By Munib Madni
A change of calendar year brings with it much excitement, optimism, anticipation and in the case of 2021 some relief that 2020 is behind us. A new year also helps us sharpen our focus and ask questions for the year, if not years ahead. Today, I will share with you some of the questions we want Purpose Driven Companies to answer in 2021 and beyond…
As panvestors when we select portfolio companies, we want them to have a purpose that is relevant to the world by solving for a problem. More importantly the solution has to make economic sense and needs to be sustainable over time. Problems that our portfolio companies are currently addressing (profitably) include; responsible lifestyle, decarbonising economy, empowering societies, employee welfare, financial inclusion and animal health, just to name a few. We know we can’t solve all the problems of the world but where we believe we have understood a problem and also the solution set, we endeavour to find companies that are best placed to be the profitable change makers. Companies can help solve some global problems if they can help us answer these questions... 1) Is Purple the New Green - Hydrogen’s Second Coming? 2) Is Aging a Disease? 3) Where is the next Digital Dividend to be found? 4) How will companies Recruit, Retain and Retrain their Human Capital? In this month’s Arcus I will cover topic 1) and 2), with 3) & 4) to be covered in the coming editions.
1) Is Purple The New Green - Hydrogen’s Second Coming? Is this second coming of the Hydrogen Revolution just another false start or will this time the hydrogen molecule stay relevant? At the start of the millennium, hydrogen had a boom/bust episode largely driven by US policy support and then withdrawal. 2020 once again saw many investors deploy capital into hydrogen and the interest seems to be growing. Let’s be clear, Hydrogen is NOT a source of energy but is a store of energy. Simply put, energy needs to be converted into hydrogen (gas or liquid) and then it can be stored, moved around and reused when needed. The reason it is getting so much attention especially for decarbonising our economy is because when it is used it emits next to NO carbon (Green Hydrogen) and if used by industry where carbon capture/abatement is not possible (e.g., steel, chemicals, mobility) it can be economically and environmentally advantageous. Why has it not been used as a store/use of Green energy until now you may ask? The reason is that when hydrogen is produced, depending on the source of energy used, its production can be Very Green (from solar & wind) or Very Grey (from fossil fuels with 10 tonnes Co2 for every 1 tonnes of Hydrogen produced). Even now, of the 80-90m tonnes of hydrogen produced globally for industries such as fertilizer, 95% is Grey Hydrogen, emitting c.800m tonnes of Co2 pa when produced. Believers in Green Hydrogen such as the Hydrogen Council predict Green Hydrogen production to reach 500m tonnes by 2050, from almost 0 now.
In the last decade, energy sourced from renewables such as wind and solar have become very cheap (as seen above) to the point where solar is now a more cost effective solution than fossil fuel in many countries. This along with the fact that electrolysers (for making hydrogen) are a tried and tested technology since its invention in 1789, means that Fossil Parity Cost of Hydrogen will be achieved much faster than solar or wind.
Another reason for the imminent adoption of Hydrogen as a storage of energy is the incredible supply growth of renewables such as wind and solar. By 2050, it is expected that wind/solar will make up 56% of global grid capacity, compared to 19% now. Wind/ Solar generation comes with their usual curtailment issues due to grid congestion and currently that leads to energy wastage or negative pricing for generators. Hydrogen storage is the solution to this cheap and excess renewable energy! Why not convert otherwise wasted renewable energy into hydrogen, transport it and then use it. So far, we have only addressed the production/supply of Hydrogen which depending on its cost will drive demand. While production cost is falling fast, a big portion of the cost equation of hydrogen is infrastructure and especially when considering Hydrogen Fuel Cells for electric vehicles (FCEV) vs Battery electric vehicles (BEV). This is where the Hydrogen story starts showing its first cracks as BEV infrastructure has a first mover advantage. Without expanding on the infrastructure issues around Hydrogen FCEV, it’s fair to say that for the mid-term Hydrogen is a credible and financially viable store of energy for renewable utilities and large-scale industry/mobility. This is where we as panvestors are focusing our attention for now. We are watching the FCEV vs BEV hype for another potential boom/bust opportunity. With the above research roadmap we are looking at companies that answer the following questions:
Which Electrolyser technology, PEM, Alkaline or even High Pressure will become the norm especially in industry and utilities? Who can deliver the manufacturing capacity?
Which industries are going to be the best equipped to adopt Hydrogen as a lower cost energy option to help their own operating margins?
Who are the suppliers of tech and services to the infrastructure players adopting hydrogen?
Who are the traditional mobility players that are transitioning themselves or their customers to the hydrogen technology?
2) Is Aging A Disease? June 18, 1858 Charles Darwin receives a paper from Alfred Wallace that had identical conclusions to his theory of evolution, giving Darwin confidence to finally publish his theory. 160 years later, 18th June 2018, World Health Organization's (WHO) actions may have progressed that theory once more. WHO released the eleventh edition of the International Classification of Disease, Known as ICD- 11. This edition had a new disease code added to it... MG2A. “MG2A Old Age”. Why this is important is because up until now Old Age was seen as part of life, but if Old Age is a disease, does this mean it is curable? There is plenty of research going into longevity with vitality. If Aging is NO longer nature's curse but a disease with a cure then those seeing an aging population globally as a threat may need to start seeing it as an opportunity! By 2022, WHO wants countries to disclose their data on “MG2A Old Age”deaths and that will drive the pace at which old age gets classified as a disease. The minute a country takes that step (Australia and Singapore could be the first) to classify old age as a disease, it will need a major rethink from health insurers, pharma companies, policy makers, researchers, regulators and even medical practitioners not to mention product and service providers in almost all industries. There is no economic model for a world where people's median age is >100. Actuarial tables estimate developed world’s median lifespan at 80 but not 113 (Lifespan by David Sinclair); pension plans with retirement age 65 will be archaic; only 1% of US medical research funding is focused on old age; inheritance tax supported budgeting for local governments may need a rethink; renting vs buying will be the norm and elective surgery not given to a 65 year old because of age may become recommended procedures even at 70. This is just the tip of this iceberg. In short if we follow Norway (below) and even go beyond, our healthcare systems, products and service design/delivery, public policy and economic models are not meant for longevity with vitality, which is what we will get if aging is classified as a disease.
Now, I am sure some of you may think it is farcical to talk of aging and longevity in the middle of a pandemic. Others might even question why a Panvestor like myself who espouses unsustainability of our current consumption culture will see an aging and growing population as an investment opportunity. Sadly, just because we may not like an overpopulated planet, it doesn’t mean that it won’t happen. If anything, because there is an increasing chance that we will have aging with vitality as a reality, we need to be even more vested and invested in how that plays out. We need to ensure that companies that can help make it happen in a sustainable way are in our portfolio. While we are long-term in focus we are not that long term that we will see 113 years ourselves. We do think that the precursor to publicly available longevity medicines and therapies will be precision medicine, bio-tracking, DNA sequencing and epigenome analysis for personalized care. The sooner aging is recognized as a disease the faster the system can change to prevent aging inequality in favor of the rich! As Panvestors, we do believe that aging without vitality will be very expensive indeed and prolonged healthspans is inevitable. With that in mind we look for companies that answer the following questions:
Who can provide precision medicine and personalized healthcare products or services, especially to the masses?
Which sector needs the most help in transitioning to an older but more active and productive working population?
Which technologies and services are needed for further research of Agingas a disease?
Which technologies and services help the world in “dematerialization”? With longevity will come a larger population (inevitable). The population is not the problem, consumption is. Dematerialization is how can we replace more of the material consumption (e.g., DVD/CD) with services (e.g., streaming).
Conclusion Mirror, mirror on the wall, are these the companies for us all? The problem areas and questions that I share with you today are not new to us but they do seem to be developing in a way that their relevance in terms of providing a solution set of profitable companies for our portfolio has increased. As expected, none of these problems have a silver bullet and some will see solutions being delivered in stages. This is where we need to ensure we invest in companies that make their purpose solving the problem profitably and not just profit for the short-term. Happy Panvesting Munib Madni, Founding Panvestor