By Jason Fittler
Emissions Trading Scheme (ETS), is going to be a big part of our lives and economy in the future. Regardless of your views on global warming, the reduction of pollution is a good thing.
But what is the best way to achieve this? I believe in thinking global and acting local. Do what you can in your world, at home in the office or within community groups to reduce pollution.
When we move to the world stage my thoughts turn to investing, there is no doubt that an ETS will be brought in, but how is this going to affect your investments? What we do know is that the cost of living will increase, there is no way around it and here is why.
To produce a Mega Watt of electricity via a coal power station costs $25, via a gas power station costs $40 and wind costs $100. The government has already passed the CPRS (Carbon Pollution Reduction Scheme) where by 2020, 20% of the electricity sold needs to be sourced by renewable energy. If the supplier of the electricity can not do this, then they will need to purchase credits to offset the non-renewable energy they’re using above 80%. At present these credits cost around $30 per mega watt, I would expect this to increase to $40 over time.
By doing this the government is making Wind Power more competitive with coal, keep in mind that the government is giving wind farms $30 credits to sell for every mega watt of electricity they produce, this reduces the cost of a mega watt of electricity from a wind farm down to $70.
So how do you position your portfolio to benefit from this change?
The two key picks are Origin Energy and AGL Energy, they are both well invested in Gas and Wind farms.
Next stock I like is a company call Infigen Energy which is focused in the wind farm sector. The Geothermal sector is a more speculative play, it has the potential to produce base load electricity something which wind can not do right now, the problem with this sector is that they are unable to prove the technology, if they do, great gains will be had.
The carbon storage sector is also a good play, you can gain exposure here through CO2 Group Limited, this is where they store carbon in trees. Origin and AGL have contracts with this company.
What about Nuclear energy? This is by far the most efficient way to produce electricity, however, the government is determined to exhaust every other avenue before going down this road. It will also take 10 years from commission to product of a Nuclear power station and the cost for construction is much higher than a coal fire power station. The best play in the sector is Paladin Energy Ltd.
As for Coal, the three best things are it is cheap, cheap, cheap but I suspect that these companies will have major capital costs in the future. As such hold these for the income, as it will take a decade before the real impact of the changes are felt by these companies.
For more information on any of the above companies, give us a call (07) 4771 4577.