Energy Transition

When we speak about the energy transition, we are referring to a long-term transformation of the entire energy system. This involves not only significant investments in renewable energy, but also close collaboration with traditional energy companies as they embark on their decarbonization journey. We are entering a multi-decade investment cycle across almost all areas of the energy market value chain. At Schroders, we believe that taking a holistic approach to investing in the energy sector will be crucial in the coming decades.  

Conventional oil and gas companies must adapt and transition their business models to continue to be dominant players in the global energy market going forward. Conventional energy companies currently provide a critical link in the energy mix and their investment rates will have a huge influence on the stability and speed of the energy transition. As these companies transition their business models, specialist expertise and active management are crucial to understanding the valuation cycles and managing risks. 

We also see huge demand for renewables from the increased demand for electricity globally; the market is expected to grow by about 150% between now and 2040 (McKinsey, Global Energy Perspective 2023). This is an unusually strong growth rate in demand that is separate from the energy transition movement. The key drivers being energy consumption per capita, population growth, data center usage and electrification of key industries. 

We see the urgency of decarbonization as one of the “3Ds” – demographics, decarbonization and deglobalization – which are driving seismic change through the global economy.