Investment bubbles in history typically take 4-years to build and 2-years to burst, as asset prices rise c815% then collapse by 75%. In the aftermath, finances and reputations are both destroyed. There is now a frightening resemblance between energy transition technologies and prior investment bubbles. This 19-page note aims to pinpoint the risks and help you defray them.
Our rationale for comparing energy transition to prior investment bubbles is contextualized on page 2, based on discussions we have had with investors and companies in 2020.
Half-a-dozen historical bubbles are summarized on pages 3-4, in order to compare the energy transition with features of Dutch tulips, the South Sea and Mississippi Companies, British Railway Mania, Roaring Twenties, Dot Com bubble and sub-prime mortgages.
Five common features of all bubbles are considered in turn on pages 5-16. In each case, we explain how the feature contributed to past bubbles, and where there is evidence of the feature in different energy transition technologies.
Important findings are that many themes of the energy transition can achieve continued deflation or profitability, but not both; while a combination of increasing leverage and curtailment on renewables assets could leave many assets underwater.
Implications are drawn out on pages 17-19, including five recommendations for decision-makers to find opportunities and avoid the most dangerous aspects of bubbles surrounding the energy transition.