Per Capita’s David Hetherington writes in today’s AFR. "Forget the blue-chip shares, opt instead for the sun’s rays. It’s a far better deal." p59 http://bit.ly/khD4ng (subscription required).
Unedited version:
Is Ross Garnaut right to suggest that big business in Australia is anti-reform? Are we foregoing innovation opportunities because business has “returned to old type” of the pre-reform era?
Let’s test the proposition on one proposed innovation which holds iconic status in the battle between skeptics and Greens: solar power. Writing in the Herald Sun this week, Andrew Bolt decries the appeal to solar, observing pithily that solar power stops when the sun don’t shine.
Yet what if innovation can detach solar from its reliance on green credentials? If you look at solar power from entirely another perspective it makes enormous financial sense for a growing part of our population, independent of its sustainability.
For emerging ‘solar plus storage’ technologies for homes and small businesses offer a new investment class that is more profitable than BHP Billiton shares and safer than bank shares. Tosh? Let’s see.
The first great law of technological change is that the existing players, no matter how big, how successful, universally fail to make the change to new disruptive technologies. Flown on a Cunard airliner lately? Booted up your RCA Victor computer? Used a Bell mobile phone?
At the moment we see newspapers and recording industries being undermined by the Internet. In the past railways and steamships yielded to aeroplanes and cars. It will happen in the electricity industry too, no matter how many times they are warned they will still be shocked to discover their bread and butter business is disappearing, just like the traditional telcos were shocked when punters abandoned land lines.
When you buy electricity for your home it costs around 23 to 27 cents per kilowatt hour plus supply charges. But the wholesale price of power at the power station is only around 3.3 cents. So the distribution increases the cost 800% or more. So the problem is not one of supply but distribution. And most of the money needed for the power industry in the next 10 year is not for generation, it is for wires.
Even Mr Bolt would agree that large bits of Australia are very sunny. In many locations, the cost of carbon-neutral solar power from the sun, falling on the roof of an Australian home is cheaper than electricity coming down the wire. This is because the price of solar panels and storage batteries are falling rapidly in part due to technology, but also increased supply and lastly, the exchange rate. It just depends on how you look at the cost.
Consider what Australian investors need over the next 20 years. The post-war baby boom and the superannuation industry mean that an enormous number of Australians are already, or will become, self funded retirees in the next 10 years. What they need are safe, high yielding, stable, inflation-proof investments.
If you buy property you have to face the prospect that Australia's property market is unlikely to continue to grow at its recent rate. On present indications, it might even fall. So too it is unlikely BHP will always enjoy such halcyon commodity prices and terms of trade. The Chinese aren't franticly building mines in darkest Africa for no reason. One thing we can say for certain is that power prices are going to rise. The other great certainty is tax.
So our self-funded retiree has to invest their lump sum and first pay tax on the dividends, then pay their power bills. If your power bills are $1,000 a year and you pay them with after-tax money earned from BHP dividends today you need $47,000 of BHP shares just to pay your power bill. And if the price of iron ore in China falls (not something you have a lot of control over) you will need even more shares to pay the bills. Investment property returns are not much better.
So it seems to Per Capita a sensible option is to take some of this lump sum and invest instead in solar panels, whack them on your roof (a place over which you do have some control) and put a battery in your garage.
Two kilowatts of solar panels on your roof in the most parts of Australia will make $1,000 of power a year. These 2KW panels cost a lot less than $47,000 of BHP shares - and when the price of iron ore falls in China, you don't care. When the price of conventional power rises due to inflation (and it is predicted to skyrocket), you still don't care.
For the sake of argument let’s say you can install 2kw panels with batteries for $15,000.
So an investment of $15,000 will save you $1,000 of power bills per year. This is a 6.7% return, but you don't pay tax on savings so would need to earn 9.5% on shares or rental property to match this rate (if you are paying 30% tax)
To match this your BHP shares would also have to yield 9.5% (instead of 3.0%), with dividends increasing at the same rate as electricity prices. That’s not going to happen.
These calculations assume no bounties, no feed-tariffs, nothing. If these extras are available, they simply make the economics better.
And happily, all this saves the planet since solar power is essentially free of carbon emissions.
It begins to look like you can have your can have your cake and eat it too.
This kind of direct action has three huge benefits: it reduces household Co2 emissions to nearly zero at zero cost; it takes load off the grid, so saves the nation money; and it future-proofs one small aspect of retirement. It just needs an innovative approach to market design and secured financing that seems beyond some of today’s business leaders.
No comments:
Post a Comment