Page 8 - April ISQ 2021

INVESTMENT STRATEGY QUARTERLY

Global Energy Transition: What It Is, Why It

Matters, and How to Invest in this Theme

Pavel Molchanov, Director, Energy Analyst, Equity Research

Energy transition, also commonly referred to as decar-
bonisation, is one of the global megatrends of our time.
For investors, it is essential to at least concep-
As it underpins the paradigm of environmental sustain-
tually recognise the impact that this megatrend
ability, energy transition is a megatrend not just for the will have for the entire energy value chain,
next few years, but toward the middle of the century. along with many non-energy sectors.
Here is the big picture: the global economy’s traditional
reliance on fossil fuels (coal, petroleum, natural gas) is
diminishing, as both technological/economic and polit- have committed to source 100% of their electricity from renewable
ical/regulatory factors drive the adoption of renewable sources — and many have already achieved this target. Even more
energy sources and other low-carbon technologies. For impactful, a dozen of the top-tier oil and gas producers have com-
investors, it is essential to at least conceptually recognise mitted to reorient their operations toward low-carbon energy over
the next 20 to 30 years. To clarify, these companies are doing it not
the impact that this megatrend will have for the entire
because they are forced to by governments, but rather because
energy value chain, along with many non-energy areas they see it as good business. For example, the past decade’s mas-
(e.g., transportation, manufacturing, and agriculture). sive reductions in wind turbine and solar hardware costs mean
There will be winners and losers, but not always the ones that in-house wind and solar farms routinely provide lower-cost
electricity for data centers as compared to buying power from the
you’d expect, and with a wide range of impacts in dif-
grid – and, amid frequent headlines about weather-related power
ferent geographies. outages, integrating such assets with batteries can also provide
24/7 reliability. Bus and truck fleets converting to electric or fuel
RENEWABLE ENERGY IS GOOD BUSINESS cell vehicles stand to achieve savings on fuel as well as mainte-
Technological change is creating economic incentives for self- nance, which offsets the higher upfront cost of these vehicles.
motivated decarbonisation. Case in point: more than 280 large Similarly, upgrading buildings with energy-efficient windows, LED
companies around the world, encompassing nearly every industry, lighting, and energy management software also pays for itself over
time.

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