ASX News LIVE | XJO Recovers; Sims Sinks as Syrah Resources Surges

Excerpt from our editorial director Greg Canavan’s latest for The Insider.

***

The sideways action of the benchmark index, the ASX200, continues.

Last week, the index fell 1.7%, after rallying strongly the week before.

The gold stock index led the declines, falling 2.9% on the week. Resources, consumer discretionary and the IT sector all fell around 2.3%. The energy sector was the only one to eek out any gains, rising 0.6%.

The energy sector is one of the few to have any decent momentum. After correcting during the latter part of 2022 and into 2023, energy stocks have been trending higher since making a low in March.

But the index is clearly trending higher. After breaking out of its post COVID slump in early 2022, energy stocks have been on a slow and steady march higher. I don’t think this long-term trend is anywhere near done.

In stark contrast to the energy sector is the broader market. As I said, it’s going nowhere…

The ASX200 is trading around where it was in November last year. It’s still up around 11% from the lows of last September, but it was up 17% from those lows in January. Since then, it’s been a volatile slope down.

And there’s not a great deal of light on the horizon.

The spectre of higher interest rates will continue to act as a headwind for markets. With the stimulatory effects of COVID related fiscal policy finally starting to wear off, the global economy will have to stand on its own two feet. And it might get a little bit wobbly doing so.

Savings running out…

The national accounts, released last week, revealed Australia’s household saving ratio had dropped to 3.2% from 3.6%, the seventh consecutive fall and the lowest level since June 2008.

As the Australian Bureau of Statistics put it in the release:

‘Savings fell as the rise in nominal household consumption outweighed a softer rise in gross disposable income.’

In other words, households continue to spend more than they earn, drawing down savings to fund the difference.

Even so, the spending is weak. Household final consumption grew just 0.1% in the June quarter.

‘Gross national expenditure’ actually declined 0.4% in the quarter. Gross national expenditure measures activity in the domestic economy, not including the contribution from net exports.

So really, it’s the mining sector (exports) keeping us afloat right now. And that’s not going to change for some time. Higher for longer interest rates will continue to act as a constraint on household spending for the rest of the year at least.

How do you manage this situation as an investor?

As I’ve been saying for some time, it’s a market of stocks, not a stock market. Don’t worry about the market going nowhere…there are still opportunities out there.

It’s a view shared by some prominent professional investors. Today’s Australian reports:

‘Investors looking for signs of another bull market will be waiting for some time, says influential New York-hedge fund manager Ricky Sandler.

‘Even so, stock pickers shouldn’t be sitting around trying to ride the momentum but instead focus on the “much more interesting things happening beneath the surface,” says Sandler, the founder and chief executive of $US7bn ($11bn) Eminence Capital.’

The reason why these ‘interesting things’ are happening behind the surface, according to Sandler, is due to the rise of passive investing through index ETFs:

‘Most estimates of the US market have passive funds sitting with ETFs or index trackers at around 18–20 per cent of share holdings. In some companies it can reach as much as 50 per cent. More recent analysis points out real estate is among the most passively-owned sectors.

‘This means inside any market there may be a lot of stocks moving around “not necessarily based on their long-term fundamentals”.

‘“This is creating good opportunities for stock pickers that have kind of adjusted to this new world,” Sandler says.’

A new world where good old fashioned valuation analysis is rewarded? Sweet!

But you have to be patient. Stocks can remain under and overvalued for some time. Investing based on valuation principles doesn’t offer immediate rewards.

Excerpt from our editorial director Greg Canavan’s latest for The Insider.

***

The sideways action of the benchmark index, the ASX200, continues.

Last week, the index fell 1.7%, after rallying strongly the week before.

The gold stock index led the declines, falling 2.9% on the week. Resources, consumer discretionary and the IT sector all fell around 2.3%. The energy sector was the only one to eek out any gains, rising 0.6%.

The energy sector is one of the few to have any decent momentum. After correcting during the latter part of 2022 and into 2023, energy stocks have been trending higher since making a low in March.

But the index is clearly trending higher. After breaking out of its post COVID slump in early 2022, energy stocks have been on a slow and steady march higher. I don’t think this long-term trend is anywhere near done.

In stark contrast to the energy sector is the broader market. As I said, it’s going nowhere…

The ASX200 is trading around where it was in November last year. It’s still up around 11% from the lows of last September, but it was up 17% from those lows in January. Since then, it’s been a volatile slope down.

And there’s not a great deal of light on the horizon.

The spectre of higher interest rates will continue to act as a headwind for markets. With the stimulatory effects of COVID related fiscal policy finally starting to wear off, the global economy will have to stand on its own two feet. And it might get a little bit wobbly doing so.

Savings running out…

The national accounts, released last week, revealed Australia’s household saving ratio had dropped to 3.2% from 3.6%, the seventh consecutive fall and the lowest level since June 2008.

As the Australian Bureau of Statistics put it in the release:

‘Savings fell as the rise in nominal household consumption outweighed a softer rise in gross disposable income.’

In other words, households continue to spend more than they earn, drawing down savings to fund the difference.

Even so, the spending is weak. Household final consumption grew just 0.1% in the June quarter.

‘Gross national expenditure’ actually declined 0.4% in the quarter. Gross national expenditure measures activity in the domestic economy, not including the contribution from net exports.

So really, it’s the mining sector (exports) keeping us afloat right now. And that’s not going to change for some time. Higher for longer interest rates will continue to act as a constraint on household spending for the rest of the year at least.

How do you manage this situation as an investor?

As I’ve been saying for some time, it’s a market of stocks, not a stock market. Don’t worry about the market going nowhere…there are still opportunities out there.

It’s a view shared by some prominent professional investors. Today’s Australian reports:

‘Investors looking for signs of another bull market will be waiting for some time, says influential New York-hedge fund manager Ricky Sandler.

‘Even so, stock pickers shouldn’t be sitting around trying to ride the momentum but instead focus on the “much more interesting things happening beneath the surface,” says Sandler, the founder and chief executive of $US7bn ($11bn) Eminence Capital.’

The reason why these ‘interesting things’ are happening behind the surface, according to Sandler, is due to the rise of passive investing through index ETFs:

‘Most estimates of the US market have passive funds sitting with ETFs or index trackers at around 18–20 per cent of share holdings. In some companies it can reach as much as 50 per cent. More recent analysis points out real estate is among the most passively-owned sectors.

‘This means inside any market there may be a lot of stocks moving around “not necessarily based on their long-term fundamentals”.

‘“This is creating good opportunities for stock pickers that have kind of adjusted to this new world,” Sandler says.’

A new world where good old fashioned valuation analysis is rewarded? Sweet!

But you have to be patient. Stocks can remain under and overvalued for some time. Investing based on valuation principles doesn’t offer immediate rewards.

Recession was a popular bete noire for companies worldwide.

It was a rare market update or earnings call that didn’t mention recession risks or inflationary pressures a few years ago.

But that’s changing.

The Wall Street Journal reported that only S&P 500 firms cited recession on earnings calls between June and August.

That’s down from 113 in the previous reporting period and down from 238 in 2022.

Recession was a popular bete noire for companies worldwide.

It was a rare market update or earnings call that didn’t mention recession risks or inflationary pressures a few years ago.

But that’s changing.

The Wall Street Journal reported that only S&P 500 firms cited recession on earnings calls between June and August.

That’s down from 113 in the previous reporting period and down from 238 in 2022.

The Reserve Bank released a very interesting discussion paper centred on insights gleaned from earnings calls on firms’ price-setting behaviour.

RBA researchers collated 700,000 paragraphs of text from 5,500 earnings call transcripts since the start of 2007 and found some interesting trends.

If you were wondering, the researchers did use a large language model to sort the raw text into categories related to ‘input costs, demand, prices, and supply shortages’.

What were the key findings?

‘Our results are consistent with firms using pricing strategies that focus on a mark-up over costs. They are also consistent with firms being more reactive to rising, rather than falling, input costs.

‘These experimental findings appear to indicate that aggregate price-setting behaviour could depend on the source of the shocks firms face (demand or cost driven), the direction of the shock (with firms reacting more to cost increases relative to decreases), and which industries are most affected.’

By the way, the RBA’s research team outlined how they collected and wrangled the data to its will.

It’s quite heady stuff.

The Reserve Bank released a very interesting discussion paper centred on insights gleaned from earnings calls on firms’ price-setting behaviour.

RBA researchers collated 700,000 paragraphs of text from 5,500 earnings call transcripts since the start of 2007 and found some interesting trends.

If you were wondering, the researchers did use a large language model to sort the raw text into categories related to ‘input costs, demand, prices, and supply shortages’.

What were the key findings?

‘Our results are consistent with firms using pricing strategies that focus on a mark-up over costs. They are also consistent with firms being more reactive to rising, rather than falling, input costs.

‘These experimental findings appear to indicate that aggregate price-setting behaviour could depend on the source of the shocks firms face (demand or cost driven), the direction of the shock (with firms reacting more to cost increases relative to decreases), and which industries are most affected.’

By the way, the RBA’s research team outlined how they collected and wrangled the data to its will.

It’s quite heady stuff.

Flight Centre remains the most shorted stock on the ASX, with the top three rounded off by lithium producer Pilbara Minerals and graphite producer Syrah Resources.

Two stocks promulgating their links to AI — Appen and BrainChip — also featured in the top ten.

Flight Centre remains the most shorted stock on the ASX, with the top three rounded off by lithium producer Pilbara Minerals and graphite producer Syrah Resources.

Two stocks promulgating their links to AI — Appen and BrainChip — also featured in the top ten.

A US$150 million conditional loan announcement wasn’t the only thing Syrah Resources released today.

The graphite producer also released its interim financial statements for the half ended 30th June.

Unsurprisingly, Syrah’s production and sales plummeted in the half after the miner suspended operations at Balama following weak graphite prices.

Half-year revenue fell 43% to US$28.4 million.

What didn’t fall was the cost of sales. That remained unmoved at US$40.8 million, leaving Syrah with a widening half-year loss of US$38.6 million.

In a business update appendaged to the report, SYR’s management affirmed the graphite market remains soft:

‘Sales and shipments to Chinese anode customers were lower than the prior corresponding period due to unanticipated demand and supply imbalances through early 2023, driven by downstream spherical graphite demand, anode material inventory, and competing domestic natural graphite production. During operating campaigns undertaken in the interim financial period, Balama production was constrained by finished product inventory positions and lower Chinese demand. Continuing volatile Chinese anode market conditions and excess availability of finished product inventory led to lower demand for natural graphite from Balama and a decision to pause Balama plant operations, resulting in no production in May and June 2023.’

A US$150 million conditional loan announcement wasn’t the only thing Syrah Resources released today.

The graphite producer also released its interim financial statements for the half ended 30th June.

Unsurprisingly, Syrah’s production and sales plummeted in the half after the miner suspended operations at Balama following weak graphite prices.

Half-year revenue fell 43% to US$28.4 million.

What didn’t fall was the cost of sales. That remained unmoved at US$40.8 million, leaving Syrah with a widening half-year loss of US$38.6 million.

In a business update appendaged to the report, SYR’s management affirmed the graphite market remains soft:

‘Sales and shipments to Chinese anode customers were lower than the prior corresponding period due to unanticipated demand and supply imbalances through early 2023, driven by downstream spherical graphite demand, anode material inventory, and competing domestic natural graphite production. During operating campaigns undertaken in the interim financial period, Balama production was constrained by finished product inventory positions and lower Chinese demand. Continuing volatile Chinese anode market conditions and excess availability of finished product inventory led to lower demand for natural graphite from Balama and a decision to pause Balama plant operations, resulting in no production in May and June 2023.’

Excerpt from our energy analyst, Selva Freigedo.

***

Lithium prices may have dropped off the cliff this year, as you can see in the chart below, but lithium prices remain high when compared to previous years.

Source: Tradingeconomics [Click to open in a new window]

This is all great for lithium producers.

Take Albemarle, for instance.

In the second quarter of 2023, Albemarle made US$2.4 billion in net sales, or a 60% increase from the previous year. This was mainly because of higher prices and sales.

As they wrote:

‘The company is updating its full-year 2023 outlook to reflect recent lithium market prices. Net sales are expected to increase 40–55% over the prior year, primarily driven by the continued global shift to electric vehicles. The year-over-year increase in Adjusted EBITDA is expected to be in the range of 10–25%, primarily due to higher Energy Storage pricing.

‘Energy Storage net sales for the full year are estimated to range between $7.9 billion and $8.8 billion, above previous outlook primarily due to higher lithium market index pricing.’

Even with the recent lithium drop in prices, Albemarle expects that for the year the price they sell lithium will be 20–30% higher than the previous year.

What’s more, Albemarle has continued to revise its lithium demand projections.

Source: Albermarle [Click to open in a new window]

They now expect it to be over 15% higher than previously thought because of the Inflation Reduction Act in the US and continued demand for electric vehicles (EVs).

So, we continue to see companies taking steps to secure lithium supply.

The fact remains that lithium is still a key material for lithium-ion batteries.

And EV sales continue to grow.

According to InsideEVs, in the first six months of the year, there were 5.8 million plug-in electric cars registered globally. That number is up by 40% year on year, making up around 15% share of total sales.

Then again, as I mentioned recently, more automakers and battery makers are looking at building gigafactories to keep building EVs, secure their supply chains and drive down costs.

All these gigafactories in the pipeline are going to need to source raw materials from somewhere.

So this is all adding up to a big win for lithium…

Excerpt from our energy analyst, Selva Freigedo.

***

Lithium prices may have dropped off the cliff this year, as you can see in the chart below, but lithium prices remain high when compared to previous years.

Source: Tradingeconomics [Click to open in a new window]

This is all great for lithium producers.

Take Albemarle, for instance.

In the second quarter of 2023, Albemarle made US$2.4 billion in net sales, or a 60% increase from the previous year. This was mainly because of higher prices and sales.

As they wrote:

‘The company is updating its full-year 2023 outlook to reflect recent lithium market prices. Net sales are expected to increase 40–55% over the prior year, primarily driven by the continued global shift to electric vehicles. The year-over-year increase in Adjusted EBITDA is expected to be in the range of 10–25%, primarily due to higher Energy Storage pricing.

‘Energy Storage net sales for the full year are estimated to range between $7.9 billion and $8.8 billion, above previous outlook primarily due to higher lithium market index pricing.’

Even with the recent lithium drop in prices, Albemarle expects that for the year the price they sell lithium will be 20–30% higher than the previous year.

What’s more, Albemarle has continued to revise its lithium demand projections.

Source: Albermarle [Click to open in a new window]

They now expect it to be over 15% higher than previously thought because of the Inflation Reduction Act in the US and continued demand for electric vehicles (EVs).

So, we continue to see companies taking steps to secure lithium supply.

The fact remains that lithium is still a key material for lithium-ion batteries.

And EV sales continue to grow.

According to InsideEVs, in the first six months of the year, there were 5.8 million plug-in electric cars registered globally. That number is up by 40% year on year, making up around 15% share of total sales.

Then again, as I mentioned recently, more automakers and battery makers are looking at building gigafactories to keep building EVs, secure their supply chains and drive down costs.

All these gigafactories in the pipeline are going to need to source raw materials from somewhere.

So this is all adding up to a big win for lithium…

Excerpt from Ryan Dinse’s latest for Money Morning.

***

Germany has been the poster child for a renewable driven economy for a long time. They’ve very advanced plans to have an 80% renewables grid by 2030.

But this plan is now coming apart at the seams.

Because of it, they’ve gone from being the powerhouse economy of Europe to being dubbed the new ‘sick man’.

As CNBC reported last week:

‘The “sick man of Europe” moniker has resurfaced in recent weeks as manufacturing output continues to stutter in the region’s largest economy and the country grapples with high energy prices.

‘…Germany could lose 2% to 3% of its current industrial capacity as companies move operations to countries where gas and electricity are cheaper, such as the U.S. or Saudi Arabia, according to a research note released in August by Berenberg.’

This is the real economic consequence of moving to a more unpredictable and higher cost energy system.

As national broadcaster Deutsche Welle reported last week, the problems Germany are facing are complex:

‘Germany wants out of fossil fuels: no coal, no gas, no nuclear power plants. Instead, the country wants to commit fully to renewables.

‘But does this bring with it the threat of a major power blackout? Germany is gradually realizing where the sticking points are.

‘Take grid security: This is much easier to guarantee in a power network with just a few dozen large power stations than in a decentralized network with multiple small-scale electricity producers such as rooftops with solar panels or wind turbines.

‘“It’s now a matter of having to intervene several times almost every day to guarantee grid security,” says the spokesperson for one major network operator. If grid security can no longer be maintained, the threat of a nationwide blackout suddenly becomes very real.

‘Another problem is reliability. Because the sun doesn’t always shine and the wind doesn’t always blow, there might be too little power available on particular days and at particular times of the year. This also raises the possibility of unforeseen power failures.

‘One potential remedy could be power storage. There are many different ideas about how to securely store energy in order to bridge power gaps in the renewables’ supply: pumped-storage power plants, hydrogen storage, gigantic batteries.

‘But, if these technologies exist at all, they do so only on a very small scale: Current storage capacity in Germany is 40 gigawatt hours — enough to supply the country for up to 60 minutes. And if there’s still no wind and the sun still isn’t shining…?’

The sad truth is all of this was perfectly predictable.

So why did Germany commit to going down such a route without a proper plan?

https://www.moneymorning.com.au/20230911/red-flags-on-energy.html

Excerpt from Ryan Dinse’s latest for Money Morning.

***

Germany has been the poster child for a renewable driven economy for a long time. They’ve very advanced plans to have an 80% renewables grid by 2030.

But this plan is now coming apart at the seams.

Because of it, they’ve gone from being the powerhouse economy of Europe to being dubbed the new ‘sick man’.

As CNBC reported last week:

‘The “sick man of Europe” moniker has resurfaced in recent weeks as manufacturing output continues to stutter in the region’s largest economy and the country grapples with high energy prices.

‘…Germany could lose 2% to 3% of its current industrial capacity as companies move operations to countries where gas and electricity are cheaper, such as the U.S. or Saudi Arabia, according to a research note released in August by Berenberg.’

This is the real economic consequence of moving to a more unpredictable and higher cost energy system.

As national broadcaster Deutsche Welle reported last week, the problems Germany are facing are complex:

‘Germany wants out of fossil fuels: no coal, no gas, no nuclear power plants. Instead, the country wants to commit fully to renewables.

‘But does this bring with it the threat of a major power blackout? Germany is gradually realizing where the sticking points are.

‘Take grid security: This is much easier to guarantee in a power network with just a few dozen large power stations than in a decentralized network with multiple small-scale electricity producers such as rooftops with solar panels or wind turbines.

‘“It’s now a matter of having to intervene several times almost every day to guarantee grid security,” says the spokesperson for one major network operator. If grid security can no longer be maintained, the threat of a nationwide blackout suddenly becomes very real.

‘Another problem is reliability. Because the sun doesn’t always shine and the wind doesn’t always blow, there might be too little power available on particular days and at particular times of the year. This also raises the possibility of unforeseen power failures.

‘One potential remedy could be power storage. There are many different ideas about how to securely store energy in order to bridge power gaps in the renewables’ supply: pumped-storage power plants, hydrogen storage, gigantic batteries.

‘But, if these technologies exist at all, they do so only on a very small scale: Current storage capacity in Germany is 40 gigawatt hours — enough to supply the country for up to 60 minutes. And if there’s still no wind and the sun still isn’t shining…?’

The sad truth is all of this was perfectly predictable.

So why did Germany commit to going down such a route without a proper plan?

https://www.moneymorning.com.au/20230911/red-flags-on-energy.html

Graphite producer Syrah Resources [ASX:SYR] is up 10% after the US International Development Finance Corporation Board of Directors approved a US$150 million conditional loan to Syrah’s subsidiary, Twigg Exploration and Mining (Twigg).

Syrah said the loan, if completed, will fund capital requirements at its Balama graphite mine in Mozambique.

Syrah recently suspended production at Balama, citing poor market conditions.

The US$150 million will be parceled out to three initiatives:

• Feasibility studies for developing Balama’s vanadium resource
• Expansion of Balama’s tailings storage facility
• Boosting Balama’s working and sustaining capital

However, as Syrah said in today’s press release:

‘Whilst the approval of the conditional loan commitment demonstrates DFC’s intention to support Twigg with a loan for Balama, there is no certainty that a loan from DFC will ultimately be provided to Twigg. The DFC loan is subject to the completion of due diligence, negotiation of detailed terms and legal documentation, DFC management approval and Syrah and Twigg Board approvals.’

Graphite producer Syrah Resources [ASX:SYR] is up 10% after the US International Development Finance Corporation Board of Directors approved a US$150 million conditional loan to Syrah’s subsidiary, Twigg Exploration and Mining (Twigg).

Syrah said the loan, if completed, will fund capital requirements at its Balama graphite mine in Mozambique.

Syrah recently suspended production at Balama, citing poor market conditions.

The US$150 million will be parceled out to three initiatives:

• Feasibility studies for developing Balama’s vanadium resource
• Expansion of Balama’s tailings storage facility
• Boosting Balama’s working and sustaining capital

However, as Syrah said in today’s press release:

‘Whilst the approval of the conditional loan commitment demonstrates DFC’s intention to support Twigg with a loan for Balama, there is no certainty that a loan from DFC will ultimately be provided to Twigg. The DFC loan is subject to the completion of due diligence, negotiation of detailed terms and legal documentation, DFC management approval and Syrah and Twigg Board approvals.’

Renewables are regarded as the cheapest forms of energy in part due to an annual landmark costings report conducted by Australia’s premier science body — CSIRO.

But does the GenCost have flaws?

Are some of its assumptions iffy?https://t.co/WgphrA2dMI

— Fat Tail Daily (@FatTailDaily) September 11, 2023

Renewables are regarded as the cheapest forms of energy in part due to an annual landmark costings report conducted by Australia’s premier science body — CSIRO.

But does the GenCost have flaws?

Are some of its assumptions iffy?https://t.co/WgphrA2dMI

— Fat Tail Daily (@FatTailDaily) September 11, 2023

Last month, Sims said steel demand ‘remained subdued’ and the scrap price was not high enough to ‘stimulate robust scrap supply’.

On top of that, competition for scrap ‘remained strong’, hurting margins.

Things have not changed since.

Sims said today that ‘weak market conditions have not abated’. Further, the ‘previously resilient US market is showing signs of weakening’.

As a result, Sims now expects 1Q24 EBIT to be ‘approximately breakeven’.

That approximation seems to entail a range where Sims posts a moderate EBIT loss.

Sims ended on a hopeful note, arguing it remains confident in the medium term demand for recycled metal.

The firm listed three drivers:

• ‘Metal-intensive’ infrastructure spending
• Decarbonisation of steelmaking
• Electrification of products currently carbon intensive (is this not the same as two?)

 

Last month, Sims said steel demand ‘remained subdued’ and the scrap price was not high enough to ‘stimulate robust scrap supply’.

On top of that, competition for scrap ‘remained strong’, hurting margins.

Things have not changed since.

Sims said today that ‘weak market conditions have not abated’. Further, the ‘previously resilient US market is showing signs of weakening’.

As a result, Sims now expects 1Q24 EBIT to be ‘approximately breakeven’.

That approximation seems to entail a range where Sims posts a moderate EBIT loss.

Sims ended on a hopeful note, arguing it remains confident in the medium term demand for recycled metal.

The firm listed three drivers:

• ‘Metal-intensive’ infrastructure spending
• Decarbonisation of steelmaking
• Electrification of products currently carbon intensive (is this not the same as two?)

 

The shift to cleaner energy isn’t advocated on climate change grounds alone.

Yes, the 2022 Intergovernmental Panel on Climate Change Sixth Assessment Report said ‘climate change is a threat to well-being and planetary health’. A threat that can be assuaged by phasing out fossil fuels.

But the push for net zero emissions has economic backing, too.

Clean sources of energy are also advocated for on the grounds they’re cheaper.

The Greens, for instance, write on their website that ‘renewables are the cheapest form of power’.

And late last year, Australia’s very own climate change minister Chris Bowen said in a speech:

‘This transition is even more important – not only for reasons of climate, as compelling as those reasons are – but also because renewable energy is the cheapest form of energy, which is rather handy in an affordability crisis.’

Even former federal Liberal party MP Dave Sharma said in 2021 that the ‘lowest cost of new energy generation sources is renewable energy’.

But it’s not just politicians.

Hardened, profit-maximising businesses agree.

In February 2022, Origin Energy’s CEO Frank Calabria announced Origin’s early exit from coal-fired generation.

A big reason was the improved economics of renewable energy:

‘The reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower cost generation, including solar, wind and batteries.

‘The cost of renewable energy and battery storage is increasingly competitive, and the penetration of renewables is growing and changing the shape of wholesale electricity prices, which means our cost of energy is expected to be more economical through a combination of renewables, storage and Origin’s fleet of peaking power stations.’

And, of course, we have Twiggy Forrest’s Fortescue Metals.

Fortescue is investing heavily in green energy technology, siphoning chunks of FMG’s iron ore profits to fund green energy investments.

In December 2022, Forrest told the Australian Financial Review:

‘The more you use fossil fuels, the more expensive and dangerous it becomes. The more you use renewable energy, the cheaper it becomes, and the more democratic it becomes and the higher everyone’s standard of living.’

A big reason why renewables are regarded as the cheapest forms of energy is a landmark costings report conducted by Australia’s premier science body — CSIRO.

Since 2018, CSIRO has been calculating the costs of different energy sources, consistently finding that wind and solar are ‘the cheapest forms of newly built electricity generation’.

These finding reside in the annually updated GenCost report, a collaboration between CSIRO and the Australian Energy Market Operator.

The GenCost report is the go-to reference on the question of what energy source is cheapest.

Take AAP FactCheck, the fact checking arm of Associated Press.

A few years ago, it ran an investigation on whether renewable energy really is the cheapest source of new power generation.

What did AAP FactCheck rely on?

The GenCost report.

AAP FactCheck’s verdict:

‘Current estimates, contained in GenCost’s latest draft report, show renewables are cheaper to deploy in Australia with or without a price on carbon or risk premium for fossil fuel sources. Independent experts and other research support its findings.’

But what if the GenCost report is flawed?

What if some of its assumptions are iffy?

Would scrutiny of its modelling warrant scepticism of its conclusions?

If we find out how the GenCost sausage was made, will we still have an appetite?

https://www.moneymorning.com.au/20230908/whats-not-priced-in-16-a-huge-hole-found-in-the-energy-transition.html

The shift to cleaner energy isn’t advocated on climate change grounds alone.

Yes, the 2022 Intergovernmental Panel on Climate Change Sixth Assessment Report said ‘climate change is a threat to well-being and planetary health’. A threat that can be assuaged by phasing out fossil fuels.

But the push for net zero emissions has economic backing, too.

Clean sources of energy are also advocated for on the grounds they’re cheaper.

The Greens, for instance, write on their website that ‘renewables are the cheapest form of power’.

And late last year, Australia’s very own climate change minister Chris Bowen said in a speech:

‘This transition is even more important – not only for reasons of climate, as compelling as those reasons are – but also because renewable energy is the cheapest form of energy, which is rather handy in an affordability crisis.’

Even former federal Liberal party MP Dave Sharma said in 2021 that the ‘lowest cost of new energy generation sources is renewable energy’.

But it’s not just politicians.

Hardened, profit-maximising businesses agree.

In February 2022, Origin Energy’s CEO Frank Calabria announced Origin’s early exit from coal-fired generation.

A big reason was the improved economics of renewable energy:

‘The reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower cost generation, including solar, wind and batteries.

‘The cost of renewable energy and battery storage is increasingly competitive, and the penetration of renewables is growing and changing the shape of wholesale electricity prices, which means our cost of energy is expected to be more economical through a combination of renewables, storage and Origin’s fleet of peaking power stations.’

And, of course, we have Twiggy Forrest’s Fortescue Metals.

Fortescue is investing heavily in green energy technology, siphoning chunks of FMG’s iron ore profits to fund green energy investments.

In December 2022, Forrest told the Australian Financial Review:

‘The more you use fossil fuels, the more expensive and dangerous it becomes. The more you use renewable energy, the cheaper it becomes, and the more democratic it becomes and the higher everyone’s standard of living.’

A big reason why renewables are regarded as the cheapest forms of energy is a landmark costings report conducted by Australia’s premier science body — CSIRO.

Since 2018, CSIRO has been calculating the costs of different energy sources, consistently finding that wind and solar are ‘the cheapest forms of newly built electricity generation’.

These finding reside in the annually updated GenCost report, a collaboration between CSIRO and the Australian Energy Market Operator.

The GenCost report is the go-to reference on the question of what energy source is cheapest.

Take AAP FactCheck, the fact checking arm of Associated Press.

A few years ago, it ran an investigation on whether renewable energy really is the cheapest source of new power generation.

What did AAP FactCheck rely on?

The GenCost report.

AAP FactCheck’s verdict:

‘Current estimates, contained in GenCost’s latest draft report, show renewables are cheaper to deploy in Australia with or without a price on carbon or risk premium for fossil fuel sources. Independent experts and other research support its findings.’

But what if the GenCost report is flawed?

What if some of its assumptions are iffy?

Would scrutiny of its modelling warrant scepticism of its conclusions?

If we find out how the GenCost sausage was made, will we still have an appetite?

https://www.moneymorning.com.au/20230908/whats-not-priced-in-16-a-huge-hole-found-in-the-energy-transition.html