Making money from the transition to lower carbon emissions

The drive towards zero carbon emissions has its fans and its opponents but political issues aside, there is little doubt that there is some serious money to be made – and lost.

The speed in which that can happen has just been shown in the dramatic fall in the price of coal miners and oil companies, followed by an equally dramatic comeback as the war in Ukraine drove fossil fuel prices back through the roof.

The result being that “dinosaur” energy stocks were some of the absolute share market heroes of 2021-2022.

One interesting aspect of the race to reduce the impact of fossil fuels on global warming is that there are two ways of playing the game – one by backing low carbon or renewable energy ventures and the other by betting against or trying to disruptively transform big carbon emitters.

AGL takeover was a great disruption attempt

A great example of the latter was the attempted $8 billion takeover bid for AGL (ASX: AGL) – by some measures Australia’s biggest carbon emitter – by Atlassian tech billionaire Mike Cannon-Brookes and Brookfield Asset Management.

That bid was designed to greatly speed up AGL’s plans to decarbonise – and, in the process, make some serious long-term money for Cannon-Brookes and Brookfield as they accelerated some massive solar investments.

While the bid might have been unsuccessful, it did derail AGL’s plans to demerge its coal generation assets into a separate company – something that Cannon-Brookes had argued would slow down the transition to a lower carbon economy.

Separately, Cannon-Brookes’ investment firm, Grok Ventures, has participated in raising capital for Sun Cable, which is running a highly ambitious project to produce up to 20GW of solar and up to 42GWh of energy storage in the Northern Territory that would be largely transmitted to Singapore through a 4,200km sub-sea cable.

Opportunistic takeover for Genex

An example of backing low carbon ventures came just last week came when Cannon-Brookes’ Atlassian partner – billionaire Scott Farquar and his wife Kim Jackson – launched a surprise opportunistic bid along with private equity firm Stonepeak for renewables and storage developer Genex Power (ASX: GNX).

Genex is an interesting company which is in the process of developing a suite of renewable solar, wind, battery and pumped hydro assets, mostly around the disused Kidston gold mine in Queensland.

It already has the Kidston Solar Project which has been generating up to 50MW of electricity since 2017, and is developing the associated Kidston Pumped Hydro storage, which would be able to store energy by using solar and wind power to pump the water from one open pit mine to the other and then release the hydro power at night or when power prices are high.

Genex might be interesting and full of potential, but it has been relatively unloved by the share market until this bid arrived, so it is interesting that once again the plan seems to be to take the company private until the renewable power assets are in line and then sell it back to the market as a known quantity.

Twiggy Forrest betting big on green hydrogen and ammonia

It is similar to the approach of Australia’s richest man, Andrew “Twiggy” Forrest, who has been very busy investing heavily in the renewable space and is also an investor in Sun Cable.

Forrest is investing in green hydrogen and green ammonia and wants to produce 15 million tonnes a year by 2030, using a massive amount of solar and wind power in the process.

Many of his projects are at an early stage but that hasn’t stopped him going on a high-profile executive hiring spree for Fortescue Future Industries, including former AGL boss Andy Vesey, former RBA deputy Guy Debelle, former CleanCo boss Maia Schwartzer and the former head of GE Europe, Mark Hutchinson.

He has started construction on the world’s biggest hydrogen electrolyser manufacturing facility near Gladstone and the massive Clark Creek wind farm in Queensland, with plans for a 5.4GW wind and solar project in the Pilbara to power Fortescue’s iron ore mining operations.

Follow the big money

The message investors should take from such examples is that some of the really big investors are deadly serious about investing for lowering carbon emissions – for reasons that are highly commercial as well as altruistic.

Some do it by disrupting high emitting companies and others by building renewable assets from the ground up.

Mike Cannon-Brookes is trying both methods.

This remains a difficult and risky area to invest in, with the potential disappearance of Genex should the takeover bid succeed the latest in a long line of listed opportunities that have gone private.

However, it would be foolish in the extreme as a small investor to not apply a carbon lens to all of your investments to check their sustainability and ability to seize opportunities.