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Audun Wickstrand Iversen

Audun Wickstrand Iversen

Audun Wickstrand Iversen is a portfolio manager who covers multiple sectors searching for companies with a disruptive approach to existing business models.

Before rejoining us in 2019 he started several companies and sat as a board member, chairman, and CEO in unlisted and listed companies at Oslo Stock Exchange. In his previous career with us during 2001-2007 he was Portfolio Manager in several top-rated mutual funds. Before that, he was a top-ranked Financial Analyst in DNB Markets (1996-2001).

Audun has a four-year program in economics and business administration consisting of three years at the bachelor/undergraduate level and one year at the master level (Siviløkonom). He also holds a two-year degree in Strategy from Norges Handelshøyskole (NHH) and a Master of Art from the University of Oslo.

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Let’s start with a small solar power plant of 10 MWp that is currently being built in a European country. With 1,400 hours of sunshine a year, the system produces enough electricity for 3,000 households. Using around 40,000 solar modules this corresponds to 12-15 soccer fields. The standard warranty for the solar modules is 20-25 years of service life and a maximum of 20 percent reduction in output. To simplify matters, the plant has a permanent contract of 20 years with a major customer.

How does such a system look like financially?

The financial profile of a solar park consists mainly of high investments in the system. First, construction in year 0, then depreciation over a period of 15-20 years with pay-off of loans and interest. Solar farms have no moving parts, which means maintenance often involves replacing wires and fuses, mowing grass, and washing panels.

Inverters have to be replaced after ten years and batteries for intermediate storage become weaker over time. In addition, there are administrative costs related to insurance, basic rents, securities, auditors and taxes. With a 100% investment today, the system will be payed-off sometime between 2035 and 2040. The system, which is therefore fully depreciated, has also provided the owners with a nice return on equity of five to twelve percent. What happens then? Empirical data shows that the effect on the solar cell has decreased by 10 percent and not by 20 percent – and this is the essence. What if the “investment” lives on for 40 years and not 20 years? A solar panel with shatterproof glass and quality on its back cover can theoretically produce energy for a long time, probably over 50 years. In addition, the input factor solar is a renewable and free resource. From 2035 to the “zero-emissions society” in 2050, our small-scale system will produce the cheapest kilowatt-hour in the world alongside the subsidized Norwegian hydropower plants. The only expenses are maintenance and administrative costs.

Quadrupling the annual installation since 2020

This small facility alone will not be able to influence the system price. It is only possible to reduce the cost of energy to zero and for total electricity production to become price-forming if solar energy is truly becoming large. The question is, can solar energy really get that big? Today solar energy makes up a little more than 2 percent of the world’s electricity. It is rather insignificant. Electricity from wind and sun is expected to increase from 8 percent in 2019 to 30 percent in 2030, more than half of which will be produced by solar energy. We expect major changes in the annual installation of solar power plants by 2030. According to the much-discussed IEA report (Net Zero by 2050), the global community should install 630 GWh annually by 2030. This equates to a quadrupling of the annual installation from 2020 and a slight change in the pace from 2010 to 2020 when the annual installations have tripled.

By 2030, solar energy could make up almost 20 percent of production and by 2050 90 percent could come from renewable sources, according to the IEA. In most countries it is now cheapest to produce a new kilowatt-hour by installing solar panels, and it is continually getting less expensive. The US Department of Energy announced at the end of March that it was expecting that the price for large-scale solar systems in the US will drop from currently 4.6 cents / kWh to 3 cents in 2025 to 2 cents in 2030.

The two main arguments in favor of solar energy as a disruptive opportunity

The solar industry has proven two things over the past decade. It can scale production at falling costs, which means that solar power plants become cheaper every year and the renewable resource solar remains free. Back to our small solar system. Over its lifespan of 30-50 years, solar energy will become a price leader in larger regions. This is likely to happen sometime after 2030.

At the same time, there are at least two other relevant arguments that come up frequently.

(1) The power grid’s ability to transport and store solar power and (2) is there enough space for all solar power plants? The production profile of solar energy requires intermediate storage (batteries, hydrogen) and high investments in infrastructure. These huge infrastructure programs are kicking off these days in the US and Europe, while private capital investments in battery production are multiplying. The second argument that is often used against extensive scaling of solar power plants is the space required. The National Renewable Energy Laboratory (NREL) has calculated that all of America’s electricity production can be replaced by covering the Mojave Desert (35,000 square kilometers) with solar panels. With the increased efficiency of solar panels and more roofs being filled with them, the proportion is reduced to a small part of Nevada, Texas or Utah (16,000 square miles). Regardless of this, space is also a question of desire, creativity and new business models. Maybe we need to use the ocean to produce solar power? Or install panels along the power lines? Or the streets? We don’t find the most important argument in favor of solar energy in the financial accounting, but in the «energy bill». Within an hour, the sun hits the earth with more energy than we can use in a year. If we manage to capture fragments of this energy, there will be no energy crisis. Energy Payback Time (EPBT) calculates how long it takes an energy system to produce more energy than was used to create the system. In the case of solar energy, this time varies between six and 36 months, depending on the number of hours of sunshine and the temperature. With a lifespan of 40 years and EPBT of 36 months, there is 37 years of “free” energy for the planet and energy costs that will drop to zero. So, I think our small 10 MWp solar system that is being built today will be part of a journey where the systems will become increasingly affordable. By 2030, solar energy will have such a large share in the electricity mix that it will be a relevant factor in electricity pricing. This year around 140 GW of solar energy will be built, including “ours” which will be completed in 2030.

In the course of 2040, all new systems built in this decade will be completed and paid for. Outlines of a legion of solar power plants around the world can be seen all around the world. Maybe Spain is an indication of what’s to come? A combination of new and old solar power plants will continuously reduce the electricity price until 2025. Then the question is: “Who can keep up with a fully depreciated solar system with a free input factor?” If the answer is “no one”, energy costs will go to zero by 2050 and not rise. We at DNB Asset Management call this a disruptive opportunity.

Note: The content of this article is not intended as investment advice or recommendations. If you have any questions about the funds referred to, you should contact a financial adviser who know you and your situation. Also remember that histroical returns in funds are never a gurantee of future returns. Future returns will depend, among other things, on market development, the manager's skills, the fund's risk, as well as the costs of acquistion, managment and redemption. The return can also be negative as a results of prices losses.

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