EXPLORE the overarching THEMES
OVER-HYPED Innovation
Renewables
Lower-carbon FOSSIL fuels
OVER-HYPED Innovation
Lower-carbon FOSSIL fuels
Renewables
Wages
Dependable energy is not just critical for economic development, it is considered by most countries to be an essential aspect of national security.
Tech and Demographics
Employment outlook of future leading and lagging industries in Europe
Monitoring innovation around renewable energy sources and green tech
Some speculative innovations – like hydrogen and nuclear fusion – can garner considerable media attention, and startup firms can be characterized as plucky upstarts challenging large energy incumbents. For investors, the risk-reward propositions many of these early-stage innovations offer may not be attractive. They all have two things in common: first, they each have the potential – when fully mature and operationalized – to profoundly alter the energy landscape. Second, they each face immense challenges before they can applied in the real world at scale.
BY REGION
Data as of August 2023.
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Governments including Japan, China, Germany, the US and India maintain strategic reserves of oil or natural gas.
With gas supply threatened by Russia’s invasion of Ukraine, Germany had to return to heavy carbon-emitting sources to ensure energy access.
Countries where fossil fuels are relatively abundant will likely have an extended transition to renewables.
Countries without sufficient domestic reserves have the option of seeking imports or alternative sources, such as nuclear in the 1970s.
Hydrogen faces numerous challenges in transport and storage before it can be used widely.
Nuclear fusion requires such extreme conditions – over 100 million degrees Celsius – that creating these conditions safely and efficiently outside of a laboratory is simply not feasible today.
Small modular nuclear reactors are plagued by delays and cost overruns in new construction that renders many projects uneconomical.
Grid-level power storage faces challenges around energy density, cost and efficiency.
Carbon capture and storage requires significant investment in infrastructure to move vast amounts of carbon from where it is generated to where it can be sequestered. And it is unclear how to monetize such operations in the long term.
Growing need for utility storage
Current storage capacity vs. needed storage capacity
Note: Needed storage capacity refers to the net-zero emissions scenario. (F) indicates forecast. Source: International Energy Agency. March 2024.
1. Renewable debt opportunities beyond wind and solar power generation
Debt financing tends to be less plentiful than equity in Europe and the US. This may offer attractive investment opportunities – especially senior debt in mature projects with offtake agreements and grid connections in place.
Investors should consider looking beyond wind and solar power generation projects in Europe and the US and consider hydro and geothermal projects where they are possible.
Enabling renewables and balancing out their infrastructure
2. India’s renewable power generators offer intriguing opportunity
3. Wind turbines offer a different risk-reward proposition
4. Banking on grid modernization and expansion
5. The need for long duration storage
6. Vertically integrated energy providers
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India’s incredible demand growth provides a strong macro tailwind for renewable power generation companies.
Companies with an established track record of executing on projects and cash flow from existing production may be especially attractive.
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Wind turbines offer a way to invest in renewables with limited exposure to individual power projects and the price volatility of electricity.
Technology leaders in Europe and North America can be particularly attractive.
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Manufacturers of key grid components – including inverters and substations – offer exposure to a rapidly growing segment of the market.
In South America, transmission companies offer exposure to a portfolio of transmission lines with cost pass-thru capabilities and attractive debt structures.
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Utility-scale power storage can mitigate the issues of intermittency and is a vital part of the energy transition.
Pumped-storage hydropower is attractive given its scale, technological maturity and dispatch capacity. While new projects are very limited, investors should consider global players with room to expand their capacity.
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Given their long track record of building and maintaining infrastructure and their ability to pass-thru higher costs, regional utilities with power generation and distribution capabilities offer an intriguing investment area.
Some large energy providers finance segments of their power generating assets in private credit markets. Debt investors can find opportunities to get exposure to portfolios of mature projects.
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Meeting current demand with fossil fuels while reducing carbon emissions
1. Natural gas is displacing higher carbon-emitting fuels
2. Debt opportunities in the mid-market
3. Big Oil and the future role of incumbents
Natural gas can play a critical role in the energy transition by displacing thermal coal.
In the US, small gas producers and large LNG players offer growth potential as global demand soars.
The debt of regional pipeline operators offers investors a different risk-reward proposition.
As banks have receded, debt financing for energy producers in the middle-market has become scarcer – creating private
credit opportunities.
Investors should look for projects that have passed the exploratory phase as they offer reliable cash flows and tangible collateral.
Though fossil fuels will have an extended sunset, investors need to periodically consider the obsolescence risk in their exposure to Big Oil companies.
Big Oil firms that lean into lower-carbon and renewable sources may face less obsolescence risk – though these firms have not seen higher valuations from markets.
Global oil incumbents are also major players in research around green tech and clean energy. They are among the leaders in patents in areas like biofuels and carbon capture. Some may be winners in the new energy landscape.
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Renewable debt opportunities beyond wind and solar power generation
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India’s renewable power generators offer intriguing opportunity
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Wind turbines offer a different risk-reward proposition
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Banking on grid modernization and expansion
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The need for long duration storage
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Vertically integrated energy providers
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