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The race from fossil fuels to renewable energy

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Coal is the Gold but is Renewable the Undiscovered Diamond?

As the global energy crisis becomes more of a reality, with the shortage of coal increasing in many countries, coal prices have surged to an all-time high of just over $260 per merit ton, representing over 300% growth over the Year-To-Date (YTD) period.

While prices are rising together with the demand from the recovery of the global economy, coal companies have seen their earnings skyrocket over the period. On the contrary, renewable energy has started rising too, with coal companies seeing the risks of decarbonization on coal.

What is decarbonization?

This is the reduction of carbon dioxide emissions (CO2) from the economy. In other words, using up to 0% of fossil fuels which include coal.

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Exxarro Limited (EXX)

Shifting into green energy, Exxaro Limited, one of South Africa’s leading coal miners, has in August announced its intentions to move into the green energy space, adding that:

“One of the things that you do as a coal miner is to sell your coal to power stations, and we saw that within our markets (predominantly Europe), which we’re selling coal to, with Germany among the biggest, there were already talks of renewables.”

Ending the first half of its 2021 fiscal year (1H FY21) on the 30th June 2021, Exxaros revenue was up by 8% during the period to R15.1 billion, with earnings before interest, taxes, depreciation, and amortization (EBITDA) increasing to R4.3 billion.  Despite the steady decline in cash generated earnings grew by double digits, enabling the group to further declare a dividend of R20.77 per share for the period.

 

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The fight against climate change

Campaigns against climate change have gained momentum over the years; we’ve seen many countries phase out fossil fuel use, which heavily impacts coal by default.

South Africa is identified as one of the countries with the potential to be the global leader in renewable energy. Some of the reasons behind this are the country’s geographical position and availability of natural resources. And while uncertainties remain a reality for this transition, Exxarro further commented that:

“We are not sure when coal is going to fall off the cliff. So, we are not going to argue over whether it is going to fall off or not, but how we are going to exploit the resource that we have in the most responsible way during this period of our transition into more renewables.”

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Informed decisions

Investing in coal at this point may come with its own risk, particularly looking at how many countries are now shifting away from the use of fossil fuels. While this may not happen overnight, the move closer to green energy may become a reality in the near future; with many analysts believing that the phasing out of fossil fuels such as coal may take up to 30 years to come into action.

The transition may benefit investors who have started investing in renewable energy during the period of coal.

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Sources – EasyResearch, JSE Sens, Exxaro Limited, News24.

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