities for some utilities. Some of the cleantech developers are going to make good returns as well. First Solar is getting big into the development side of the business. If they’re losing margin selling to third parties for their solar cells, why not just develop the whole project yourself and capture the whole value chain. I think their business model is the correct model. You’ve just got to find the right people who are going to make money on the value chain. That’s from an investment perspective, but from an overall, good on society perspective, I think solar is exciting.
What technologies and companies are most engaging?
Solar thin film technology is ahead of the pack, but I think even they are going to have a hard time keeping up with the overall overcapacity of solar production in the world that’s going to continue driving costs lower. I think solar is great, but I’m going to caveat that with it’s going to be a very competitive industry.
Any game changing technologies in terms of panels?
CIGS is promising. Also, solar cells being printed on any sort of fabrics or windows.
How about batteries?
Tesla has some of the lowest overall costs for battery technology. For them it’s more about the energy management system itself. There’s a plethora of different chemistries out there. But from a demand side, the need for lithium and rare earth metals will be prolific. So we’re going to need a lot of these metals and we’re going to need them mined in a very safe and efficient manner.
How do you see that happening?
Investors need to be engaged on that side as well. We need new supplies of these things. And we just want to be doing it in the most responsible manner possible.
What challenges does the industry face in its near future?
Peak oil. The current establishment is entrenched and they are really seeking to enforce oil as their predominant force. One huge issue working against them is geology—they are just unable to find barrels to replace the current barrels at an economical price. And I stress at an economical price. We can dig up all of northern Alberta, but that’s going to cost an arm and a leg, not to mention all the environmental damages. On that front, peak oil is going to continually get stymied.
What about the distant future?
Ultimately, the biggest challenge would be—and this would be a death blow—if the oil and gas industry were able to extract oil in a much cheaper way than they are today. If the cost curve were to change dramatically.
What positive signs do you see for cleantech?
Toyota is focusing all their energy on the Prius. It was a side project, but now it’s going to be Toyota’s main focus. To those guys it’s almost like the Mike Tyson of boxing—he’s going to fight for a cause that no one’s ever heard of. It’s not as crazy as that, but when Toyota says that they’re going to make the Prius the focus of their future, that to me is going to deal blows to the foundation.
What opportunities does cleantech face in the future?
The whole cost curve. In my view as the cost curves are continuing to rise, it’s just becoming incrementally more expensive to produce any commodity and as long as those cost curves continue to rise the whole need for subsidization and incentivization falls off. So if this company has been working away at this great efficiency in production and now the price is so high for resources—bang! Automatically these guys are the most profitable company in the world and now they’re taking market share. Eventually their most efficient process becomes the status quo and the inefficient company that didn’t care about their environmental attributes starts to lag and falls off.
You mentioned being in the midst of a solar revolution. Looking farther down the road, do you see any other specific technologies growing significantly?
Definitely battery technology. The hybridization or the electrification of cars. That’s not going to change unless we find that cheap oil that we haven’t found before. That’s exciting. I think there’s going to be a plethora of battery technologies that will come to the fore.
If you were to guess how we will power ourselves in the future, what would you bet on?
Solar is going to take a much, much larger market share. But I think we still have an issue with regards to base load. If we were to fastforward 10 years from now, I think the hybridization and electrification of cars is going to be dramatic and it’s going to be very large scale.
How about electricity?
The whole NIMBY issue is always going to be around. Wind is in the seventh inning stretch; they’ve done a lot of their onshore growing, and that will continue. But the next horizon is offshore—out of sight, out of mind. Wind can produce a huge amount of the energy we need in the world.
That’s why I’m bullish on batteries. Wind and solar are intermittent technologies; they can never produce energy exactly when we need them, nor is that their function. Currently, when they produce it they send it into the grid; if it’s too much it just kind of goes away. Ultimately, the enabler of that technology is some form of cheap battery technology. Most wind energy is produced at night. One concept you can totally see happening is that when everyone’s car is plugged into the grid overnight it acts as a battery backup, capturing that wind and storing it in the whole city for use during the day.
What role do you see the developing world playing in cleantech?
I think they’re going to be doing some of the most innovative stuff. Resource scarcity in the emerging markets such as India and China are making them the innovators. India’s SRI Cement is a good example. India obviously has long suffered water shortages. Now’s they’ve developed the world’s most water-efficient way to produce cement.
Where do you see the industry going on the whole?
Certain elements of the industry are pretty grown up by now. Just as with the Internet, there are bubbles and it burst. We go through ebbs of flows of exuberance and I would really caution investors to note those exuberances because sometime it’s easy to get caught up, but it will be here for a long time, just be careful as things ebb and flow. But at the same time, even though the Internet bubble burst, it created a foundation that is huge, and it’s still a huge area that continues to grow. I think that cleantech is going to be that as well. It’s not a flash in the pan, it’s going to grow into a bonafide sector of the economy.
Anything else you’d like to add?
When thinking about the future of cleantech you wonder whether it’s going to be an emerging company or one of the big conglomerates that’s going to drive it. I’m actually pretty split on it. If this economic malaise goes on for longer, I think the only ones who have the capital strength, the fiscal power to do it are some of these big companies. Look for it to come from a General Electric, a Siemens. Those guys are in the game, they’re deep in the game. It can come from traditional enterprises today. It’s going to get very interesting.
Check out this other great interview with Thomas George featured on the TD Waterhouse website.
