Three themes driving energy transition
Three themes driving energy transition
The energy sector will undergo a huge transformation in the next 30 years at an unprecedented rate.
- Read more: What is “energy transition”?
There are three aspects which stand out to us about the theme:
- The transition is needed
This transition simply has to happen from an environmental perspective, in particular due to carbon emissions. This is being supported by politicians and investors globally.
- Investment is ramping up
The scale of investment in renewables is largely under-appreciated at this point. The investment rates are as much as $120 trillion globally across the entire value chain, which is up to three or four times the previous last two decades' investment rates.
- Investors still have time
Finally, we think investors have not missed this opportunity. If you look at the MSCI Alternative Energy Index, the average return has been -1% per annum for the last five years.
How the MSCI Alternative Energy Index has performed since 2009
Source: Schroders. Data for MSCI Global Alternative Energy Index from Refinitiv correct as at 22 July 2019.
But we’ve started to see an inflection in terms of how companies involved in alternative energy are performing, when you look at factors such as EBIT (earnings before interest and tax) margins and return on capital.
This has a huge amount of longevity going forward. It will be driven by increasing use of 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.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.