60 seconds on three themes driving energy transition
The energy sector is about to undergo a huge transformation in the next 30 years at an unprecedented rate.
The first theme which dominates the sector is that this has to happen from an environmental perspective, in particular due to carbon emissions, and this is being supported by politics and investors globally.
The second theme is the scale of investment, which is largely at this point under appreciated by everyone. The investment rates are as much as $120 trillion globally across the entire value chain, which is up to three to four times the previous last two decade’s investment rates.
The last theme is that investors have not missed this opportunity. If you look at the MSCI Alternative Energy Index your average return has been basically -1% per annum for the last five years.
But we’ve started to see an inflection in terms of EBIT (earnings before interest and tax) margins and return on capital.
This has a huge amount of longevity going forward, which will be driven by utilisation rates in electric vehicles, the cost of energy coming down in wind and solar, plus the adoption of new technologies such as storage and smart grids which will drive the overall transition.
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