On August 8, Bloomberg published an article with this headline:
2023 is on track to be the hottest year on record
In California where I live, we’re prone to summer power outages, and we’ve been told to curb our energy use.
It’s so hot, my dogs have been on strike between 10 a.m. and 6 p.m. If I try to take them away from the A/C, they look at me like I’m crazy.
But it’s not just a California problem.
We just had the hottest June ever recorded on Earth, going back 174 years. That’s according to the National Oceanic and Atmospheric Administration (NOAA).
About one-third of Americans were in heat advisories in July.
And as you saw above, Bloomberg reports that this could be the hottest year since record-keeping started in the 1800s.
All of this means one thing. Rising demand – and rising costs – for power.
A $14 Trillion Price Tag
The world needs more power. Lots of power.
Electricity demand is set to grow 68% over the next 30 years. You can see this in the chart below…
The world needs to spend $14 trillion over the next 30 years to support the evolving power landscape, according to Bloomberg New Energy Finance’s (BNEF) Power Grid Outlook 2021.
We simply don’t have enough reliable capacity to stay cool in the surging summer heat. Or to keep up with a more plugged-in world.
But not all power is equal. One way to look at this is through the three types of power we rely on.
The first is baseload power. This is the power that’s very reliable and steady. It’s there to meet the guaranteed demand of the grid at any given time.
To get baseload power, you need a dense, abundant resource that’s cheap and easy to find.
Today, the majority of baseload power around the world is coal. It’s still the most used fuel source in the world. You can see the breakdown by fuel type in the chart below…
And that may not change anytime soon, based on existing and new coal-fired plants under construction.
China alone approved 106 GW of new coal-fired power capacity last year. That’s four times greater than the new coal capacity installed in 2021.
And, as of the end of 2022, China has 366 GW of additional coal capacity either planned or under construction.
That’s more than two-thirds of the world’s total new coal-fired power. And that’s despite China being a leader in adopting renewable energy.
After baseload power is load-following power. This is power that can change gradually depending on the demand placed on the grid.
For instance, if it’s hot outside, more people turn on their air conditioners. So load-following power can adapt to that increased need.
Finally, peaking power is a flexible source of power that can quickly cycle up or down with unexpected demand. It’s the most unpredictable of the three and also the most expensive.
Most peaking power is natural gas. That’s because it’s much easier to rapidly adjust natural gas than it is coal.
What This Means for Your Money Today
While the overall energy mix may not change much in the short term, it looks set to change in the long run.
We’re already starting to see that with a massive push for cheaper, cleaner sources of power.
Now, in most cases, when you think of clean power, you think of wind and solar. They may work… to a point.
But anything that depends on weather conditions is an unreliable source of energy.
Reliable power should be steady. There shouldn’t be any peaks and valleys. Which is why natural gas is one of the best solutions today.
Natural gas emits about 60% less carbon dioxide than coal per unit of electricity produced. And it’s flexible. We can use it for baseload, load-following, and peaking power.
That’s why over a decade ago, the U.S. started to switch from coal to natural gas. From 2005 to 2020, natural gas replaced over 200 coal plants. Today, natural gas generates 40% of U.S. electricity and about 20% of European electricity.
This was around the same time oil and gas companies unleashed the resources trapped in shale formations. Massive amounts of low-cost gas became available.
That allowed the switch from coal to natural gas for hundreds of power plants across the country.
Plus, natural gas power plants are far more efficient than coal. One natural gas power plant can provide the same energy as two coal plants.
We gave the rest of the world the road map. And now we have the chance to be a leader in helping other countries do the same.
With the world swimming in an abundance of natural gas, the race is on to fill the energy vacuum.
To capture that upside, consider buying the Global X MLP & Energy Infrastructure ETF (MLPX).
It holds companies that move and store energy products like natural gas. And it pays a dividend yield of 5.4%.
Happy investing, and I’ll be in touch again soon.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. The world needs reliable and cheap energy. And the U.S. is in a prime position to supply it…
As much as $4.9 trillion is about to change hands in just one energy sector – with over $400 billion up for grabs in the months ahead. It’s all part of a plan that will cement the U.S. as the king of energy for decades.
To learn more about this massive opportunity, watch this video presentation I put together.