Nevada

Race for cheaper energy

 

In today’s Money Morning, we may keep hearing about layoffs, but many industries are still struggling to find workers. We are seeing labor shortages in construction, mining… and of course clean energy production. The IEA expects the cleantech industry to triple in size by 2030 and be worth about US$650 billion a year. So while some areas of the economy are shaky, there is still plenty of opportunity…

Amazon… Meta… Alphabet… and now Spotify are the latest to announce they are laying off about 6% of their workforce.

Unemployment is one of the things to watch out for as the economy slows down. However, unemployment in the US and Australia continues to be high.

And while big tech companies continue to lay off workers, those workers may not be out of work for long.

Here is Bloomberg:

“While the Las Vegas Consumer Electronics Show is best known as an annual occasion to marvel at outlandish gadgets, Dirk Hilgenberg, head of software at Volkswagen AG, came to this year’s show in early January in search of a different type of technology product: software. engineers.

The 58-year-old German automotive executive transformed his CES booth, a colorful stack of shipping containers, into a makeshift recruiting hall with JOIN US written on the side. Its division, called Cariad, has quintupled its headcount to around 6,600 since its inception in July 2020, and Hilgenberg hopes to hire 1,700 more this year.”

The automotive industry is going through a lot of upheaval. Big data…autonomous cars…electrification…

Tesla, for example, collects a lot of driving data. But that’s a story for another day.

My point is that we may keep hearing about layoffs, but many industries are still struggling to find workers. We are seeing labor shortages in construction, mining… and of course clean energy production.

So much so that renewable energy companies are raising salaries to attract workers and are even considering alternative ideas such as buying up other companies just to get their workers.

“The energy world is in the early stages of a new industrial age—the clean energy technology era,” says a new report from the International Energy Agency.

The IEA expects the cleantech industry to triple in size by 2030 and be worth about US$650 billion a year.

So while some areas of the economy are shaky, there is still plenty of opportunity.

Billions are pouring into clean energy

While central banks are raising rates, there is still a lot of money flowing into some sectors of the economy.

As I mentioned last week, the European Union is considering creating incentives to compete with the US Inflation Reduction Act (IRA). They are worried that they may lose their investment.

Over the next decade, the IRA is expected to invest billions of dollars in US clean energy and manufacturing industries. The Congressional Budget Office expects that figure could be $374 billion.

But the effects of the IRA can extend much further.

In a recent report, Credit Suisse calculated that the IRA “will have a profound impact on industries in the next decade and beyond.”

As The Atlantic writes after viewing the report:

‘[T]The IRA could spend twice as much as Congress thinks. Many of the IRA’s most important provisions, such as incentives for electric vehicles and zero-carbon electricity, are “unrestricted” tax credits. This means that as long as you meet their conditions, the government rewards them: there is no budget or cap in law that limits how much the government can spend.

‘[S]o Many people and businesses will take advantage of those tax breaks that the total cost of the IRA is likely to exceed $800 billion, double the amount of the CBO project. And since federal spending tends to stimulate private investment, total climate spending in the economy could be roughly $1.7 trillion over the next 10 years.”

In short, there is a lot of money being invested in the production of clean technologies…in the development of supply chains, but it is also associated with cheap electricity.

It’s a global race to the bottom

Manufacturing, bringing supply chains closer to home, onshoring, short-range shoring… for all of this, you need cheap electricity to be competitive.

At the moment, manufacturers are struggling with high energy costs. At the same time, renewable energy has become the cheapest form of energy today.

Thus, global competition is shifting towards the cheapest source of energy.

And going back to the Credit Suisse report, the bank expects the IRA investment could give the US an edge when it comes to cheaper electricity.

As The Atlantic continued:

According to the bank, the US is “ready to become the world’s leading energy supplier.” America is already the world’s largest producer of oil and natural gas. The report says the IRA can further enhance its edge in all forms of energy production by giving it “a competitive edge in low-cost clean electricity and hydrogen production, infrastructure, geological storage and human capital.” By 2029, U.S. solar and wind power could be the cheapest in the world at less than $5 per megawatt-hour, the bank predicts; it will also become competitive in hydrogen, carbon capture and storage, and wind turbines.”

So while much of the reason for the transition to energy has been touted as climate-related, it is also linked to energy security and access to cheap electricity as countries move more production ashore.

This is a megatrend that will continue to play a role in commodities in particular.

So, if you haven’t already, I recommend you check out James Cooper’s recent presentation, The Age of Scarcity. My colleague James is a certified geologist and has just launched his new Diggers and Drillers service.

Best wishes,

Selva Freighedo, Editor, Money Morning

PS: Due to the Australia Day public holiday, there will be no Thursday edition of Money Morning this week. We will return to our regular schedule on Friday, January 27th.

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