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Electric dreams: autos disruption and energy storage potential

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Nick Anderson & Hamish Chamberlayne, portfolio managers for Henderson’s Global SRI strategy, discuss ‘electrification’ and why it could be one of the most powerful disruptors for the autos market and for energy storage companies.

Whether the established car companies want to accept it or not, the recent scandal surrounding Volkswagen may only just be the beginning of an increased regulatory burden for emissions-producing vehicles. Climate change has the potential to be one of the most defining investment issues of our times: currently transport contributes to 23% of global greenhouse gas emissions, making it a significant target for government curbs. This risk presents an opportunity for companies at the forefront of pioneering new energy technologies.

Driving a change in leadership within autos

We believe that ‘electrification’ will become the most powerful disruptor in the autos market. The advances in lithium-ion (Li-ion) battery technology mean that fully electric vehicles are becoming a more viable option for the average consumer in terms of cost, range (distance per charge), and driving experience (eg, low noise, zero emissions, greater internal space), such that they could threaten the dominance of combustion engines and traditional auto manufacturers within the next 10 years.

We think the most exciting entrant into the market is California-headquartered Tesla Motors, incorporated in 2003 with the primary goal of accelerating the adoption of sustainable transport by commercialising electric vehicles – initially for the luxury segment but with ambitious expansion plans for the mass market. Electric cars are on a declining cost curve, as battery technology becomes cheaper, whereas traditional cars are on a rising cost curve as environmental legislation and emissions regulations become tighter. Crucially, Tesla’s battery costs are expected to decline by up to 60% over the next five years.

Tesla and Panasonic: a powerful partnership

Tesla is planning to increase its vehicle production to a staggering 500,000 cars per year by 2020. In order to secure sufficient battery supplies, it is partnering with Japanese electronics giant Panasonic in building a ‘gigafactory’, which will double global Li-ion battery manufacturing capacity. Due to begin commercial production in 2016, the Nevada facility will be powered by renewable energy, allowing it to be a ‘net zero energy’ factory. The completion of the gigafactory, together with Tesla’s expansion plans into energy storage solutions for utility providers (electric grids) and the home market, is a significant source of upside for both Tesla and Panasonic, both of which we hold in our global portfolios.

Increased efficiency for electric grids

The economics of using batteries for energy storage is becoming even more compelling as the world transitions to a lower carbon economy. One of the key hurdles in the past has been the cost of storage solutions, but advancements in Li-ion chemistry and increased manufacturing capacity, which yields economies of scale, are continuing to drive down prices.

The main buyers of Tesla’s rechargeable ‘Powerpacks’ are expected to be large industrial customers. Utilities are a key market because storage solutions enable the more efficient use of energy already generated; they are better at meeting customer demand at peak times and do not waste generated energy at times of lower demand.

What makes Tesla’s Li-ion batteries really attractive for industry is that they are compact – for example, they fit into existing substations without necessitating additional land purchases – and they are very quick and easy to install. They also partner perfectly with renewable energy technologies – as they help smooth the peaks and troughs associated with variable output from solar and wind farms. Considering all of these benefits, it is perhaps not surprising that Tesla’s CEO, Elon Musk, has said that half of the world’s power plants could potentially be shut down by effective stationary storage.

Climate change to continue to impact profitability

At present Tesla sits within our Sustainable Transport theme, but given the possible growth in demand for its energy storage solutions, there could well be a case for it moving to the Cleaner Energy theme as time progresses. Regulatory and technological risks associated with climate change are already beginning to impact capital market returns, and we think this will continue – as shown in the chart below by the rising share price of firms developing new technologies such as Tesla, and the falling prices of carbon producers, such as US coal company Peabody Energy.

Chart: disruption and carbon risk – already here

Henderson EV disruption and carbon risk – already here

Source: Henderson Global Investors, Datastream, data as at 30 September 2015. Past performance is not a guide to future performance. References made to individual securities do not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security.

Important Information: Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing.

Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ref: 34U

 

 

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Energy

Is Wood Burning Sustainable For Your Home?

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sustainable wood burning ideas

Wood is a classic heat source, whether we think about people gathered around a campfire or wood stoves in old cabins, but is it a sustainable source of heat in modern society? The answer is an ambivalent one. In certain settings, wood heat is an ideal solution, but for the majority of homes, it isn’t especially suitable. So what’s the tipping point?

Wood heat is ideal for small homes on large properties, for individuals who can gather their own wood, and who have modern wood burning ovens. A green approach to wood heat is one of biofuel on the smallest of scales.

Is Biofuel Green?

One of the reasons that wood heat is a source of so much divide in the eco-friendly community is that it’s a renewable resource and renewable has become synonymous with green. What wood heat isn’t, though, is clean or healthy. It lets off a significant amount of carbon and particulates, and trees certainly don’t grow as quickly as it’s consumed for heat.

Of course, wood is a much less harmful source of heat than coal, but for scientists interested in developing green energy sources, it makes more sense to focus on solar and wind power. Why, then, would they invest in improved wood burning technology?

Homegrown Technology

Solar and wind technology are good large-scale energy solutions, but when it comes to small-space heating, wood has its own advantages. First, wood heat is in keeping with the DIY spirit of homesteaders and tiny house enthusiasts. These individuals are more likely to be driven to gather their own wood and live in small spaces that can be effectively heated as such.

Wood heat is also very effective on an individual scale because it requires very little infrastructure. Modern wood stoves made of steel rather than cast iron are built to EPA specifications, and the only additional necessary tools include a quality axe, somewhere to store the wood, and an appropriate covering to keep it dry. And all the wood can come from your own land.

Wood heat is also ideal for people living off the grid or in cold areas prone to frequent power outages, as it’s constantly reliable. Even if the power goes out, you know that you’ll be able to turn up the heat. That’s important if you live somewhere like Maine where the winters can get exceedingly cold. People have even successfully heated a 40’x34’ home with a single stove.

Benefits Of Biomass

The ultimate question regarding wood heat is whether any energy source that’s dangerous on the large scale is acceptable on a smaller one. For now, the best answer is that with a growing population and limited progress towards “pure” green energy, wood should remain a viable option, specifically because it’s used on a limited scale. Biomass heat is even included in the UK’s Renewable Heat Initiative and minor modifications can make it even more sustainable.

Wood stoves, when embraced in conjunction with pellet stoves, geothermal heating, and masonry heaters, all more efficient forms of sustainable heat, should be part of a modern energy strategy. Ultimately, we’re headed in the direction of diversified energy – all of it cleaner – and wood has a place in the big picture, serving small homes and off-the-grid structures, while solar, wind, and other large-scale initiatives fuel our cities.

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Energy

7 Benefits You Should Consider Giving Your Energy Employees

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As an energy startup, you’re always looking to offer the most competitive packages to entice top-tier talent. This can be tough, especially when trying to put something together that’s both affordable but also has perks that employees are after.

After all, this is an incredibly competitive field and one that’s constantly doing what it can to stay ahead. However, that’s why I’m bringing you a few helpful benefits that could be what bolsters you ahead of your competition. Check them out below:

Financial Advising

One benefit commonly overlooked by companies is offering your employees financial advising services, which could help them tremendously in planning for their long-term goals with your firm. This includes anything from budgeting and savings plans to recommendations for credit repair services and investments. Try to take a look at if your energy company could bring on an extra person or two specifically for this role, as it will pay off tremendously regarding retention and employee happiness.

Life Insurance

While often included in a lot of health benefits packages, offering your employees life insurance could be an excellent addition to your current perks. Although seldom used, life insurance is a small sign that shows you care about the life of their family beyond just office hours. Additionally, at such a low cost, this is a pretty simple aspect to add to your packages. Try contacting some brokers or insurance agents to see if you can find a policy that’s right for your firm.

Dedicated Time To Enjoy Their Hobbies

Although something seen more often in startups in Silicon Valley, having dedicated office time for employees to enjoy their passions is something that has shown great results. Whether it be learning the piano or taking on building a video game, having your team spend some time on the things they truly enjoy can translate to increased productivity. Why? Because giving them the ability to better themselves, they’ll in turn bring that to their work as well.

The Ability To Work Remotely

It’s no secret that a lot of employers despise the idea of letting their employees work remotely. However, it’s actually proven to hold some amazing benefits. According to Global Workplace Analytics, 95% of employers that allow their employees to telework reported an increased rate of retention, saving on both turnover and sick days. Depending on the needs of each individual role, this can be a strategy to implement either whenever your team wants or on assigned days. Either way, this is one perk almost everyone will love.

Health Insurance

Even though it’s mandated for companies with over 50 employees, offering health insurance regardless is arguably a benefit well received across the board. In fact, as noted in research compiled by KFF, 28.6% of employers with less than 50 people still offered health care. Why is that the case? Because it shows you care about their well-being, and know that a healthy employee is one that doesn’t have to worry about astronomical medical bills.

Unlimited Time Off

This is a perk that almost no employer offers but should be regarded as something to consider. According to The Washington Post, only 1-2% of companies offer unlimited vacation, which it’s easy to see why. A true “unlimited vacation” program could be a firm’s worse nightmare, with employees skipping out every other week to enjoy themselves. However, with the right model in place that rewards hard work with days off, your employees will absolutely adore this policy.

A Full Pantry

Finally, having a pantry full of food can be one perk that’s not only relatively inexpensive but also adds to the value of the workplace. As noted by USA Today, when surveying employees who had snacks versus those who didn’t, 67% of those who did reported they were “very happy” with their work life. You’d be surprised at how much of a difference this could make, especially when considering the price point. Consider adding a kitchen to your office if you haven’t already, and always keep the snacks and drinks everyone wants fully stocked. Doing so will increase morale tremendously.

Final Thoughts

Compiling a great package for your energy company is going to take some time in looking at what you can afford versus what’s the most you can offer. While it might mean cutting back in other areas, having a workforce that feels like you genuinely want to take care of them can take you far. And with so many different benefits to include in your energy company’s package, which one is your favorite? Comment with your answers below!

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