In today’s Issue:

  • Who are the bottleneckers of wind energy?
  • Do negative energy prices mean energy nirvana?
  • What would wind energy look like on a level playing field?

It’s not always clear who benefits from technological breakthroughs or economic trends. And yet, that’s precisely what investors need to figure out. Where does the buck stop? Who collects it?

Today, we’ll focus on the booming wind energy industry. A particularly confusing place for investors. Negative power prices, contracts for difference, crashing stocks and net zero by law – what does it all mean for your portfolio?

I don’t know. But some historical examples might help us figure it out…

They say you’re better off selling shovels and beer to those mining for gold, rather than joining in the rush. A good reminder that the obvious trade can be overvalued.

The steam engine was invented to pump water out of coal mines. But it was the railroad and shipping tycoons that figured out how to profit from it. Ironically, they used coal to boil water to move coal. Who could’ve seen that profit centre coming?

You might think of Amazon as an online retailer. But they’re actually making their big money on providing web services. Think of it as the engine and fuel tank of the internet. It’s where the internet itself was made profitable, while the rest of us fiercely compete on it.

Even investing itself can be more profitable for the asset managers than their clients. The best way to profit from financial markets can be to buy stocks in the companies running the thing.

The lesson is that it’s not always obvious who benefits in the end. And that the obvious usually doesn’t.

But there are signs you can look for.

Qui bono?

My favourite signal is called a “bottlenecker”. It’s the part of an industry which is hard to avoid and hard to replicate. That’s a recipe for sustained profits.

The obvious example is a patent. If you own an industrial process that is crucial to a product, you can capture the gains better than anyone else in the industry. If anyone else is making a profit, you can raise your prices. And the rest of the players in the supply chain can pay up or sod off.

Investors should also look for dodgy political relationships, like defence companies and pharmaceuticals have.

Then there’s scalability, meaning the ability to grow very fast. It’s bizarre that a pizza shop brand like Domino’s can be a top performing stock over the years. But they were the best at expanding on a rather old idea very fast.

Domino’s recently even set up near my home for the year, in rural Japan. Which begs the question, how much more can they grow?

Turning to the future, we face the same big questions and investment opportunities in all sorts of different industries…

Here’s the obvious one: who will benefit from AI?

Will it be the data centre providers, a bit like Amazon Web Services captured the gains from the internet by providing the data servers we all need? Will it be those who figure out how to include product placement advertising in AI programs? Will it be the first person to provide an un-biased AI?

You’d be surprised

But all that’s just the context. Today, I want to ask who benefits from the rollout of renewables in our energy mix. Because I think the markets are pricing in the wrong answer.

Wind energy’s bottleneckers

When I first met Nigel Farage, he told me a funny story from the campaign trail years ago. He was on stage, debating the UK’s Prime Ministerial hopefuls about wind energy. And it suddenly occurred to him what was really going on.

Each of the other candidates had a spouse or partner benefitting from the wind industry. I can’t recall the details. But they worked in the industry, or for firms that were lobbying or doing legal work there. That sort of thing.

Talk about an investment signal! It was a sign of what’s to come for wind in the UK. And wind stocks soared in the subsequent years.

It also tells you that the big gains in wind energy were captured by the political class. The fact that you’re reading this suggests you ain’t in it.

For advice on how to woo your way into a relationship with a high-ranking politician for the purpose of financial gain, click here. Please note, past performance is not indicative of future results…

Anyway, wind is big business these days. A remarkable political achievement in and of itself.

But with wind stocks in the dog house since last year, has the old gold rush curse struck again? And if it isn’t wind stocks themselves, who is really benefitting?

Something tells me wind farm engineers drink a lot less beer than oilmen and gold miners. No wonder Scotland has mixed feelings about going green.

Wind energy is cheaper than free, so who is profiting?

Right now, energy prices are occasionally dropping below zero in the countries that have rolled out of a lot of renewables. That’s because they tend to produce too much power at the same time.

It’s great news, really. Better than free power. But who benefits?

Renewables companies get paid regardless of the power price. A real humdinger of a bad policy. But the firms still managed to foul up the rollout of wind farms. As costs rose, their share prices crashed.

Is it the consumers who get access to cheap electricity?

The data definitely doesn’t say so. If anything, renewables are associated with higher electricity prices. That’s a bit odd. But nothing unusual to those who know a thing or two about bottleneckers. Profits can be shuffled around and show up in surprising places.

If someone is getting paid to consume energy…and we’re being charged painfully high prices for that same energy…someone must be raking it in.


Is it the battery companies that benefit? They can get paid to charge up at negative electricity prices and paid again for releasing their power when prices surge.

Not quite. According to a presentation I just watched by a friend Down-Under, it just doesn’t work that way. Battery companies are currently making almost all their money stabilising the power grid.

Renewables aren’t just intermittent over long periods of time. They also introduce problems in grid stability at the fraction of a second level. Because we can’t control renewables, we can’t use them to make the infinitesimal adjustments a power grid needs. Someone else has to do it for them.

An unstable power supply costs power users a lot. Large industrial machines especially require highly stable power, or they wear out years earlier than their salesmen claim. And I happen to know that power grids are failing to provide stable enough power. It’s even worse than the official government data claims.

What I didn’t know is that batteries are a good way to stabilise a grid at the fraction of a second timeframe. And power companies are paying battery firms a lot of money for the service already.

But they’re not yet making much use of longer-term storage. At least, not in a profitable way for the battery companies.

There are two ways to frame this. You could argue that battery companies are not a good way to profit from wind energy’s instability. Or you could argue that most of battery companies’ profit making potential isn’t being used, yet.

Another angle is the grid itself. That’s the route we’re taking in The Fleet Street Letter. A renewable based grid needs a vast amount of electricity infrastructure. Which is expensive for some. And profitable for others.

Reverse psychology investing

Recently, it’s been quite clear who has benefitted most from the renewables boom. Nuclear power stocks have surged in value as renewables crashed. There’s nothing like relying on intermittent power to make you appreciate the value of baseload.

How do you align your portfolio to make the most of renewable energy’s flaws? By buying these carefully chosen nuclear power industry stocks.

Let me know where you think wind power profits will truly lie. [email protected]

Don’t forget to include permission to publish.

Until next time,

Nick Hubble
Editor, Fortune & Freedom