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Video: What are the key energy transition trends so far in 2023?

Alex Monk discusses the key trends in the energy transition space since the start of 2023.



Alex Monk
Portfolio Manager, Global Resource Equities

Hello everyone and welcome back once again to energy transition trends where we review the goings on across the energy transition universe.

How different does 2023 look compared to 2022 for the global energy transition (GET) universe and how have the GET sectors performed so far?

2022 proved to be a challenging year for financial markets, with most asset classes feeling significant pain. Although certain areas across energy transition equities fared better than many other parts of global equities – as macroeconomic headwinds were offset by structural decarbonisation efforts and an energy crisis that boosted demand for new energy technologies - they were by no means immune to the pressures overall.

2023 has so far started where the previous year left off, with material market volatility caused by an uncertain and complex macroeconomic environment – and many energy transition equities have been in the eye of the storm.

While each sub-sector within the energy transition universe is exposed to long-term structural growth dynamics that will accelerate their earnings for decades to come, there will still be some sensitivity to shorter-term factors.

Indeed, as financial conditions have tightened globally, those companies and sectors more exposed to consumer financing, the economic cycle, and less readily available liquidity, such as residential solar, electrical equipment, and clean mobility, have been notably weak so far this year.

In contrast, those companies with stronger underlying cash flow generation, more robust balance sheets, and clear fundamental drivers, including potential policy support, have performed best. This has been most evident in the solar module and battery manufacturing sub-sectors, where demand remains strong and the incentives provided by the US Inflation Reduction Act are most clear.

What is the outlook for the rest of 2023 and which parts of the GET value chain are looking most interesting currently?

We expect volatility across the energy transition universe to remain short-term – particularly in sub-sectors that are either more exposed to cyclical economic forces or that require access to capital to continue their growth.

But while the tighter financial conditions will likely have implications for companies across the energy transition space in the short-term, we could still be surprised by the potential resilience of energy transition equities given the structural forces that underline their earnings and cashflow growth. The fundamental drivers behind the energy transition remain as strong as they have ever been.

It could well be that companies historically exposed to cyclical moves in the underlying economy, for example, electrical equipment, clean mobility, and residential solar, see resilient demand for their products and services even as the economy slows, as consumers and businesses globally seek to decarbonise their operations and prepare for further energy market tightness ahead.

The continued realisation of proposed policy support, in the US from the Inflation Reduction Act, and EU in the form of the Green Deal Industrial Plan, should continue to provide both earnings and financing support too.

Finally, and perhaps most importantly, valuations across the entire space still look fundamentally attractive for those with a longer-term view. With headline multiples having now retraced almost their entire post-pandemic gains in both absolute and relative terms, valuations across the energy transition universe are starting to look very compelling for the first time in a while even in the face of continued short-term macroeconomic threats.


Alex Monk
Portfolio Manager, Global Resource Equities


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