Tidal Power - How To Invest In The Next Major Renewables Market

|
Includes: BEP, FB, INGXF, UN, XOM
by: The Value Portfolio

Summary

The world's appetite for power is growing and climate change is having an increasingly negative effect on our planet. As a result, renewable energy demand should grow rapidly.

A recent tidal power started up in South Korea several years ago has shown the ability to be cost-effective compared to coal after only 4 years.

I recommend investing in two major hydropower companies in North America. These are companies that have the experience and the billions of dollars to take advantage of tidal power.

Introduction

Tidal power is a form of renewable power generation that uses the regular tides to form electricity. Despite being non-existent in this market, tidal power has the potential to grow a large market. With the world demand for power growing rapidly, and countries in the need of a cheap and renewable source for electricity production, tidal power, as we will see, has the potential to become a big deal.

South Korean Tidal Power Station - Digital Insight Research

The feasibility of tidal power can be seen with the Sihwa Lake Tidal Power station in South Korea built at a cost of $1 per megawatt of production potential. Currently coal costs an average of $109 per megawatt-hour to produce. Given that last year, the Sihwa Lake Tidal Power station produced roughly 2150 megawatt hours per megawatt hour of production potential, that means that tidal power is cost effective with coal after just 4.3 years.

This shows the low cost power production potential provided by tidal power.

Our Need For Renewable Energy

The world consumes a massive amount of energy. However, not only does the world consume a massive amount of energy, but worldwide energy demand is anticipated to grow rapidly. This is anticipated to be the result of increasing industrialization in major third world countries with large populations, countries in Africa like Nigeria or the Democratic Republic of Congo.

Evolving Energy Mix - Institute For Energy Research

This image from Exxon Mobil (NYSE: XOM) shows how rapidly energy demand is expected to grow across the world. Oil demand is expected to increase by 0.7% annually, while natural gas demand is anticipated to increase by 1.7% annually. Together these two forms of energy are anticipated to see demand for them grow by more than 100 quadrillion BTUs annually.

Coal, the most polluting form of energy on this list, is anticipated to see demand remain flat, while nuclear power and other renewables are also anticipated to see respectable growth. In fact, by 2040, Exxon Mobil anticipates renewable energy will provide the world with roughly 200 quadrillion BTUs in annual energy production.

However, there is a problem here, a problem that needs to be solved. And that is climate change.

Climate Change - Science Score

Climate change is the process of the world changing as a result of human activities. Every day, humans are pumping millions of tons of chemicals into the world, chemicals that are having an irreversible effect on the world. And despite a disagreement among the public, more than 97% of trained scientists agree that humans are causing global warming.

Industrialized nations are not going to pay attention to fads from people on Facebook (NASDAQ: FB) about whether climate change is real. They're going to listen to scientists, and hopefully, take proactive actions. According to the U.N., human's are locked on an irreversible path with climate change anticipated to have a very negative effect.

One of the best ways for the world to solve this is by turning away from polluting forms of electricity production such as coal. As climate change is becoming a bigger deal, companies like Unilever (NYSE: UN) have announced goals to do their part. Unilever alone plans to be on 100% renewable energy by 2030. This will require significant investment, investment which could be put into a rapidly growing tidal power industry.

Could Tidal Power Work?

So far, we have discussed our need for energy as the world's energy demand is growing. At the same time, we discussed our rapidly growing need for renewable energy, energy that might come from tidal power.

Tidal Power - I Slay Energy Trust

Tidal power plants are like giant, spread out, hydroelectric power plants. In high tidal environments, oceans move inland and back out, due to the moon's gravity, twice a day like clockwork. Free, predictable power. Power that is noticeably more predictable than both solar and wind. And predictable power is essential to using this as a power source, because knowing when the power is produced allows us to plan to take advantage of it.

Tidal Energy Markets - Stanford

Across the world, there are numerous offshore regions with significant tide potential. Most importantly, some of these markets are near major sources of electricity consumption such as western Europe and western Central America. Another important region of potential, is Eastern Africa. Africa is full of huge numbers of people and countries that are being rapidly industrialized.

By taking advantage of tidal power from the coast of east Africa, Africa could have access to cheap, reliable, renewable electricity. Most importantly, this electricity would have minimal day to day expenses instead favoring a one-off large capex investment upfront. This makes it easier for countries to attract investors to tap into this source of electricity.

Worldwide, the nearby offshore tidal stream has been predicted to be able to theoretically supply 150 terawatts of electricity annually. Given the annual electricity production of the world is roughly 20 thousand terawatts, tidal power has the potential to produce 1% of the world's electricity. 1% of the world's electricity consumption represents a market worth billions of dollars, a market with significant earnings potential.

Invest

So far, we have discussed our growing need for electricity along with the growing need for renewable energy as a result of climate change. In the introduction, we saw that a new major tidal installation in South Korea will break-even with coal after just over 4 years. After running for just under a decade, a tidal power facility will have produced electricity and half the cost of a coal plant.

And it would do that without polluting the world significantly. As we saw above, this renewable energy, which is almost non-existent today, has the potential to generate 1% of the entire world's electricity. This is worth billions of dollars in investment and earnings, and as investors, you could make a significant amount of money investing on the ground floor of this.

The way I recommend taking advantage of this investment is by investing in hydroelectric power. Already, hydroelectric power makes up several percent of the world's production. More so, given the similarity of these two forms of electricity production, these companies already have the technology to move into what could be a multi-billion dollar tidal power market.

Hydroelectric Electricity Generation - Daily Trust

Brookfield Renewable Energy Partners (NYSE: BEP) and Innergex Renewable Energy (OTCMKTS: OTCPK:INGXF) are both multi-billion dollar renewable energy companies with a multi-billion dollar market cap. At the same time, both of these companies have respectable cash flow with dividends in the mid-single digits. These dividends will provide you, as an investor, dividends as you wait for the tidal energy market to grow.

Brookfield Renewable Energy Partners is a company that owns four hydropower plants in the southeast region of the United States. The company also has additional facilities in South America and Europe. As a result, the company impressive experience in the renewable markets and strong cash flow. Brookfield Renewable Energy Partners could choose to use this strong cash flow to invest in tidal power providing the company with future income.

Innergex Renewable Energy is a North American leader in renewable energy with significant renewable assets in hydro, wind, and solar power. The company also provides investors with a respectable dividend in the mid-single digits and is a multi-billion dollar company. Given the company's dominance in North American renewables, the company can use its multi-billion in earnings to invest in tidal powers.

Both of these companies are companies with strong renewable assets looking to increase their cash flow. Given the multi-billion dollar assets of these companies and their desire for future earnings, these are both also companies that have the ability to make significant investments into tidal power. Such investments could provide these companies with future long-term earnings.

And this shows an impressive way to invest in the growth of tidal power.

Conclusion

The world is at a dangerous crossroads. We are at a place with rapidly growing energy consumption, yet also a place where we will need to decide if we want to produce renewable energy and let the world live or, or use coal and watch as we suffocate it and ourselves. With increasing numbers of scientists and lawmakers realizing this, renewable energy production is anticipated to grow rapidly.

Tidal power might be a solution to our renewable energy needs. A recent test plant in South Korea has shown the ability to compete with coal after just over 4 years of production. Tidal power also has significant resources available across the world. The two best ways I recommend to invest in tidal power are Innergex Renewable Energy and Brookfield Renewable Energy Partners. Both of these are companies that offer investors a respectable dividend to wait while also having billions in assets.

Given the potential of tidal energy, these are both companies that have the ability and might choose to invest hundreds of millions of dollars in it, providing themselves with long-term earnings growth.

Disclosure: I am/we are long FB, BEP, UN, XOM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.