Opportunities in the energy transition

The signs of a low carbon economy are almost everywhere in today’s world. As we transition to a low carbon economy, a considerably large investment universe is starting to emerge. Here we identify 8 key investment opportunities as we pave the way for a low carbon world.

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What a low carbon economy looks like

The signs of a low carbon economy are almost everywhere in today’s world. Electric vehicles are growing in popularity and the number of electric charging stations is rising quickly. Solar panels and wind turbines are growing explosively in rural areas, with growing amounts of clean energy being transmitted via smart grids. Businesses are investing in green buildings to lower energy costs and protect health, whilst making use of cutting-edge technologies like industrial software and sensors to improve efficiency of resources. Consumers’ desire for sustainable products under highly-efficient, less polluting manufacturing processes is also increasing.

All these developments highlight that a new era of sustainability is on the way. It is about a fundamental change that touches upon all businesses as well as the way people live their lives. Many people are now more aware that by reducing energy use and cutting down on waste, we can move towards a sustainable future with lower greenhouse gas emissions, lower energy costs and improved health.

As the transition to a low carbon world accelerates, energy will increasingly from less carbon-intensive sources such as solar, wind or hydro-electric power, rather than carbon-intensive sources like fossil fuels. Renewables are clearly a strong investment opportunity as this transition plays out. However, investment opportunities are not restricted to renewables and energy efficiency solutions. A considerably wider investment universe is starting to emerge in smart mobility, electrification, enabling technologies as well as eco-friendly buildings.

Investment opportunities in the energy transition

Investing in the transition towards cleaner energy is now much more attractive to investors than a decade ago, for a couple of reasons. Firstly, the costs of solar and wind power as well as storage facilities have been driven significantly lower by innovation, making these sectors commercially attractive. Secondly, consumers are increasingly pursuing a low-carbon lifestyle amid concerns about climate change and its implications for health, leading to the popularity of electric vehicles, green buildings, and other low-carbon products.

The key low carbon investment opportunities can be found in the following areas:

Renewables

Renewable or clean energy, comes from natural sources or processes with constant replenished power such as from sunlight or wind. After years of development, the sector no longer relies heavily on government subsidies. For example, solar energy now stands out as one of the most attractive opportunities in the booming renewables sector, and the International Energy Agency recently announced that the world’s best solar projects now offer “the cheapest electricity in history”[1]. With solar starting to outperform traditional energy sources, the solar energy opportunity is a big deal[2]

Regulated utilities are leading the energy transformation, offering investors both stronger returns potential and high transparency.

Energy efficiency solutions

Solutions such as smart lighting, industrial insulation are increasingly being favoured by businesses as a means of improving energy efficiency, and saving costs. A wide variety of investment opportunities can be captured in the providers of these efficiency solutions that enable companies to use materials, energy, water or other resources in a more cost-effective way.

Enabling technologies

The journey towards a lower carbon world needs to be empowered by enabling technologies to reach international emission targets. For example, countries need to improve or build smart grids in a bid to integrate renewable energy into existing power systems. This will in turn boost demand for semiconductors, which are used to help control power flow and prevent power loss in the electric grids.

Smart mobility

Electric vehicles are becoming the preferred choice for both governments and consumers as the world transitions to low-carbon transportation. Thanks to improved battery technology, lower vehicle prices and increasing government subsides, demand for electric cars is sustaining strong growth. According to the International Energy Agency, the number of electric cars, vans, trucks, and buses on roads is forecast to grow from 11 million in 2021 to 145 million by the end of 2030. If governments accelerate their efforts to reach their climate goals, this figure could grow to as high as 230 million by 2030. [3]

Also, opportunities will emerge in parts and components makers in the smart mobility sector. The share of energy-efficient components in a vehicle is set to jump by seven to nine times versus today’s level as electrification develops[4].  The boom in electric and autonomous vehicles is also set to catalyse growing demand for high-tech components and semiconductors.

Green buildings

Governments are promoting green buildings in an effort to protect natural resources and improve the quality of life for people. A raft of initiatives are underway to ensure the health and wellbeing of those working in green offices or live in green homes. For example, green buildings can help businesses lower utility costs, cut construction spending and may lead to higher property value. They can also have a positive impact on the environment by generating their own energy or increasing biodiversity.   

As households and businesses demand homes or offices with high energy performance, the markets for appliances and heating, ventilation and air conditioning systems, as well as insulation systems, are seeing fast growth.

Efficient manufacturing

Artificial intelligence, automation, industrial software and sensors are playing an increasingly important role in driving companies’ transformation towards efficient use of resources and energy in the manufacturing process.

Industrial decarbonisation

Industrial decarbonisation is being accelerated as businesses look to co-invest in shared carbon-storage infrastructure, as well as researching and developing promising decarbonisation technologies. Many governments are also optimising rules and incentives to spur investment in renewable-generation capacity.

Consumer awareness

Investors and consumers will likely favour companies that produce or sell environmentally-friendly products, and those taking the initiative to lower or eliminate carbon from their supply chains, with expectations that they are more likely to outperform their competitors when embracing a low carbon economy.

What investors can do

Clean energy or lower carbon is no longer a slogan or a niche. Investors can capture the transition towards a low carbon world as investment opportunities emerge across a much broader and more diversified range of geographies and industries.

Investing in technological disruption and energy efficiency solutions allows investors to capture the long-term growth trend underpinned by this transition, as well as the fundamental mindset shifts of sustainable consumers across the globe.

[3] https://www.carbonbrief.org/solar-is-now-cheapest-electricity-in-history-confirms-iea