The energy sector has bucked the tumultuous start to the year for markets, with macroeconomic factors and geopolitical tensions combining to help power oil and gas prices up sharply since the beginning of 2022.
However, while the broader environment has created the perfect storm for traditional energy outperformance, the global green agenda shows no signs of abating, with capital continuing to flow to clean energy solutions.
While companies positively aligned to the energy transition have not been immune to the recent market volatility, several sector specialists believe the turbulence has created an attractive entry point for a space with strong structural tailwinds.
 Whitney Voûte, head of investor relations at US Solar Fund
“While the winds of change powering renewables are already evident, the recent outbreak of war in Europe has further accelerated calls for sustainable energy investment, as countries seek to reduce dependence on current fossil fuel sources.
“One of the key players in the upcoming renewable era is solar. In the US, where solar continues to be the cheapest form of new build generation across much of the country, the market is growing quickly. In 2021, a record 23.6 gigawatts (GWdc) of solar capacity was installed, bringing the total to 121.4 GWdc – enough to power 23.3 million American homes. As solar is the most cost-competitive source of energy production in much of the US, the US Department of Energy sees it as a critical component of the country’s clean energy shift – with estimates solar could reach 40% of US electricity generation by 2035.Â
“Additionally, solar in the US is often backed by long-term power purchase agreements with investment grade offtakers, making it an ideal investment to deliver stable income with regular uplifts.”
Francisca Wiggins, investment adviser to Atrato Onsite Energy
“Energy costs have surged in the UK in recent months, as evidenced by the four-fold increase in natural gas prices since last winter. While price caps can somewhat alleviate the pain for domestic consumers, UK corporates are afforded no such protection. With price instability likely to remain commonplace over the next decade, the use of onsite generation solutions – such as rooftop solar panels – could be the answer to combatting the energy crunch for corporates.
“Cost pressures have also started to bite, with an approximate 20% increase in solar component prices due to higher transportation costs and supply constraints in polysilicon – the key raw material of solar modules. While cost pressures are yet to subside, elevated polysilicon prices tend to lead to increased supply, as higher cost manufacturers ramp up production.
“Although these factors have recently increased solar energy costs, rooftop solar assets for large commercial and industrial users will likely continue to be substantially more competitive than wholesale energy prices for the remainder of 2022.
“Key to successful investment in solar, and take-up from corporates, are long-term contracts that deliver competitive energy prices and reliable portfolio income. This, along with the growing focus on achieving net-zero targets, continues to point to increased solar adoption in the years ahead.”
Ben Guest, manager of Gresham House Energy Storage Fund (GRID)
“As we transition towards net zero, there will be a growing need to store the rising amounts of intermittently produced green energy to balance power supply and demand. While gas-fired power stations have traditionally had the role of balancing electrical power supply and demand, the green transition means we must cut down on the use of fossil fuels.
“Batteries can undercut the higher balancing costs of gas and help keep electricity prices lower, in turn pricing gas generators off the system and eventually rendering them redundant.Â
“Battery storage can deliver long-term alternative, sustainable income, with the prospect of capital growth. As leading players continue to grow, we expect both operational costs and the cost of capital to fall across the industry. Income is typically derived from both long-term contracts to support National Grid’s regulatory mandate to balance power supply and demand, and increasingly also from intraday energy trading.Â
“Given the rapid ramp up of renewables in the UK, particularly with new wind farms coming online in the middle of this decade, we see a short-term need of about 10GW of capacity by next year, with about 30GW required by the end of this decade – a huge growth opportunity for battery energy storage systems.”
Anu Narula, head of global equities at Mirabaud Asset Management
“Renewable energy technologies now dominate the global market for new electricity generation capacity. A record level of 260 gigawatts of renewables-based generation capacity was added globally in 2020, more than four times the capacity added from other sources. China alone is likely to account for almost half the global increase in renewable electricity generation, followed by the US, EU and India.
“The costs of renewable technologies have plummeted to the point that new fossil-based electricity is no longer an attractive option. Lazard’s annual Cost of Energy Analysis for 2021 shows certain renewable energy technologies, such as wind and solar power, which became cost-competitive with conventional energy generation several years ago on a new-build basis, continue to maintain competitiveness. In fact, wind and solar power costs have fallen by 10% and 18%, respectively, from 2009 to 2021.
“Additionally, recent years have seen significant progress made in new technologies aimed at smoothing the energy transition in favour of renewables – such as electric mobility, battery storage, digital technologies and artificial intelligence, among others. These new technologies are helping to solve the challenges presented by energy-intensive industries and sectors – like industrials, long-haul transport, shipping and aviation.”
Michael Ganske, fixed income portfolio specialist at T. Rowe Price
“While developing economies markets appear to be bearing the brunt of the transition to net-zero, we believe increasing decarbonisation efforts actually create opportunities for emerging markets. After all, going green requires one thing above all: industrial metals.
“Metals like lithium, cobalt and rare earths are crucial components for renewable energy generation and electric cars, and demand is expected to shoot up over the next few years. Many emerging economies are benefitting from this. Countries including China, South Africa, Zambia, Chile and Peru all stand to profit from the growing appetite for key metals.
“As gradual as transitioning to sustainable energy sources may be, external shocks such as the war in Ukraine can speed things up. The combination of political animosities and prudent foresight could turn out to be a real game-changer for decarbonisation efforts across the world.”
