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Investment opportunities in renewable energy

18 Mar, 2021 | Return|

By Sunniva Bratt Slette, Investment Analyst at Storebrand Asset Management

While views on the extent and pace of decarbonisation required to reach net zero emissions by 2050 remain frustratingly divergent, most agree on the need for a significant increase in renewable energy to get there. Defined[1] as "energy produced by natural resources – such as sunlight, wind, rain, waves, tides and geothermal heat – that are naturally replenished within a timespan of a few years", the IPCC expects that renewables will need to supply 70–85% of our electricity in 2050 to keep global temperatures below 1.5°C[2].

The figure is currently around 11% according to Bloomberg New Energy Finance, with investment in renewables having risen steadily over the past decade driven by regulatory change, cost reductions and growing public health benefits. Consensus is particularly strong on the anticipated increase of solar and wind energy – Bloomberg predicts the two sources combined will provide over half of global power by 2050 – but the need to reduce our reliance on fossil fuels significantly over the next thirty years makes the investment case for future growth across a diversified spectrum of renewable sources compelling.

Picture1

Source: Bloomberg New Energy Finance (2021)[3]

Investment roadmap

Renewable energy is directly linked to two of the UN's 17 Sustainable Development Goals –Climate Action (SDG 13) and Affordable and Clean Energy (SDG 7) – and indirectly connected with many others. These provide an investment roadmap towards a sustainable future while the Paris Agreement commitments of UN nations is also diverting capital flows towards climate mitigation and adaptation measures. In the coming decades the scale of investment is expected to increase drastically with clean energy alone forecast to represent $1.2 trillion of opportunities in 2030 if the UN's objectives are realised, according to the World Business Council for Sustainable Development (WBCSD).

Two investable themes we believe are particularly attractive are renewable energy technologies and energy storage and distribution.

Renewable energy technologies: Cost reductions from lower component prices, efficiency gains and industry development have made both solar and wind energy economically viable, meaning that technologies have become commercially available across global markets. Wind energy is one of the fastest growing, enabling our holding Vestas to provide turbines across 83 countries and displace 186 million tonnes of CO₂ emissions in 2020.

Solar remains the most abundant and accessible energy resource on Earth and we recently invested in two companies developing technology to harness its power; Xinyi Solar, a Chinese manufacturer of solar panels capable of meeting a third of global production, and the West Group, which services over 300 solar power plants across Japan. One of the most cost-effective methods of producing electricity is hydropower, while geothermal, ocean, wave and tidal energy also use water and the latest technologies to generate power and offer exciting investment opportunities. 

Energy storage and distribution: Energy storage costs have also declined across most technologies, especially for short-term capture. Lithium-ion batteries are predicted to become most efficient power source for nearly all stationary applications from 2030, while technology is also driving greater use of minigrids, microgrids and Distributed Energy Systems (DES) which can relieve the pressure from centralised networks and provide renewable power to remote areas. As well as energy independence, they offer rapid installation, greater efficiency and cost reductions due to the lower price of renewables.  

Enphase Energy is an innovative US company which recently entered our Global Solutions portfolio. It provides all-in-one solar power, battery charging and storage systems which provide household energy independence and reduced pressure on the power grid, illustrating how technology can deliver energy efficiency and exciting opportunities for investors.

 

To find out more, please read Storebrand’s Renewable Energy Paper.

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At present, Storebrand's sustainable funds may be accessed for investment via the following distribution platforms: Transact, Standard Life, Aviva and AJ Bell, with more soon to follow.

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[1] Source: Renewable Energy Systems, 2010

[2] Source: IPCC, Summary for Policymakers, 2018

[3] Source: BloombergNEF, Energy Transition Investment Trends, 2021, Retrieved from BloombergNEF:  https://www.bnef.com/insights/25307/view

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