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There are two great disruptions at play in the world economy and South Africa should harness the benefits, says Michael Power, a strategist at Investec Asset Management.
Power says these are the rise of China and the coming of age of renewable energy.
“Both of these will transform our lives and that of our children and grandchildren. These two factors will disrupt the way we think about life in an extraordinary way,” he said at the Momentum Consult annual conference recently.
According to him, renewable energy will result in free energy and free water.
“Most of the energy and water in the world will be free. That is an incredible transformation. It opens many opportunities and also causes a lot of threats to some, for instance countries like Russia relying on coal,” he said.
“SA is on the cusp of a wind and sun zone which it should harness. On top of that, SA is surrounded by sea water, which it can harness.”
He said he was optimistic in terms of Cyril Ramaphosa's presidency, especially since the nuclear issue seems to be “off the table”.
“There is an underlying trend of slowing growth in the West. The West needs a new source of energy and growth,” said Power.
“We are entering the age of free energy, slashing energy costs to near zero boosts economic growth. Even here in SA we have got to the point where, when we add capacity, renewable energy cost is lower than the wholesale cost of coal and gas.”
For instance, there is a small area in Algeria where, if it were covered with solar panels, it would supply the whole world with self-sufficient energy.
China
Power said China is building a 6 300-acre sun farm in the Gobi Desert where the average daylight sunshine is 70%.
China is number one in the solar panel industry – six out of the 10 top producers are Chinese firms – and Power predicts that in 10 years’ time it will also dominate wind turbine production.
Additionally, China is also leading the charge towards electric mobility.
“The point is that the East is turning green. China is going green at an extraordinary level. The rise of China and the rise of renewables are connected,” said Power.
“Cheap energy brings cheap water – including desalination costs. The alleviation of water stress will become far easier due to desalination, for instance in Southern Africa. SA can be one of the big winners as the country has lots of sunshine and sea water.”
He said his investment advice at this stage is basically “do not buy horses just as cars arrive”.
“The big winners will be energy intensive industries and (energy-intensive) nations, while the losers will be old energy-based companies that do not adapt,” said Power.
“The investment implication is basically that green is gold. What is happening is a profound disruption where value creation will outstrip value destruction.”
He said China will lead this process as it has a focused government, low-cost equipment production companies and high levels of research and development in vanguard technologies.
“SA must grasp these kinds of opportunities. The world is now at the dawn of a sunny new age, yet SA still has a beached whale called Eskom, which the government is still trying to support,” said Power.
“Don’t keep money in yesterday’s industries. Yes, SA’s problems go beyond the coming up of new sources of energy, but renewable energy as a cheap source could free up money resources for government to be invested elsewhere.”
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