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Over the last two weeks, global leaders and delegates were in Glasgow for the 2021 United Nation Climate Change Conference (COP26). The agenda was extensive, with an overarching UN target: “Secure global net zero by mid century and keep 1.5 degrees within reach”. There were noticeable absentees from China and poor carbon neutral timeframe commitments by some of the big emitters including India & China. However, many countries publicly committed to ambitious 2030 emissions targets, hoping to contribute to the 2050 net zero goal. There were also agreements between nations on reversing deforestation, cutting methane emissions, and phasing out coal use by 2030.
We can see from the data over previous years that the largest energy transition sector for global investment is unsurprisingly in renewable energy. Below we discuss the various renewable sectors that have seen strong performance from climate ambitions.
Electricity Generation – 2020 was the best year in history for the global wind power industry, with 93 GW of new capacity installed, a 53 % increase year on year. The Global Wind Energy Council have said that this growth is, however, not sufficient to achieve net zero by 2050. Stating that the world needs to be installing wind power three times faster over the next decade to stay on the net zero pathway.
Electricity Generation – Large expansion in Asia drove a rise in solar power generation in 2020, China increased its capacity by 49 GW. Total solar capacity has now reached a similar level to wind power. According to the latest Solar Market report, the global solar energy market is projected to grow at a Compound Annual Growth Rate (CAGR) of 20.5% through to 2026.
Transportation – Within the biofuels space, transport biofuel production expanded 6% year-on-year in 2019. 3% annual production growth is expected over the next 5 years.
Electricity Generation – Hydropower also saw growth in 2020, with the commissioning of several large projects delayed in 2019. Although hydro power is the largest global renewable energy source, the sector is still expected to register a CAGR of 2.5% during 2020-2025.
Electricity Generation/Transportation – Generation is expected to grow at a CAGR of 9.2% to 2025. The application of increasing fuel cell power generation is driving the market growth.
Transportation /Electricity Generation – Another renewable energy source seeing considerable growth with analysts predicting an 8.8 % increase from 2020 to 2021 in terms of kWh produced from biomass.
We’ve identified several stocks within the clean energy sectors that could benefit from current and future policies aiming to meet the aggressive carbon neutral targets. (MSCI ESG Rating) Leading wind turbine manufacturer Vestas Wind Systems (AAA) should benefit as the world shifts away from fossil fuels. The Danish company design, manufactures, installs and services wind turbines worldwide (15% market share, 34% excluding China which is unlikely to win any contracts in Europe). The company has a safe balance sheet with €1.1 billion in net cash and expectations for free cash flows to grow by more than 50% over the next 2 years.
ProFin Partners specialise in derivative investment solutions . We can offer upside exposure to one or more underlying’s with varying levels of capital protection. With flexibility to create exposure to ESG ETF’s as well as baskets of individual stocks we can customise products to clients’ needs.
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