While electric vehicles, batteries, solar panels, and windmills dominate the headlines around the energy transition, they are only a fraction of the whole project. Boring bits of the system may do just as much to propel the transition forward - and we believe the companies that provide them may be much more attractive investments. Although our Funds don’t have sustainability objectives, the Orbis portfolios currently own a number of stocks and bonds of companies which play at least some role in the energy transition.
To sketch out how the parts of the value chain—and how some of Orbis’s portfolio companies within it—fit together, let’s start with a typical offshore wind project - the Galloper wind farm off the eastern coast of England.
An integrated approach
The core of the project is 56 windmills built and maintained by Siemens Gamesa, a unit of Siemens Energy. Helix, which operates a fleet of undersea robots and support ships, conducted the undersea trenching and burial work for the 56 cables connecting those turbines to an offshore substation, and Prysmian, a power and telecommunication cable manufacturer, provided some of the high-voltage cables to connect the project to adjacent windfarms and then 45 kilometres back to shore.
As the world adopts broadly dispersed power farms located far away from cities, our energy system will become much more cable intensive. Cables can represent a quarter of the cost for an offshore wind project, and clean energy will need 50m miles of new cables across the world.1 That is good news for Prysmian, which is the largest of only three major Western firms with the specialised factories to make those cables and the specialised ships to lay them. All that underwater work also augurs well for Helix. It turns out that the skills (and robots) that are useful for servicing offshore oil wells transfer quite well to servicing offshore wind farms.
Upgrading the electric grid
Wind farms are not the only source of growing cable demand. Existing grids need cables too, in part because the world’s electric grids are ageing. On average, grid equipment in the US and Europe is older than it was ever designed to operate - in some places, people are charging Teslas using cables installed before World War Two. The US Department of Energy believes grid infrastructure will need to be expanded by 60 per cent by 2030.2 Globally, that translates into $650 billion of estimated grid investment every year, double the level of recent years.3
A system juggling intermittent power sources, batteries, home solar panels, power-hungry artificial intelligence data centres, and electrified cars and factories will be both more burdened and more complex than the grid is today. More electricity needs to travel longer distances in more directions to more locations, and Siemens Energy and Mitsubishi Heavy Industries (MHI), which both make electricity transmission and distribution equipment, are well placed to provide the increasingly sophisticated transformers, switchgear, converters, and substations the new grid will require.
Beyond the grid
Intermittency (power sources that are not always on) poses challenges beyond just grid infrastructure. As systems become more reliant on wind and solar power, they need to keep the lights on when the wind isn’t blowing and the sun isn’t shining.
Drax, a UK power generator, provides reliable baseload electricity, as it can run its biomass plant 24/7. Drax also plays a role in energy storage with its elegantly simple “pumped hydro” facility in Scotland. When power is plentiful and cheap, Drax uses electrical pumps to move water uphill into a reservoir, then later lets it flow back downhill through turbines when power is scarce and better priced.
