May 17th, 2023 | 08:10 CEST
Heat pump madness and grid expansion: Vonovia, JinkoSolar, Grid Metals
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.
Vonovia: Heat pump strategy fails on the grid
The fact that the large power lines from north to south can only be part of the solution was shown a few weeks ago in headlines made by the housing company Vonovia: numerous heat pumps for apartment buildings could not be connected because the grid capacity was insufficient. Yet the heat pump targets are ambitious: From 2024, 500,000 new heat pumps are to be connected to the grid every year. Put simply, heat pumps work according to the reverse principle of a refrigerator. A cooling liquid absorbs energy, is compressed accordingly and then rereleases this energy again. The required electrical energy is a worthwhile investment: With standard air-water heat pumps, generating three to five kW of thermal energy from one kW of electrical energy is possible, depending on the building insulation and existing surface heating systems.
However, the network load increases significantly due to these devices. For example, if a family of four switches to a heat pump, the consumption often more than doubles. The Handelsblatt quotes Ingbert Liebing, CEO of the Association of Municipal Enterprises (VKU), predicting that investments in distribution networks - the "last mile" - will increase by 60% to 100% by 2045 compared to 2018/2019. "The debate has been too focused on the transmission networks so far," Liebing told Handelsblatt.
Boom of JinkoSolar and Co. about to end?
For the energy transition in housing companies like Vonovia to succeed, investments in grid infrastructure are crucial. While the increasing number of private photovoltaic systems reduces the electricity demand, it does not alleviate the strain on the grid - the more private PV systems are operated in a municipality, the better prepared the grid must be. Municipal utilities have a reason to approve these installations and initially conduct a so-called grid compatibility test. The sales of solar companies like JinkoSolar and manufacturers of inverters also depend - at least in Germany - on the quality of the grids.
Grid Metals: The share for power and storage
The Canadian company Grid Metals offers access to nickel, copper and platinum metals with its Makwa-Mayville project in Manitoba, Canada. Palladium has also been proven at the project. A new resource estimate for the project is planned for later this year. Nickel and copper are considered key components for electrical conductors, the former especially in temperature-sensitive areas. In addition to the Makwa-Mayville project, Grid Metals offers access to battery metal with its Donner Lake Lithium project. An agreement is already in place with a nearby producer to process lithium on a trial basis with the option of permanent cooperation. Grid Metals already expects the first cash flows from this cooperation.
The shares of Grid Metals are currently trading at CAD 0.16 in Canadian trading, down from more than CAD 0.20 in February. The Company's resource projects are still in development, so the market is valuing them at significant discounts. Upcoming resource estimates could provide a clearer outlook and attract more investors. Nevertheless, Grid Metals' stock will likely remain a speculative investment - with all its pros and cons. However, as the major underlying trend of the energy and mobility turnaround remains intact, and investments in pipeline networks, in particular, are only gradually taking place, Grid Metals could be worth keeping in mind. A more expansive monetary policy, or the expectation of one, is also fundamentally suitable for helping growth companies back on their feet. With its mix of classic industrial metals such as nickel and copper as well as lithium, the Company has several irons in the fire.
While real estate companies are suffering from the market environment and the demands of the energy transition, manufacturers of photovoltaic panels are booming. However, even here, network operators initially require a network compatibility assessment. It cannot be ruled out that the boom in Germany will reach its limits due to poorly equipped grids in some communities. In the long run, all companies that provide solutions for better grids could benefit. Although Grid Metals is at an early stage, it is precisely these values that usually benefit disproportionately from price jumps in industrial metals such as nickel, copper and the like.
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