In this edition...
- Investing in clean technology for tomorrow’s renewable economy Hamish Chamberlayne , Head of Global Sustainable Equities - Janus Henderson
- Will there be a soft landing for the UK housing market? Katie Poulson, Client Engagement & Marketing Manager - RSMR
- The changing face of growth James Budden, Director of Marketing and Distribution - Baillie Gifford & Co
- Managing CGT through unitised funds Brewin Dolphin,
- Higher inflation not the end of the 60/40 portfolio Giulio Renzi-Ricci, Head of Asset Allocation - Vanguard
- Reality will bite for central banks Ariel Bezalel, Investment Manager, Jupiter Strategic Bond Fund - Jupiter
- The Synaptic Pathways guide to research and due diligence Synaptic,
- Offering self-reliance in due diligence for reviews Synaptic,
- How to approach reviews: the task that defines firms Eric Armstrong, Client Director - Synaptic
- Integrate your Centralised Investment Proposition (CIP) with Synaptic Pathways Eric Armstrong, Client Director - Synaptic
- Synaptic Pathways can take your firm’s asset allocation a step further than Nobel prize winning Modern Portfolio Theory Synaptic,
- The first rule of financial planning: insure the breadwinner Synaptic,
- Hours to minutes Synaptic,
Hamish Chamberlayne, Head of Global Sustainable Equities at Janus Henderson Investors, considers the seismic changes that are happening to make renewable energy the new backbone of the global economy.
Global growth in demand for oil is set to slow significantly by 2028, according to a recent report by the International Energy Agency (IEA). In stark contrast to slowing oil demand, the pace of investment in renewables energy is rising much faster than people realise. The IEA forecasts that renewables will account for over 90% of global electricity capacity expansion, with output growing by almost 2,400 GW over 2022-2027.1
Such a seismic shift in the global energy mix will require large scale changes and solutions to some of the current sticking points surrounding renewable energy. However, there are still many hurdles to overcome for renewable energy to become fully integrated the global economy.
Scaling manufacturing capacity to meet targets
Renewable companies have responded to government incentives with major plans to expand current operations and develop new low carbon projects. In the UK, SSE recently announced plans to invest up to £40 billion in low-carbon energy infrastructure. Similarly in Europe, Iberdrola has committed €47 billion to investing in projects which are driving the energy transition. While these ambitions are positive for the climate agenda, the challenge will be finding the capacity to meet these goals.
Long-term partnerships with suppliers is one way to boost manufacturing capacity and protect against volatility in supply chain prices. One example of such a partnership is Danish power company Ørsted’s recent strategic partnership with German steel producer Salzgitter which will see Ørsted supply the renewable energy needed for Salzgitter to produce green steel for Ørsted’s wind turbines. We expect to see similar capacity growth in the US, with the IRA allocating US$30 billion in production tax credits to supply chain-specific manufacturing in the renewables space, including solar photovoltaics (PV), electric vehicles and energy storage.
Circular principles and effective waste disposal
Currently, wind and solar infrastructure have fixed lifespans of 20-30 years, which poses the problem of what to do with projects when they reach the end of their lives. New solutions are emerging to tackle components of renewable infrastructure that are less easy to dispose. Turbine blades for example contain complex composite materials which create lighter and more aerodynamic blades but pose challenges when recycling. Danish wind turbine manufacturer Vestas recently announced a new chemical technology to break down old blades into liquid before extracting high quality materials to use in new blades. In the solar space, the first specialist recycling facility is opening in France to manage the large amount of waste that is anticipated as the uptake in solar panels increases, with the intention to recycle 99% of components.
Smart energy storage
Batteries, thermal energy storage and pumped hydro allow for energy to be stored and accessed when it is needed. SSE recently announced plans to convert an old hydro power station in Scotland into pumped storage, which involves pumping water uphill at times of low energy demand and releasing the water through turbines to create electricity when it is needed. This will play a significant role in managing the energy supply and is an example of how firms can upgrade existing infrastructure to meet today’s needs.
While pumped hydro makes up the majority of current energy storage, grid-scale battery growth is on the rise. According to the IEA, grid-scale battery growth is projected to account for the majority of storage growth worldwide. In 2021, grid-scale battery installation increased by 60% compared to 2020, with the US leading the way. China is the leader in battery making today but Canada, which has the necessary minerals and skilled workforce, is emerging as the next competitor in battery production.
What does this mean for investors?
The growth runway for renewable energy is huge; not only is it backed strongly by governments across the globe, but the pace of investment in clean technologies is much faster than many have anticipated. As such, we expect to see seismic shift from fossil fuel-based to renewable industries in the next decade. It is important to note that renewable energy companies are only one aspect of achieving a low carbon economy. Electrification and digitalisation are two highly important vectors for decarbonisation and there are many different companies playing a part in these trends.
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1 International Energy Agency, Renewables 2022 report, 6 December 2022. There is no guarantee that past trends will continue, or forecasts will be realised.
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