This paper will explore the Energy Transition investment mega-theme and the role of infrastructure and energy to achieve net zero goals. The task is massive as it entails reconfiguring the entire system of energy production and energy delivery. Several subsectors related to the Energy Transition should see unprecedented growth over the next decade and beyond. The Energy Transition theme is compelling as it represents a nascent industry which is attracting capital, inspiring new business formation, driving job creation and addressing the societal issue of climate change. Under the Biden Administration the US has set a net-zero emission goal by 2050, Europe has a similar goal by 2050 and President Xi Jinping pledged for China to reach net zero by 2060. Specifically, to meet these goals the world must dramatically reduce its output of new carbon emissions—largely the result of burning crude oil and coal—to a “neutral” level by about 2050 to keep global warming in check.

Expectations have grown around the total addressable market for Energy Innovation to become one of the biggest investment themes over the next decade. The IEA projects trillions of dollars in capital is required to move economies to “net zero” and meeting climate goals will require a step change in spending providing select themes with attractive growth. Consensus has been coalescing globally amongst governments at both the federal and local level to set carbon neutrality timeframes by committing billions to clean energy providing an impactful tailwind for the sector. In addition to incumbent electric utilities, based on 2022 budgets large international oil companies are also seeing a growing percentage of their annual investment focused on Energy Transition assets, further adding to growth for the sector.

Lower Carbon Electricity

Lower carbon electricity is expected to see robust growth and massive investment. Wind and solar are currently the dominant technology for low carbon electricity. This should drive unprecedented growth for solar panels, wind turbines, micro inverters, battery systems and other components.

The world’s energy consumption mix is changing, with electricity expected to gain a significant share over the next two decades. Grid enhancements and expansion, including demand response and grid resilience software will be required as more renewables are being added to systems ranging from small-scale rooftop to utility scale grids.

Electrification of Mobility

Electric Vehicles are approaching 5% of auto sales today and are projected to grow to 50% of auto sales based on several industry forecasts as expanded customer choice leads to greater adoption. Battery technology and performance will be key for EV adoption and should experience high growth along with the materials required to make batteries. Battery metals will also grow as highlighted by the latest S&P Global Market Intelligence forecast for demand to rise by a compound annual growth rate (CAGR) of 15% for copper, 35% for lithium, 28% for cobalt and 35% for nickel. As the number of electric vehicles sold increases over time the risk of deficit for battery grade commodities will become more acute.

Electric Vehicle Charging Systems

Electric Vehicle charging systems will experience high growth as the Biden Administration has a goal to accelerate EV adoption by encouraging long-term infrastructure investment that would expand the number of U.S. charging stations to 500,000 from the current 40,000+ operating today. Copper is a major component of electric vehicles as well as charging systems; copper is used in the anode current collector of lithium-ion batteries, in the stator and rotor of induction motors, inverters and wiring. Copper also is heavily used for electrical purposes in green technologies. In solar photovoltaic (PV) panels, for example, copper is used in wiring, cabling, earthing, inverters, and transformers.

Alternative Fuel

SourcesAlternative fuel sources, such as renewable gas and renewable diesel derived from biomass should experience solid growth as well. For the world to achieve net-zero by 2050, net neutral or negative carbon sources of energywill be required, given that the most prevalent conventional (fossil fuels) and renewable (solar, wind) sources have positive carbon intensity profiles over their entire lifecycle. Renewable Diesel and Sustainable Aviation Fuels offer a cost and environmentally friendly solution today for the capital-intensive heavy-duty transport sector.

Other technologies will emerge as innovation is focused on the Energy transition. Disruptive technologies create uncertainty but also can connect with customer preferences and changing government policies resulting in powerful tailwinds.

The world’s transition to renewable energy and low-carbon fuels is accelerating. Investors have been focused on the total addressable market (TAM) for renewables and the energy transition as a key underpinning for the expected growth of the ET theme. This is reasonable given the IEA projection of ~$68T of required investment over the 2020 – 2040 timeframe under its Sustainable Development Scenario (which is in-line with the objectives of the Paris Climate Accords). The implications of moving onto this path are staggering for the energy sector, which accounts for about two-thirds of the world’s CO2 emissions.

This tailwind creates an attractive backdrop for several themes important to the de-carbonization of the energy sector and is the main reason exposure to the sector is interesting. Renewables stand to take a massive share from coal and crude, supported by government policies and technological improvements that have brought the cost of renewable energy down sharply this past decade. In many cases, solar and wind energy are already competitive with traditional power sources. Renewables’ costs should only decline further from here, whereas the costs of fossil fuels may increase as more countries introduce and increase carbon taxes. The Energy Transition to Green theme has a broad universe as it is a multi-industry effort with a focus on adaptation and mitigation spanning the utility, energy, technology and industrial sectors.

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