EDITORIAL

In a previous life as a financial journalist I was lucky enough to be at the forefront of introducing 18th century market wizard Sokyu Honma to the modern world. Honma, in his classic work — The Fountain of Gold: The Three Monkey Record of Money — writing in 1755, formulated the first principles for predicting how buyers and sellers interact. He painstakingly developed a whole graphical system — now popularly called candlestick charts — to predict how a futures market behaves. Key moments that he followed in the life of Japan’s Osaka rice market were its closing and opening, he said. Was the market up or down on the day? What was the expectation for the following day? What was the trading range of the day — broad or tight? On this basis he was able to work out a feel for a market. Was it a good time to invest? To bid high or bid low? Or a time to walk away? It’s a skill that’s as much needed now as it was three centuries ago because the energy storage market and the players within this business sector are equally vulnerable to changes of mood and perception. Certainly, timing is everything. Venture capitalists, for example, thought that clean tech investments were a path to riches between 2006 and 2011. But they were wrong. Of the $25 billion invested in the US, half of that was lost. If anything, the swings in sentiment over the fate of the world — here we should mutter the buzz words over our destiny: climate change, decarbonization, carbon dioxide and fossil fuels — are the widest and sometimes the most hysterical we’ve seen since the dot.com boom during the late 1990s. This year some $60 billion was invested in the energy transition in the US alone and some $500 billion across the world. Overall, the energy storage market is about as bullish as it could be but it lacks the precision that an analyst such as Sokyu Honma — who famously predicted the direction of the rice market accurately for 160 days in a row — would have understood. The logic behind investment in the energy transition is complex, sometimes contrarian and strewn with incongruities. Tesla, for example, now has a stock valuation that is worth more than the next nine automakers put together. Yes, the combined worth of Volkswagen, Toyota, Nissan, Hyundai, GM, Ford Honda, Fiat Chrysler and Peugeot is less than Tesla. Then consider that Tesla will probably sell half a million cars worldwide this year — that’s not even 1% of the estimated 70 million car sales for 2021. Go figure! But if Tesla is to become the next Amazon, our present valuation could be wildly conservative. We hear the constant gospel of decarbonization at all costs and yet the disjointedness between policy and reality is alarming. The leading advocate for European ‘greenness’ comes from Germany, which — with a population just slightly larger than the UK — continues to produce more CO2 than the UK and France combined. Likewise in China the talk of commitment to decarbonization is fragmentary — or should that be ‘pragmatically imaginary’? The country’s 14th Five Year Plan, we’re in it, envisages coal capacity to increase by roughly a third over 2020 levels. China has 88.1GW of coal-fired generation under construction, or almost half the global total, and a further 158.7GW in the pipeline, again, half of the rest of the world combined. Carbon Tracker, a financial thinktank, has found that China, India, Indonesia, Japan and Vietnam intend to build 600 new coal-fired power stations in the years ahead. “Build back better, come back greener” may be an attractive rallying call for politicians and environmentalists to make. But the reality is very different. In this July’s G20 meeting of environment ministers, officials from China, India, Russia and Saudi Arabia blocked an agreement to end fossil fuel subsidies and phase out the use of coal! In the US, many an attempt to decarbonize is undermined by the freedom of its financial system. Bitcoin, the cryptocurrency, consumes vast

amounts of electricity. Its annual use — 121 TWh just to keep the computers running with no extra benefit such as providing light, warmth, or powering the home — is larger than the amount of electricity used each year by the whole country of Argentina with its population 45.2 million. (And perversely, that huge amount of power could be accounted for by turning off all stand-by devices in US homes for the year.) Part of the problem with the energy industry’s drive for the energy transition is that we are all entering an unknown land. When the world shifted from leaded petrol to diesel we little knew we were exchanging one pollutant for another that was at least comparably nasty. Simple measures, such as replacing conventional lighting with LEDs for saving electricity and costs, have unexpected consequences. And not necessarily from obvious directions. In the UK, environmentalists are up in arms about LEDs in street lighting and their destructive effect on the moth population. True. Likewise too, is the complete lack of predictability of the future. The biggest spur to the whole energy transition agenda in Europe was due to the 2011 tsunami in Japan some 5,000 miles away. The destruction of the Fukushima Daiichi nuclear plant by the tsunami prompted Germany to accelerate its decision to remove nuclear and go for renewables. In a similar fashion who could have foreseen that the pandemic recovery planning would have given such a boost to the renewables and energy storage industries? So what would Sokyu Honma have thought about today’s markets three centuries later? Strangely enough he would have approved and been appalled at the same time. Honma was a so-called “the-trend-is-your-friend’ investor. Going with market sentiment generally gives a better return than taking a contrarian view. At the same time, always be aware when the trend is about to change! For the battery industry its future is less about buying low and selling high as much as one of timing, seeing the direction of sentiment and running along with it. Venture capital and private equity investors are notoriously fickle friends in any kind of long-term play. Typically they want to get their payback — their exit — within three to five years. But long-term investors are more interested in the fundamentals rather than the perception of fundamentals. Possibly the most successful investor in the past century is Warren Buffett who, starting from nothing, at one point has achieved a personal net worth of some $74 billion. Buffett, who reputedly bought a $5 billion stake in Goldman Sachs over a can of cherry coke one lunchtime, has always favoured investment for the long haul. His instinct earned him $2 billion when he sold his Goldman Sachs stake five years later. His ownership in Coca-Cola, which he has held for over a quarter of a century, has become legendary. In the uncertain world of investment — and particularly investment in the troubled world of noisy energy start-ups shouting lithium fantasies and the oppressive silence of established lead battery players — the market will eventually determine the price and value of today’s participants. But it’s still anyone’s guess as to what way that will go. But one thing is for certain, we need to be in for the long haul.