Markets are failing to factor in the speed of transition to clean energy, according to George Whiting, head of institutional and retail business development for the Perennial Better Future Trust.
With solar and rooftop solar poised to be a significant source of energy by 2026, Mr Whiting has drawn a bullish picture of a world transitioning away from fossil fuels faster than anticipated.
“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.
Meanwhile, Mr Whiting noted coal and natural gas are reducing as a percentage of the overall energy mix.
“In Australia, the uptake of renewables has been significant, especially since 2021–22, a trend we expect to continue.”
While the speed of energy transition has been backed by empirical evidence, it is the Perennial Better Future Trust’s belief that markets have yet to factor this into their investment strategy.
Mr Whiting stated: “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.”
As such, he said the trust uses negative screens to both avoid headwinds from the “energy revolution” and tap into the tailwinds to invest in those companies that will benefit, adding that a myriad of drivers behind this energy transition span across the short, medium, and long term.
Namely, climate change, estimated to cause $2.9 trillion in health and economic costs via air pollution, the increasing need for energy security, and the push to net zero – prompting at least $US500 billion via the Inflation Reduction Act in direct subsidies for low-carbon equipment manufacturing – are all part of the equation.
“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,” Mr Whiting explained.
He added that the push for renewable energy has the potential to be as disruptive as the digital revolution that has spanned the past two decades.
“The rate of technological change is enormous and we think people underestimate this. For example, the batteries that are in today’s electric vehicles (EV) are quite different to those sold a few years ago.
“A Swedish company has just announced that it’s come up with a sodium ion battery that doesn’t use lithium, cobalt, or nickel. Although this is an early stage of development, it is quite a step forward, as having access to more cheaply available materials will bring the price of EVs down and open up markets in the developing world,” Mr Whiting concluded.