Fossil Fuels to Green Power

Fossil fuels, globally, have two distinct uses in energy: Transportation and Electricity.

These days, they rarely overlap.

Transportation fuels are liquids made from oil that supply airplanes, trains, ships, trucks, and cars. Electrical fuels are coal and natural gas. However, some homes still use oil furnaces.

In the context of climate change and pollution in general, coal is the worst. And it isn’t close. American Geophysical Institute compiled the data, which you can see the results below:

According to an international energy agency (IEA) report, one sector of the energy industry is booming.

In 2023, it grew by 50% more than in 2022. The world added 510 gigawatts (GW). And one technology accounted for 75% of that growth.

More than carbon dioxide, coal produces serious pollutants. Sulphur and nitrogen from coal power plants create acid rain. Mercury, lead, arsenic, cadmium, chromium, and selenium contamination come from coal ash.

These are serious, kill you now, kind of pollutants.

The good news is that most of the new energy sources are cutting into coal’s former dominance. As we can see from the IEA chart below, coal consumption has not increased since 2012:

Coal use is flat, even as electric demand increases. That’s important because, according to a study done by George Mason University, University of Texas, and Harvard, coal particulate pollution doubles the risk of mortality over similar particulates from other sources.

Published in Science in 2023, the study demonstrated that coal power plant emissions were associated with 2.1 times greater mortality risk than with other sources. From 1999 to 2020, the study attributed approximately 460,000 deaths in the U.S. to coal emissions.

The toxicity of coal, if for no other reason, should be the reason we phase it out.

China is leading the way. China is the world’s largest consumer, but it plans to drastically cut it coal consumption.

You can see it in the chart below:

As coal exits, several new sources of power generation are rising. As the chart above shows, wind and solar continue to grow rapidly.

However, today solar companies trade as if they are failing:

This performance is at odds with the global trend. According to the International Energy Agency’s World Energy Investment 2024 report:

Global investment in clean energy technologies is forecast to reach $2 trillion by the end of 2024. At over $500 billion, spending on solar photovoltaics is set to surpass all other generation technologies combined for the second consecutive year.

An industry with this kind of outlook should be moving higher right now, not declining. This trend is likely to reflect U.S. sentiment, not global sentiment.

Sentiment is a powerful force in investing…but it also can shift quickly.

Experts in this sector are positive.

Edurne Zoco, of S&P Commodity Insights, has a strongly optimistic view on solar power:

“Solar PV will be the most installed energy source for the next decade, with Commodity Insights forecasting more than 4 TW-dc of new installations of new installations before 2030. Solar modules have become one of the most sought-after commodities in the increasingly competitive energy markets.”

This month, we want to focus on that beaten down solar sector.

Our investment is in a Japanese solar manufacturer that just listed on Nasdaq in July.

We believe that this company has an enormous amount of value. And it will benefit from the massive growth forecast for the sector.

The Company Bucking the Trend in Solar: Toyo Co. (Nasdaq: TOYO)

Toyo Co. (Nasdaq: TOYO) is a $113.6 million firmly established Japanese solar panel maker. They merged with a special acquisition company (SPAC) called Blue World Acquisition. The company waited to list in the U.S. until it had a U.S. plant and positive revenue, as we’ll see.

Toyo closed its deals with Blue World in early July (that’s the fall in the stock price). Shares jumped up in August and then eased lower to where it is today.

At today’s market value (share price x shares out), the company trades for less than 6 times net income…for the income generated by the first six months of 2024.

That income came from 985 megawatts of supply shipped so far. That’s less than 30% of total yearly capacity.

If we forecast comparable income for the second half of 2024 (which is reasonable), we end up with a price to earnings ratio of 2.9 times. That’s insanely cheap for a company this advanced. It reflects the sentiment of the sector.

That’s a fantastic opportunity for us.

Toro is a well-known brand in Japan. It builds technologically advanced solar cells in Vietnam today. It can build three gigawatts (GW) per year there. It plans to build a new 2 GW plant in the U.S. And it announced a new state of the art plant (2 GW per year) in Hawassa Ethiopia.

Toyo’s plants are truly innovative. They use robots to build solar panels. The company put a slide in its corporate presentation explaining what these “guided vehicles” do:

The company plans to invest $100 million into a plant in the U.S. thanks to the Inflation Reduction Act (IRA). The company believes that the IRA will allow them to recover 70% of that investment in the first 12 months of production.

Based on the massive global demand forecast, we believe Toro has a bright future. It has production in Vietnam today. It will have production in the U.S. and Ethiopia. That allows them to build and ship solar power all over the world.

Toyo makes an advanced type of solar cells called Tunnel Oxide Passivated Contact (TOPCon) technology. They offer the following benefits over technologies:

• Better at generating electricity even in low-light conditions.
• More efficient at turning sunlight into electricity than traditional solar technology.
• Generate power in extreme heat better than PERC cells.
• TOPCon cells resist degradation better, so they have improved long-term performance.
• Simper/cheaper manufacturing process compared to other recent technologies.

That means they make a superior product over the longer term. The manufacturing cost is slightly higher than traditional PERC cells. But the industry is moving toward the more efficient, longer lived TOPCon technology.

Our risk with Toyo is twofold.

The company’s growth plans rely on building a U.S. plant and leaning on subsidies to pay back that investment quickly. However, this is an election year. The republican candidate threatened to repeal subsidies for alternative energy. That would hurt Toyo shares.

The good news is that we can wait for the election results before pulling the trigger on this stock.

Additionally, there is the risk of delays to the project, which would also push down its price. However, because the current price is so low, compared to both its first half profit and projected full 2024 profits, it shouldn’t fall far.

We believe Toyo’s future looks incredibly bright.

The current price does not reflect the value of this company, let alone its growth over the next two years. With that in mind, here’s what to do.

Action to Take: Wait to Buy Toyo Co. (Nasdaq: TOYO) up to $3.00 per share. If the Republican’s win the presidency, we will not buy shares. Use a 30% trailing stop on the company. That means if you bought today, at $2.51 per share, you would sell if shares closed below $1.75 per share.

As we discussed, global solar sales are going to continue to boom over the next five years. Toyo should do very well.

We do recommend waiting until after the election in the U.S. That could impact on the share price of the stock.

We will record the share price at the close of the day on Wednesday, November 6, 2024, in the portfolio for tracking purposes.

For the Good,

The Mangrove Investor Team