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The device that will soon power the world - and how to bet on it

Semiconductors being made. (Source: Getty)
Power semiconductors will play a crucial role in the decades ahead. (Source: Getty)

The transition to renewable energy in the coming decades is consistently touted as a major investment opportunity – but picking the right horse isn't going to be easy.

One tried and tested strategy is investing in the equipment that will undergird the transition.

As the saying goes, when there's a gold rush, it's the people selling the picks and shovels who get rich.

One arguably "overlooked" area in the decarbonisation trade is power semiconductors, which manage the supply and control of power in an ever-growing number of big and important devices.

The rate of electricity in the energy mix will have to dramatically rise in a lower-emissions world, and this tiny piece of tech promises to play an outsized role in the coming green revolution.

The ability of semiconductors to allow electricity to pass through them at a modulated rate enables them to convert energy harnessed by a variety of renewable energy sources including solar, wind and hydro.

Simply explained, they play the role of an on-off switch. By switching on and off at very high speed, they can convert direct and alternating current, raise and lower voltages, and convert power frequencies, says Toshiba, who builds the semiconductors.

"If we compare semiconductors to parts of the body, processors and memories can be seen as the brain, but power semiconductors play the role of the heart and muscles," the head of Toshiba's semiconductor business explained last week.

Only a handful of companies make power semiconductors, and due to their complexity, the moat around the business is significant.

It's why Nick Griffin, the chief investment officer at Melbourne-based Munro Partners, thinks its an exciting investment play for the years ahead.

"Probably the most overlooked area of what's going to solve this [the transition to clean energy] is power semiconductors," he told LiveWire.

"There are semiconductors that sit at the core of how you transfer power; how you take power from one place to another.

"You used to have these cheap components that would sit inside a fridge, or they'd sit inside an electronic toy, for instance, that ran off batteries, and now they've got to sit inside these really big things like electric cars or electric buses, or battery-powered, renewable-energy facilities, so their total addressable market is effectively exploding.

"The companies that make these things, there's four of them in the world. And the biggest one is in Germany, called Infineon."

The current chip shortage has seen prices of cars spike in recent months, and slowed the supply of a whole range of products.

Griffin doesn't think the semiconductor shortage is ending any time soon.

And what's more, they're getting more advanced and ultimately more valuable.

"To give you an idea, if you speak to Infineon, the semi[conductor] content that would go into a normal internal combustion engine car would be $160 per car. The semiconductor content that goes into an electric vehicle with some autonomous driving features will be $1,600," he said.

"They've become the weapons manufacturers in the war."

At the global COP26 United Nations climate summit this week, banks, insurers and investors with $175 trillion at their disposal pledged to put combating climate change at the centre of their work.

And that bodes well for those who are making the picks and shovels of tomorrow's low-carbon economy.

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