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Distributed Energy Monthly Report | August

 

DGEN (Green Energy ETF) 1st Rebalancing, Scorching Summer and Virtual Power Plants

  • Tesla and the advancement of Virtual Power Plants: On July 23rd Tesla (TSLA) announced the launch of a Virtual Power Plant (VPP) service in California.[1] Customers that are clients of three local distribution companies (PG&E, SDG&E, and SCE) and own both a Tesla Powerwall & Solar panels can opt to participate. Using Tesla’s App to opt in and out, homeowners can decide when to share their battery systems’ stored energy. This program is currently designed as a “public good”, so neither Tesla nor the VPP participants are receiving monetary compensation for now. Tesla already manages a VPP in Australia and in May gave an update on the new stage, Phase 3, of the project. The Financial Times estimated that Tesla’s next solar and Powerwall installations, together with what was installed in the first two phases, could generate 20 MW of power and store 54 MWh of energy.[2] The announcement came in a period when California’s energy grid is expected to struggle, record high temperatures will translate into extraordinary energy demand and pressure on the grid that is stressed due to a current drought affecting hydroelectric generation.[3]
  • Generac’s acquisitions: The company has been repositioning, from a backup energy equipment manufacturer to a provider of distributed energy storage solutions. To accelerate this repositioning the company has made 14 acquisitions from 2011 to 2020.[4] Adding to the list, Generac announced on July 6th the acquisition of Chilicon Power[5], a provider of grid-interactive microinverters and monitoring solutions for the solar market. Their solution allows Generac to create a broader offering for the solar + storage residential market. Generac is up 84% YTD, also benefiting from strong demand for its legacy solution of backup power, given the recent dramatic power outages across the USA. iClima flags their diesel and natural gas generators as “brown revenue”, the company is an interesting case of deepening of green revenue and fast repositioning of the business towards clean energy and distributed solutions.
  • The Infrastructure Bill: In March the Biden administration unveiled the “America Jobs Plan”, a $2.25 trillion proposal aiming to modernise the American infrastructure segment. A 2,700 page bipartisan bill was unveiled by a group of Senators on August 2nd after months of negotiations.[6] The text includes $550 billion in new federal investments over 5 years, but changes can still be made before the bill is voted on. The bill would provide $7.5 billion for zero and low emission buses and ferries, including thousands of electric school buses. Another $7.5 billion would go towards building charging network infrastructure. 

 

Transition Materials & Clean Energy Storage Trends

Over the past decade the technology advancement and economies of scale of lithium-ion batteries have lowered down their overall costs by 90%. As a result, the raw materials costs now dominate the total battery cost, 50 to 70%[7], and further battery cost reduction would depend significantly on the raw materials prices. International Energy Agency (IEA) said that some minerals like mined lithium and cobalt are expected to be in surplus in the near future while lithium chemical products and battery-grade nickel supply might be challenging in the years ahead. However, the supply from existing mines and projects under construction is estimated to meet only 50% of lithium and cobalt and 80% of the copper required to meet the 2030 Paris Agreement goal.[8] The projected supplies have not taken into account the potential of recovering some of the battery minerals via recycling, whereas the projected demands depend largely on technologies, like battery chemistries, and policies adopted to meet the climate goals, which are still uncertain. Policy makers have a crucial role in narrowing these uncertainties in order to reduce the investment risks and secure capital flow to new projects.

As shown in the figure below, the production of many energy transitions minerals is more geographically concentrated than that of oil or natural gas.

Today’s production of many energy transition minerals, oil and natural gas by country

For illustrative purposes only. Source: “The Role of Critical World Energy Outlook Special Report Minerals in Clean Energy Transitions” 2021 [9]

 

For lithium, cobalt and rare earth elements, more than 75% of the global production is dominated by three countries. China is dominating the processing operations across the board, leading to an even higher level of concentration. Moreover, long project development lead times, on average 16 years from discovery to production, could contribute to future supply shortage and price volatility. Lastly, the supply of high-quality energy transition minerals might be a double edge sword if poorly managed. There has been a continuous fall of resource quality across a range of commodities. For example, copper from Chile; on average, has seen its grade decline by 30% over the past 15 years. Metal extraction from lower-grade ores requires more energy, emits more greenhouse gas and leads to higher production costs and waste volume. On top of this, some of the mining assets that are crucial for batteries are exposed to growing climate risks. Over 50% of today’s copper and lithium production, like in Australia, China and Africa, are subjected to high water stress levels due to extreme heat or flooding.[10] Therefore, continuous, comprehensive and sustained efforts to meet the growing demand of the minerals while improving the environmental and social performances are urgently required. Our full article on this topic can be found here.

 

Performance in July – 1st Rebalance 

The Green Energy ETF tracks the iClima Distributed Renewable Energy Index, now with 55 constituents originally in equal weight. In back testing the Index was up 134.2% in 2020 and 20.88% YTD. The top performers in July were Nibe Industrier (up 14.2% in the month, YTD up 52.47%), Landis+Gyr (up 10.68% in July, YTD up 3.03%), Vicor Corporation (up 9.33% in the month, YTD up 25.36%), Ameresco (up 9.26% in July, up 31.18% YTD) and Alfen NV (up 7.94% in July, up 2.91% YTD).

Source of all data: iClima/ Bloomberg. Past performance is no guarantee of future performance. Data as of 31.07.21. Please note that all performance figures are showing net data. 

 

iClima Distributed Renewable Energy Index Performance Table (As of 31.07.21)

 

1M

3M

6M

YTD

12M

SI

DGEN iClima Distributed Renewable Energy Index™

-0.52%

3.62%

3.82%

3.18%

117.70%

3.18%

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would likely have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/07/21. Please note that all performance figures are showing net data. 

 

Introducing DGEN’s 6 New Constituents – Charging Stations, Energy Storage and a Pure V2G Player

In July, 6 new constituents were added to the Green Energy ETF.

Charging networks are a relevant distributed renewable energy solution not because they are an enabler of faster EV adoption, but because the batteries inside BEVs can become a material source of clean energy storage. According to a new report by BloombergNEF[11], EVs could supply three times Germany’s peak power demand by 2040 if every vehicle was fitted with V2G technology. Four out of DGEN’s six new additions are players in this relevant segment. 

ChargePoint Holdings (CHPT, down 31.9%% in July, down 21.45% YTD) The California based EV charging company, operating since 2007, went public via a SPAC last September. The world’s largest EV charging business started trading at the NYSE at an initial value of $2.4 billion, while raising $500 million to fund additional US expansion as well as in Europe.[12] Original investors include Daimler, BMW, and Siemens. Solutions for businesses, fleets and individual riders integrating hardware, cloud services and support.[13] Currently with over 112K places to charge in North America, over 92 million charges have been delivered to date. The company has a market share of 73% of the Level 2 charging network.[14]

EVGo (EVGO, down 21.32% in July, down 21.32% YTD) The also California based EV charging company listed via SPAC last month. It is the largest fast charging DC network and first to be 100% powered by renewable energy.[15] Founded in 2010 by Texas based NRG Energy, it has over 800 fast charging locations in 65 metropolitan areas. EVGo has positioned as "OEM Agnostic"[16], able to charge any EV. While a Level 2 charging point at 7.68 kW charges a passenger car in 3.3 hours, a fast DC 50 kW charging point does it in 30 minutes.

Nuvve Holding Corp (NVVE, down 15.7% in July, down 14.96% YTD) Founded in 2010, also California based, Nuvve is a pure V2G player. The company’s cloud connected Grid Integrated Vehicle Platform (“GIVE”) transforms electric vehicles into grid assets. The company received funding from EdF back in 2017 and from Toyota and announced a SPAC in November last year.[17] The business combination completed in March, valuing the company at $104 million.[18] Nuvve’s solution makes EVs greener, aiming to allow EVs to become reliable, dispatchable and monetizable assets. A key first application is a fleet of school buses.[19]

Proterra (PTRA, down 35.53% in July, down 34.89% YTD) Founded in 2004 and also based in California, Proterra is an automotive and energy storage company, manufacturing electric transit buses and electric charging systems. It became listed via a SPAC last June. It has delivered over 650 electric buses, produced over 340 MWh batteries and installed over 50 MW of charging infrastructure.[20] Proterra Energy is one of the three business segments, it focuses on turn key charging solutions for commercial fleet and energy management, including V2G functionality.

Meyer Burger (MBTN.SW, down 17.82% in July, up 38.95% YTD) The German company has recently gone through a restructuring, repositioning from a supplier of production equipment to becoming a leading European manufacturer of solar panels and modules, targeting the premium residential market and small commercial solar rooftop behind the meter segments.[21] It has also accelerated its entry strategy into the US market, and announced the acquisition of IP for an innovative line of solar roof tiles.[22]

Stem (STEM, down 24.72% in July, up 0.22% YTD) Founded in 2009, the 5th California based new constituent delivers AI driven clean energy storage systems. It is the only listed pure player in terms of Storage Capacity Commissioned (over 600 MWh from 2014 to 2020, behind only Hyundai Electric, ahead of Tesla, NEC and Fluence Energy).[23] It went public via a SPAC announced in December 2020 that closed last April, valuing the company at $1.35 billion.[24] Its “energy storage as a service” are both in front of and behind the meter. Commercial and industrial customers achieve cost reductions via reducing their usage of power at peak times, while enabling the growth of onsite renewable energy generation while participating in the wholesale and grid services markets where available.

Past performance is no guarantee of future performance. Source of all data: Bloomberg. Data as of 30.07.21. Please note that all performance figures are showing net data. 

 

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