The exhibit below summarizes well one of the primary concerns that we have with some of the very ambitious goals for decarbonizing power grids, EV introduction, the further electrification of industry, and hydrogen. While the solar module price increase does not look that significant (yet), to put it in context, solar module prices have collapsed from over $1.80 per watt in 2010 to below $0.20 in 2020, and many of the expectations around cheap hydrogen require the cost to keep falling. The bigger concern is the polysilicon price, which is up 160% this year, good for the polysilicon producers like Wacker (see the headline here), but bad for the solar module producers, who are seeing major margin squeezes, especially given the rise in copper and silver as well this year. The raw material pressure should drive further increases in solar module pricing and while the higher margins for polysilicon will likely drive expansion investment, the metals are harder to call, given the ESG views on mining. We remain firmly of the view that raw material availability and price inflation, as well as module and wind turbine manufacturing capacity, will be the rate-determining constraint in terms of the growth in renewable power and this is why we question all of the near-term cheap power and cheap hydrogen goals that are being suggested by potential producers and government agencies.
Source: Bloomberg, C-MACC Analysis, June 2021
Separately, while we have to applaud the LyondellBasell move of biofuel-based polymers (and the company in general for its many recyclable/renewable initiatives), we would highlight our ESG and Climate report from yesterday and specifically the second section on biofuels. Biofuels are an urgent need for airlines, given that effective electrically powered or hydrogen-powered commercial flight is decades away. If polymer buyers are willing to pay more for renewable-based polymers, they will be competing with the airlines for a potentially scarce resource. This will get worse if biofuels get more interest as a diesel replacement, especially if hydrogen underdelivers on a cost basis – see today's report and yesterday’s report. We are increasingly convinced that biofuels are a glaring investment opportunity and if we made stock recommendations both Gevo and Aemetis would be on the list, as discussed yesterday.