6 min read

Bubbling Up From Below

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It’s time to stock up on hot cocoa and brace for the six more weeks of winter that Punxsutawney Phil predicted this morning. While hibernating indoors these past few days, we’ve been following several market and economic developments that will have implications for your investments. Here are the highlights:

Stocks ended January on a high 🎵, with the S&P up 6.2%, the Dow up 2.8%, and the Nasdaq up 11%. What that means for the rest of the year is anyone’s guess — some experts warn that it’s an ominous sign, while others say a strong January is typically the start of a strong year.
Corporate earnings continue to roll in. General Motors shares soared after the automaker announced strong Q4 profits and a $650 million stake in Lithium Americas to shore up its EV production supply chain. ExxonMobil posted a record-breaking $56 billion profit for 2022 (yes, you read that correctly — $56 billion in profits in one year), renewing political attacks on the oil industry. Pfizer, meanwhile, is preparing for a slower year as demand for COVID-19 products drops. Eyes are now on Alphabet, Amazon, and Apple, which will all release earnings after markets close today.
The US Federal Reserve is slowing its interest rate hikes. On Wednesday, the Fed announced its eighth rate increase in the past year, raising its benchmark rate by a quarter point — compared to a half-point rate hike in December and four three-quarter point hikes before that. The news comes amid signs of cooling inflation and consumer spending, but the Fed made it clear it would keep raising rates until inflation gets down to a target of 2%. Guess we will keep those high-yield savings accounts at the front of our minds for a bit longer.
Recession clouds are lifting a bit, as the International Monetary Fund upgraded its World Economic Outlook for 2023 with a projection that the global economy will grow 2.9% this year.

There’s also been a slew of new reports showing growth in the clean energy sector, which you’ll find in our News you can use section below. We take a deep dive into one form of clean energy, geothermal, as we turn our thoughts to heat. Stay warm out there!

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions and so you have useful resources at your fingertips, here are few links to resources and past stories relevant in these turbulent times:

Some of our favorite inflation-fighting strategies (and a few more)
Unpacking the ESG Alphabet Soup (including a link to our ever-growing glossary of common terms)
FWIW Guide to Cleantech Investing: Sectors to Watch (covering a dozen innovative sectors to anchor your research on sustainable investing options)
How to Practice Faith-Based Investing
“Siri, What Is a Recession?”

News you can use

Graphic of newspaper with magnifying glass

The clean energy market is on fire 🔥. A new BNEF report shows that investments in clean energy technologies reached a record-setting $1.1 trillion in 2022. Meanwhile, many reports say the war in Ukraine will impact global energy markets in 2023 as the amount of electricity generated from fossil fuels in the European Union could drop by 20% this year, according to Ember, a UK-based energy think tank. Coming off strong earnings reports from the oil giants, it is interesting to also see news about changing EU consumption expectations leading energy giant BP to cut its long-term oil forecast in its latest Energy Outlook.
Black History Month is upon us, making it an excellent time to examine whether your investments are helping advance racial justice. Morningstar has a great roundup of funds that address systemic racism and the wealth gap. We also shared a few ideas for assessing the racial equity impact of your investments in this article last year.
Amazon is on track to operate on 100% clean energy by 2025. Not content with simply being among the world’s largest retailers, data center operators, and streaming services, Amazon is now among the leading utilities globally, according to a Bloomberg New Energy Finance researcher. Its renewable energy portfolio is now large enough to power about 5.3 million homes.

Warming up to a new source of energy

Humankind has made great progress in harnessing heat from the sun. We now have everything from solar windows to solar paint. But there’s a comparable source of heat beneath our feet, and no, we don’t mean the pavements in Arizona or California that are so hot that locals try to fry eggs on them.

The Earth’s core is actually hotter than the surface of the sun, and this heat is continuously radiated from the planet’s interior to the surface. Known as geothermal energy (literally translates to “earth heat” in Greek), it’s the reason we have stunning natural phenomena like volcanoes, hot springs, geysers, and fumaroles. We are talking about Hawaii, Iceland, and yes, the OG Yellowstone.

This clean, renewable source is available 24/7, regardless of weather or time of day, and is gaining ground (ha!) as we race to transition to green alternatives in the coming decades. It can be converted to electricity, used directly for space heating (as Iceland does for 90% of its homes), or in HVAC systems (ground source heat pumps). Geothermal plants could also help source precious minerals like lithium that will be needed to drive the EV revolution.

US govt says, “Start drilling!”

Currently, geothermal energy is largely untapped, providing 3.7 gigawatts of electricity in the US, or enough to power 2.7 million homes. Last week, the Department of Energy said the US has the potential to affordably power over 65 million homes this way, in addition to widespread deployment of geothermal heating and cooling.

The private and public sectors are working on making this a reality with pilot projects and the Energy Earthshot announced in September. The Inflation Reduction Act also gave the industry a boost by including tax credits for geothermal production, investments, and heat pump purchases. Across the Atlantic, countries like the Netherlands and Germany are rapidly scaling their installed capacity in the quest for self-sufficiency.

How does it work?

Ground source or geothermal heat pumps can be installed anywhere. However, tapping the earth’s interior for energy convertible to electricity traditionally requires naturally occurring hydrothermal reservoirs. This is hot water trapped underground, close to the earth’s surface, that can be reached with conventional drilling. But these conditions of heat, rock permeability, and water at shallow depths are only found within the fearsomely named Ring of Fire in places like Iceland, New Zealand, and California, Alaska, and Hawaii in the US. This is one of the main reasons geothermal energy has not scaled at the pace of solar, wind, and other renewable sources.

Feasibly unlocking this buried heat from other regions will need better technologies and big investments in Enhanced Geothermal Systems (EGS). These are artificial underground reservoirs made by carefully injecting water into hard, superhot rock. Last year, the Department of Energy announced it would fund research to reduce the cost of these systems by 90% to $45 per megawatt hour by 2035.

How to invest

Although a lot of the innovation is happening in startups, like the Bill Gates-backed Fervo Energy and MIT spinout Quaise, there are a few ways for retail investors to bet on geothermal technology. It’s important to be careful and aware of the risks while allocating money since the resource isn’t quite mainstream yet.

Some examples of publicly traded firms involved: Ormat Technologies is a pure-play geothermal company that has partnered with the DoE on an EGS project and designs, builds, owns, and operates geothermal power plants around the world. Energy technology giant Baker Hughes provides geothermal solutions and services. AAON produces geothermal heat pumps. Eversource Energy is investing in a geothermal energy pilot program to heat and cool homes and businesses in Framingham, Massachusetts. In December, Chevron’s New Energies unit formed a joint venture with Sweden’s Baseload Capital to develop geothermal projects in the US. Schlumberger’s 2010 acquisition, GeothermEx, provides geothermal consulting services.

Eco-conscious investors can also target homebuilders. For example, Lennar has invested in and is working with New York-based startup Dandelion Energy.

While it is still the early days, interest and opportunities in geothermal energy are increasing, and we hope this initial peek into an emerging energy source helps inform your research as you consider investing opportunities that align with your values.