I’m watching the news about the Russian invasion of Ukraine. It’s surreal. Sending out a newsletter about business and investments feels trivial...
Elections, energy, and the necessary evil
Fossil fuel investors are profiting from a surge in global commodity prices triggered by supply chain issues and Russia’s invasion of Ukraine.
Last week, I had an interesting catch-up with a tech investor who told me the story of a recent dinner he had with a few friends. While enjoying the meal, he brought up what a horrible market it was, but it had slipped his mind that his friends were in the oil, gas, and commodities sectors. The friends promptly ordered champagne and said dinner was on them.
Fossil fuel investors are profiting from a surge in global commodity prices triggered by supply chain issues and Russia’s invasion of Ukraine. Even Warren Buffett announced large investments in Chevron and Occidental Petroleum, while developed countries around the world scrambled for alternative sources of energy as they try to reduce reliance on Russian supplies. The disruption has brought the focus back on the need for coal, the dirtiest fossil fuel, which one global leader had vowed to phase out to cut emissions. Despite this, global coal demand is expected to rise to a record level in 2022 and stay there through 2024, according to the International Energy Agency.
Ironically, without coal, energy prices and inflation would be even higher and wreaking greater havoc on standards of living globally and further increasing the chances of a global recession. Another glass-half-full viewpoint is that energy security and high energy prices are accelerating at the pace of investment into green energy and climate tech. Looking at the whole, it appears we are at a critical moment: where international energy and economic policy collide and force us to reassess the short-term necessarily evil of modern fossil fuel dependency.
Climate change has turned out to be the deciding factor in the Australian election.
Anthony Albanese led Labor to victory with a promise to end Australia’s decade-long climate wars and a pledge to deliver bigger cuts to greenhouse emissions than the Morrison government. But it was the “teal” independent candidates that delivered the most damage to the Liberal-National coalition government, turfing Liberal MPs out of six formerly blue-ribbon seats across the country. Twenty-teal independents campaigned with climate change ranked as the number one concern for voters in their electorates – ahead of justice for women and integrity in politics.
Most of the teal Independents are women, who received a groundswell of support from community members. During their campaigns, they received millions of dollars in funding from individual donors and Climate 200, a group set up by Simon Holmes à Court, the son of Australia’s first billionaire and a clean-energy investor. The Greens were also rewarded for their supercharged climate policy, including a goal to hit net zero greenhouse emissions by 2030 and end coal and gas exports by 2030.
Meanwhile, in the Australian private sector, one of the world's richest tech moguls, Mike Cannon-Brookes, is locked in a different kind of election: a battle with AGL’s board to scuttle AGL’s demerger plans. After his initial plans to take over AGL were rejected twice, his private investment company, Grok Ventures, emerged with an 11.28% stake in AGL – making it AGL’s largest shareholder with intentions to vote against AGL’s demerger plans.*
Cannon-Brookes believes keeping AGL as one firm would enable the company to transition to net-zero faster. He argued that the demerger plan would only result in two weaker, interdependent companies. "We are at a critical point in Australia's energy transition, and in AGL's future. This is about delivering cheap, reliable, and clean energy to millions of families and businesses,” Cannon-Brookes said. “We believe by keeping the company together, AGL can continue its long and proud history as a pioneer through energy market transitions."
There are approximately 150,000 shareholders in AGL, most of which are retail investors. Retail shareholders typically follow recommendations made by the board of directors. Considering this, as well as the impacts of the federal election and macroeconomic conditions, it will be interesting to see the outcome of the vote on June 13. considering the outcome of the Australian Federal election, the likely impact on energy prices of a faster transition to net zero for AGL and the impact on shareholder returns.
The Russia-Ukraine war and sky-high energy prices are making it an even more compelling push for investments in green energy and climate tech.
Within the energy industry, expectations are on the rise for large, capital-intensive green projects to be approved. Almost half of the industry expects their organisations to increase capital expenditure in the coming years. A high amount of energy companies are targeting green hydrogen for increased investment this year, followed by solar, offshore wind, and carbon capture and storage.
In 2021, climate tech startups raised ~$40b across 600+ venture deals. Investment in 2H’21 doubled dollars deployed in the prior period with funding rising steadily ~20% quarter on quarter. Early-stage deal activity also boomed in 2021. New climate companies were minted faster than ever before as Seed and Series A deals accounted for >60% of all activity. As expected, Seed-stage rounds accounted for <2% of all funding but recorded ~30% of all deals. The market is expanding, and quickly.
Noting this, it is clear energy transition is vital. Sustainability will continue to be at the forefront for years to come. However, to avoid economic disaster, it will need to be a careful balancing act in the near-term economic environment with inflation skyrocketing. We have hope that the boom in fossil fuels is a necessary evil so that we can accelerate to a more sustainable future.
*Editor’s note: This piece was written before reports that the AGL demerger may be cancelled. Read the latest here.