Clean energy push triggers new strategies

A new investment outlook from Perennial Partners has identified the market’s misjudgement of the speed at which the global economy is transitioning to clean energy.

George Whiting, Head of Institutional & Retail Business Development for the Perennial Better Future Trust, said in a presentation titled ‘The Energy Transition: Some empirical cause for optimism’ that the world is moving away from fossil fuels faster than previously anticipated, with solar and roof top solar expected to be major energy sources by 2026.

Whiting said wind energy has also increased its share in the overall market while coal and natural gas have decreased, something markets have not yet considered in their investment approaches.

“Morgan Stanley expects renewable generation to contribute 45 per cent of global electricity consumption by 2030, and the share of solar and wind will nearly triple by 2030 in the power consumption mix,” he said.

“In Australia, the uptake of renewables has been significant, especially since 2021-22, a trend we expect to continue.

“When it’s considered that one-third of the ASX will be directly impacted by the energy revolution and another third indirectly, it doesn’t seem feasible for it not to be a critical element of any investment strategy. But despite this tailwind, we believe that markets are inefficient and are not pricing it in the short term.

“What we do is use our negative screens to really focus on avoiding headwinds from this energy revolution and tap into the tailwinds to invest in those companies that will benefit.”

Whiting also said there are a plethora of short-, medium- and long-term opportunities to support the companies driving the transition to green energy.

“Climate change, estimated to cause $2.9 trillion in health and economic costs via air pollution, the pressing need for energy security, and the push to net zero (90 per cent of the world’s GDP has pledged to net zero) prompting at least $US500 billion via the Inflation Reduction Act in direct subsidies for low-carbon equipment manufacturing are part of the equation,” he said.

“Reoccurring energy crises due to demand or supply side issues with fossil fuels – recently highlighted by the lack of supply in 2022 – the rapid uptake of electric vehicles (the road transport sector accounts for more than 15 per cent of global energy-related emissions) and the benefits of decentralised energy systems that reduce transmission losses and increase the security of supply are other pertinent factors.”