[Chris Hyzy speaking]
On-screen copy:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
Artificial intelligence, data centers and other technologies are driving incredible demand for electricity, even as governments require a shift from fossil fuels to a more sustainable renewable energy. How can the global energy industry meet these competing and urgent demands? And what does it mean for investors?
On-screen copy:
Haim Israel
Head of Global Thematic Investing
BofA Global Research
I'm here with Haim Israel, head of Global Thematic Investing for BofA Global Research, who can provide some perspectives.
We'll discuss the potential for scaling up solar and other renewables, the role traditional fuels may continue to play, and what other energy sources might help fill the gap.
On-screen disclosure:
Please read important information at the end of this program. Recorded on 5/29/2024.
[Chris Hyzy speaking]
Haim, thanks for joining me today.
[Haim Israel speaking]
Pleasure to be here, Chris.
[Chris Hyzy speaking]
Let's talk energy transition. We often talk about the different types of energy, from hydrocarbon to more renewables, et cetera. What does this all mean?
[Haim Israel speaking]
We are in this inflection point, Chris, that we are moving from discussing about energy transition to a much larger topic, energy addition.
On-screen copy:
If all the data centers were a country,
they would be the fifth largest
energy consumer in the world.
Source: International Energy Agency, "Electricity 2024," January 2024.
The IT sector is consuming so much electricity, AI, data centers, processing power. It's becoming the biggest energy consumer out there, one of the biggest out there. As of today, if all the data centers were a country in the world, they would be the fifth largest energy consumer out there. So, we'll need so much more energy in the future. Our challenge is going to be how do we bridge this gap? Do we go traditionally? Do we go to new forms of energy? And what are the social and economical implications of all of this?
[Chris Hyzy speaking]
We have to harness a whole bunch of the different sources. Much of the world is still very much dependent on hydrocarbons, almost three-quarters of the world, specifically, the emerging markets. What type of transition, and you mentioned energy addition, is it solar? Is it biofuels? Is it more refined, liquefied natural gas? Or is it all of the above?
[Haim Israel speaking]
Because we are heading into this inflection point, it's going to happen faster than I think what the market believes, we'll have to think about energy addition in three elements.
On-screen copy:
In the future, new energy sources must be:
- Scalable
- Independent
- Economical
First of all, it has to be scalable. We'll need a lot soon. Second point, it will have to be independence. The third point is economics. We live in a world of inflation. We live in a world of social unrest. We cannot rely on expensive energy forms. Interest rates are up. It's not the same environment it used to be a couple of years ago. So, we think about that. We are harnessing a few sources of different energy.
The first one is nuclear, which is making a comeback. There's a lot of different applications. This is an energy type that more and more countries are now looking at and trying to explore.
[Chris Hyzy speaking]
Advanced nuclear.
[Haim Israel speaking]
Advanced nuclear, yes.
[Chris Hyzy speaking]
It takes a long time to bring on, but once it does, scalable, safer, et cetera.
[Haim Israel speaking]
Yeah, much safer, and that's exactly what we need. That will take a long time, a couple of years. But we've seen a big shift in regulation, public opinion, across nuclear. The second one that I think we're going to see is we're going to see renewables. The renewables are answering the question of, especially recently, of economics. It's cheaper to produce energy with renewable sources on average, at some place, up to 25 percent cheaper for an energy unit.
On-screen copy:
Renewable energy can be up to 50% cheaper
to produce than legacy energy.
Source: International Renewable Energy Agency, August 2023.
Solar, mainly making a big change. Right now, we're seeing a comeback, and more and more countries could be A, self-supplied. B, the prices are coming down, and the scalability is also increasing. And if we go 10 years down the line, I'm a big believer in nuclear fusion. I think that because of the AI revolution, what we've seen in nuclear fusion in the last one or two years, this is no longer 20 to 30 years. This is probably more of 10 to 15 years, the holy grail of clean unlimited energy.
[Chris Hyzy speaking]
So, Haim, fusion versus fission. Can you just quickly explain?
[Haim Israel speaking]
Yeah, it's actually very simple. For fission, you need uranium. You need materials which are very expensive, scarce on the planet. For fusion, all you need is water, hydrogen. That's roughly all you need. Once we're going to hit this holy grail, and, again, it's years away, it's going to be abundance. You don't need the raw materials. Everyone can do it.
[Chris Hyzy speaking]
One of the secondary effects of energy addition, massive addition, if you will, is pressure on the grid, pressure on infrastructure, and then ultimately, how do you store this power and use it in a more efficient way once you store it?
[Haim Israel speaking]
Part of the solution, we are big believers in thematic world, that it's going to come from actually from the infrastructure. We are relying today on very poor traditional old infrastructure. When you transmit energy from point A to point B, 50 percent is lost on the way.
On-screen copy:
Inefficient delivery can waste up to 80% of energy produced.
Source: Yale Climate Connections, October 2022.
More than that, from production to point B, 80 percent is lost on the way. Now, we have the tools with AI, smart meters, smart grids, virtual power plants, everything around that to start changing the grid to be much more efficient and eventually improve energy consumption to do it much better.
[Chris Hyzy speaking]
At lower cost.
[Haim Israel speaking]
At lower cost, and the thing is we're investing in the grid anyway, but we just need to change and shift, so, it's not going to cost us much more money. So, I think that's going to be one of the solutions that we're going to see. And there's a lot of focus recently about energy efficiency. We're not going to be able only to focus on the current batteries that we have because it comes down to geopolitical problems. More than 80 percent of the value chain of lithium is actually being sold from China and the refineries and everything around that, so there's a big geopolitical question about it. So, we have to think about new materials. We have to think about new ways. We have to start using AI and chemistry in order to find those new materials.
On-screen copy:
An important part of the solution:
- A smarter, more efficient infrastructure grid
- New materials like superconductors
Even all the way to slightly more 'moonshot-tier' solutions that we've seen a leapfrog in research. I know it's not tomorrow. It's going to take a couple of years. But superconductors — superconductors are one of the most efficient materials out there. To power a city in the size, give or take of Dallas, all you need is one superconductor cable 17 centimeters diameter. That's it. So, it's not tomorrow. It's years away, but it's going to be part of the solution.
[Chris Hyzy speaking]
But the transition and addition is today for tomorrow with wide and vast implications but also opportunities. Haim, thanks for joining me today.
[Haim Israel speaking]
Thank you very much, Chris.
[Chris Hyzy speaking]
I hope we've given you a clearer picture of what's involved in this historic, decades-long shift in global energy. If you work with an advisor, they can help you determine how these momentous changes might factor into a balanced portfolio based upon your personal goals.
Please check back with us for more on the many forces shaping the global economy and the markets. Thanks for watching.
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