Markets are failing to factor in the speed of the transition to clean energy, says George Whiting, Head of Institutional & Retail Business Development for the Perennial Better Future Trust, in a presentation delivered titled The Energy Transition: Some empirical cause for optimism.
Whiting draws a bullish picture of a world transitioning away from fossil fuels faster than anticipated with solar and roof top solar poised to be a significant source of energy by 2026. Wind is also increasing its percentage share of energy capacity, while coal and natural gas are reducing as a percentage of the overall energy mix.
“Morgan Stanley expects renewable generation to contribute 45 per cent of global electricity consumption by 2030, and the share of solar and wind will nearly triple by 2030 in the power consumption mix.”
“In Australia, the uptake of renewables has been significant, especially since 2021-22, a trend we expect to continue.”
Whiting says despite the empirical evidence about the speed of the energy transition, it’s the Trust’s belief that markets have not factored this into their investment thinking.
“When it’s considered that one-third of the ASX will be directly impacted by the energy revolution and another third indirectly, it doesn’t seem feasible for it not to be a critical element of any investment strategy. But despite this tailwind, we believe that markets are inefficient and are not pricing it in the short term.”
“What we do is use our negative screens to really focus on avoiding headwinds from this energy revolution and tap into the tailwinds to invest in those companies that will benefit.
“So, in our portfolio, we have companies such as Calix that is effectively decarbonising the cement and lime manufacturing process.”
“We also have a stake in Meridian Energy, which is 100 per cent renewable energy retailer in New Zealand, and Alpha HPA that has commercialised the world’s first adoption of the solvent extraction purification technique to aluminium to produce ultra-high purity aluminium materials with a dramatically lower carbon profile.”
He says the myriad of drivers behind this energy transition are short, medium, and long term. “Climate change, estimated to cause $2.9 trillion in health and economic costs via air pollution, the pressing need for energy security, and the push to net zero (90 per cent of the world’s GDP has pledged to net zero) prompting at least $US500 billion via the Inflation Reduction Act in direct subsidies for low-carbon equipment manufacturing are part of the equation.
“Reoccurring energy crises due to demand or supply side issues with fossil fuels – recently highlighted by the lack of supply in 2022 – the rapid uptake of electric vehicles (the road transport sector accounts for more than 15 per cent of global energy-related emissions) and the benefits of decentralised energy systems that reduce transmission losses and increase the security of supply are other pertinent factors.”
He adds the push for renewable energy is a revolution with the potential to be as disruptive as the digital revolution of the past 20 years.
“The rate of technological change is enormous, and we think people underestimate this. For example, the batteries that are in today’s electric vehicles (EV) are quite different to those sold a few years ago.”
“A Swedish company has just announced that it’s come up with a sodium ion battery that doesn’t use lithium, cobalt, or nickel. Although this is an early stage of development, it is quite a step forward, as having access to more cheaply available materials will bring the price of EVs down and open up markets in the developing world.”
Read the original article on AdvisorVoice.
