My legacy investments in oil and gas are admittedly a value-destroying mess, caused by my stubborn belief that cycles come and go and that the world is still too dependent on fossil fuels to be weaned off right now. I am not a climate change denier, but I think that liquefied natural gas (LNG) has still an important role to play while we progress towards carbon neutrality, and that cleaner fuels are better than dirty ones. And I believe that divestment will not stop anything, only the law and the market will.
I am flabbergasted by the unqualified support given to some forms of ‘sustainable’ electricity generation, no matter how harmful. The incineration of ancient forests in the form of wood pellets, or the use of ever growing swathes of agricultural land for the production of ‘bio’ fuels look dubious or even outright stupid to me, like declaring the burning of whale fat to be carbon neutral. And the ‘green washing’ of conventional electricity by buying offsetting certificates is just that: green washing. It doesn’t make the smokestacks less harmful, it only hoodwinks the consumer.
Manufacturers of wind turbines and solar panels and companies generating electricity from both became darlings of environmental, social and corporate governance (ESG) investors, increasingly so since COVID rattled the markets. Whenever I looked at the likes of Orsted or Iberdrola, they seemed too expensive. Yet they have only appreciated in value since. Morally and financially I began to regret not having joined the frenzy earlier.
Hoping for an accelerated transition to renewable energy generation I would be an unqualified supporter of solar and wind power. Yet to see the problems with both I did not have to wait for Michael Moore’s Malthusian pseudo-documentary Planet of the Humans, in which he so irresponsibly vilified the “greedy green lobby”.
Solar panels are built from the same materials as our cell phones and computers. Some of the stuff is gruesome to mine, some is dangerously toxic, and all ends in landfills once the PV units have reached the end of their useful lives, destroyed by storms, hail and the destructiveness of UV light. Solar panels, even when not damaged, hardly last for more than 20 years when they start to malfunction. Dumped on a rubbish tip their toxic content is flushed into the ground water. Recycling of PV cells, alas, is expensive and as a line of business not meaningfully developed.
For Malta, the disadvantage of installing solar farms becomes easily apparent, as they occupy vast terrain, vying for space with green zones, agriculture and building works. We might have a friendly sun in abundance, but other than on rooftops, PV panels have nowhere to go.
Investors seem convinced that being loss-making and burdened with debt counts for little if we’d wish for a greener future
Wind turbines would be a viable option though, if erected offshore rather than on agricultural land, as our tourism industry depends on what little of unspoiled vistas is left by the construction madness. Alas, 136-metre-towers look anything but romantic to holiday makers whose money we depend upon.
My family owns a summer house on Kithira, an island south of the Peloponnese. Goaded by the EU and a rather Levantine business attitude, there are plans to transform large parts of this island into a wind farm. I strictly oppose nimbyism, the stance to put the burden for the common good in someone else’s back yard. But to put turbine towers on an otherwise pristine island, without high-rises or any industry, will put an undue burden on a population that inhabits a territory the size of Malta with merely 3,000 olive farmers and apiarists living on it. Their sole island ‘export’ is tourists who come in summer, bringing money and now COVID. These visitors will not easily be tempted to hiking and exploring in an outsized industrial park.
The devastation caused by the erection of wind turbines, dwarfing the land and the quaint villages in their surroundings, will be irreversible. A new harbour will have to be built to unload the oversized building blocks of masts and rotor blades. Roads will have to be cut through a wilderness of heather and thyme, wide and straight enough to accommodate the flat-bed trucks. The foundation of each of these few hundred, already licensed towers requires 570 cubic metres of concrete alone, the equivalent of 60 truck-loads, or the volume of 12 standard-sized swimming pools.
The business model of the wind companies in Greece, both domestic and international, has Maltese characteristics: up to 50 per cent of the investment is paid for by the public at the time of installation, probably covering the total of the real costs, while the generated electricity is sold in advance, at fixed, feed-in tariffs way above market prices for 10 to 20 years. Of course, the companies make a killing and cannot be bothered to maintain the turbines beyond their financial usefulness, or to god-may-forbid carry the decommissioning costs. The out-of-order masts will stand as a monument to the glory of easy profit. To us in Malta this will sound familiar.
The producers of wind turbines and solar panels, and the companies generating renewable energy based on both have - since the total collapse of the stock markets in March – astonishingly risen in value over the last six months. Jinko Solar Holding, for instance, a Chinese manufacturer of silicon wafers, solar cells and solar modules worth USD 3.6 billion, has gained 530 per cent since its trough in March.
Jinko’s Canadian peer, Canadian Solar, which is Chinese in all but name, looks more modest in comparison. Smaller in size than Jinko, it is more reasonably priced, at 12 times earnings, or 75 per cent of annual sales. Having similar debt and profitability, it gained ‘only’ 120 per cent in the course of a year. This does not very favourably compare to my investments in BP, Shell or Exxon indeed.
The behemoths of sustainable power generation are Iberdrola of Spain, and Orsted of Denmark, a former oil and gas company which is now exclusively focused on wind generation. They are worth €70 billion and €56bn respectively.
Both generate green electricity, but differ somewhat in their financial performance: Iberdrola has less debt, a profit margin of 10.75 per cent but an investment induced, negative cash flow. Orsted has a negative profit margin in excess of -18 per cent, caused by a COVID-related demand drop and excess generation. Both are investing heavily, which results in painful financial costs for Orsted. Its shares are priced 80 times earnings, or seven times sales, which is a very optimistic vote of confidence. Orsted’s shares have risen 70 per cent; Iberdrola’s 30 per cent.
The producers of their gear, Vestas Wind Systems, worth €29 billion, and Siemens Ganesa, valued at €17bn, have both risen more than 100 per cent within a year. Investors seem convinced that being loss-making, as both are, and being burdened with disproportionate debt and a negative cash flow counts for little if we’d wish for a greener future.
I would very much like to agree, but fear for my money.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.
Andreas Weitzer, independent journalist based in Malta
andreas.weitzer@timesofmalta.com