“Energy has become the single most important factor in the global economy,”
states James Hansel. Mr. Hansel believes that “The best opportunity investors have
to achieve great long term investment results is through recognizing and skillfully
investing in major global trends. In the late 1990s, the major trend was the great
Internet cycle. Today the major technology trend is new energy technology.
Throughout history, new technology has emerged to solve problems. Today, the
world has an energy problem. Even though we are not running out of fossil fuels, we
cannot simply burn more coal, oil, and gas to meet the growing demand for energy,
because of the adverse climate changes brought on through the current use of fossil
fuels. We must apply new energy technology!”
A Global Concern
Following the UN Climate Change Conference in Montreal, the International Energy
Agency (IEA), on 6 December, 2005, stated, in part, that “There is no ‘silver bullet’
that will transform the energy outlook, but technologies exist that together have the
potential to stem the growth of CO2 emissions, while very often improving security of energy supply at the same time.”(1)
According to James Hansel’s analysis, new energy technology has attained the
position of a global imperative, and represents a major potential investment cycle, comparable to the info tech cycle of the late 1990s. Hybrid electric vehicles, nanotech batteries, synthetic fuels, coal-to-liquids, carbon-fiber wind turbine blades, thinfilm photovoltaics, electrochemical energy conversion devices (fuel cells)... “Energy is no longer a sleepy commodity. Times have changed. The energy sector has changed,” says James Hansel. “Energy tech is now hi-tech. The new energy tech cycle is the single most important force in the global economy, and it is highly worthy of increased investor attention. In a major investment cycle, some equity investments can rise 20 times in value, while others can drop by 95% or more. Investors who increase their knowledge of new energy technology will have an advantage in understanding equity market action in the increasingly blended energy and technology sectors. As technological change penetrates the energy sector, it is becoming as dynamic as the technology sector in the late 1990s. Energy tech is now hi-tech!”
The Great Internet Cycle followed a triple trend convergence
In the late 1990s, the convergence of three technology trends spurred a major
economic cycle. James Hansel analyzed and acted upon three trends in the second
half of the 1990s: 1) cheaper, faster, and more powerful semiconductor chips making electronics more capable and universally affordable; 2) mobile phones and high speed networking becoming available worldwide; and 3) the Internet becoming the universal global network. Although in the 1980s and early-to-mid 1990s technology stocks were typically volatile but trendless, in the late 1990s there was a distinct change in their character: to many investors it seemed as if tech stocks only went up.
The investment market cycle which resulted from the convergence of those three
powerful trends was the largest in history. New market leaders were created, and
many old leaders fell behind. Several companies in non-tech industries such as
media and specialty retail came to be considered part of mainstream technology. At
UBS AG during that time, James Hansel created and managed UBS (Lux) Equity
Fund – Technology, which quickly became one of the largest global technology funds offered in Europe, reaching USD $2.5 billion in assets only 28 months after its launch. Under his management, that fund won awards for its performance both in the peak year of 1999 and over the five-year technology cycle from 1998 through 2002.
The New Energy Technology Cycle – another triple trend convergence
Today Mr. Hansel sees a great new high-tech investment cycle, the new energy
technology cycle. In his opinion, the new energy technology cycle is being driven by
the convergence of three trends which are apparent today: 1) energy prices are rising because of global economic growth and dwindling discoveries of new reserves; 2) rising atmospheric levels of carbon dioxide are creating a new urgency to reduce
energy’s climate change impact; and 3) decades of research and development
spending have prepared many new energy technologies for commercial application.
For decades, clean energy stocks have attracted interest, but they often disappointed their investors, because the products were immature and could not compete economically with existing energy technologies. Today’s triple trend convergence is changing the economics and politics of energy. Many forms of clean energy are now either economically competitive or politically advantaged versus traditional energy. Photovoltaics, for example, once a specialty product used mainly for satellites and toys, have become a USD $7 billion per year global business, with several public companies and some recent hot initial public offerings. During the new energy technology cycle the world will rationalize its dependence on oil, coal, and natural gas, while increasing the utilization of renewable energy sources. Today’s infrastructure of energy production, processing, storage, transportation, and utilization will be updated to be cleaner, more efficient, and more sustainable.
Sustainable Energy Technologies
The continuation of global economic growth requires that we adopt sustainable new
energy technologies, both to supplement existing energy sources and to manage
environmental impacts. Sustainable new energy technologies include alternative and
renewable energy sources such as wind, solar, and biomass; new energy storage
technologies and new fuels such as hydrogen, ethanol, biodiesel, and synthetic
diesel; cleaner and more efficient energy use; and the creation of new infrastructure
elements for the production, storage, distribution, and use of energy. Sustainable
energy technologies have become much less expensive because of decades of
scientific research and development. The new energy technology cycle will evolve
over the next two decades, and its impact will reach nearly every person on the
planet. In its dizzying array of hi-tech jargon and acronyms, new energy technology
rivals the complexity of information technology.
A Larger Technology Component in Energy Industry Analysis
The energy sector investment landscape is evolving. Because technological change
is now such an important part of the energy industry, effective investing in energy
now requires the more effective analysis of energy technology dynamics on top of the traditional energy supply and demand issues. New energy technologies are near the disruptive stage where the competitive structure of an existing industry can undergo rapid change through the substitution effect, which can occur when the cost structure for competing products changes dramatically, causing the widespread substitution of one form of energy for another. Technology investors are very familiar with those dynamics, giving them potential analytical and information advantages.
Popular Interest in Energy Technology
This winter, significantly higher heating bills are likely to create a popular call to
action which may lead the US and other states to follow the example of many in
Europe and Asia by increasing their regulatory incentives for the adoption of new
energy technologies. We expect that the pace of capital flows into new energy
technology industries will result from a combination of market forces, regulatory
incentives, and popular interest. Global interest in new energy technology is very
strong. Already, over 80 major energy conferences are scheduled for 2006, with 67
scheduled in the first half of 2006 alone, in Europe, Asia, the Middle East, Africa, and the Americas.
(1) International Energy Agency press release, 6 December 2005, “Energy and climate change: more action needed,” http://www.iea.org/Textbase/press/pressdetail.asp?PRESS_REL_ID=168.
Copyright OECD/IEA 2005.
James Hansel, managing director and portfolio manager at Eight Winds Capital Management, LLC, manages high-tech investments with a three-pronged focus: energy tech, medical tech, and info tech. Today, he believes that energy technology is one of the most exciting investment arenas. e-mail: [email protected]
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