Renewable Power Could Be The New Holy Grail For Investors
Solar, wind power demand inches up after by COVID-19 led disruption
Today, we talk about the exciting future of clean energy and why it might be the right time to invest in the renewables.
Rewind to 21st April, 2020 — May contract for crude oil futures series was set to expire. All eyes were on Nymex prices. The world had run out of storage. The price for delivery slipped to never before levels, falling to an incredible minus $37/barrel. It had never ever happened before!
Plummeting of Nymex crude oil prices hogged the limelight. A more fundamental change could be taking place in the world energy market. Some economies are stuttering to a halt and others hardly running at full steam. Demand for power has fallen. Power plants are running at a lower capacity. That has been causing an upheaval.
The International Energy Agency has predicted a 6% drop in energy demand for 2020, the biggest since the Second World War. Demand is expected to slip nine percent in the US and 11% in the EU region.
Renewable energy could be the only silver lining though.
According to the IEA’s projection, renewable energy demand is expected to grow by one percent for the year. The falling demand for energy in 2020 becomes significant because industries and businesses could find a reason to pivot from traditional to renewable sources.
Power generating companies that rely on solar, wind, hydro, and others are finding favor in several European countries. These countries are cutting down on the use of power generated by coal-fired power plants.
Renewable energy companies are already feeding a significant part of energy into grids around the world. According to the International Renewable Energy Agency (IRENA), the capacity for renewable energy at 176,000 MW was up 7.4 percent during 2019. The companies from solar and wind power registered the biggest gains with 98,000 MW and 59,000 MW addition in installed capacity.
According to the US Energy Information Administration (EIA) the installed capacity of wind power has now exceeded the gas-fired power plants in 2019, a trend that will continue. 9100 MW of wind power was installed in the US while 8300 MW of gas-fired capacity was added during the year.
Importantly, renewable energy projects are getting approvals from governments across the world. That makes financing and insurance easier, making such projects are more bankable and far easier than projects which are run by conventional fuels.
Investors wake up to renewable power
While tech is the flavor of the season, renewables could soon give it a run for its money. Investing in renewable power companies could be a once in a lifetime opportunity for smart money. When comparing March and April 2020, there has been a 2.5X increase in the number of trades on the Stockal platform.
Renewable power stocks have been slow to take off. During 2019, it had not caught the fancy of investors, and trades were often few and far between. The market is now seen improved interest and investors are including them in their portfolio.
The volumes may be little but as these companies get into long term contracts to feed their electricity output into the grid, investors will surely wake up. Since this is an opportunity for annuity kind of earnings, it could be a good opportunity to get into a sector poised for secular growth.
Some of the companies are already operating at scale. Brookfield Renewable Partners, with nearly 20,000 megawatts generating capacity it is now one of the leaders in hydroelectric power. The expertise of Solaredge Technologies could make investors ride this global opportunity. NextEra Energy is one of the world’s largest producers of wind and solar power.
Pressure on banks
Banks in the US are looking to turn a new leaf with their investment focus. Morgan Stanley, JPMorgan Chase, Wells Fargo, Goldman Sachs, and Citibank have decided not to lend to businesses oil drilling in Alaska. For conventional energy, banks may now be averse to funding projects with such risk.
Big bulge investors could be facing the ire of green protesters too. Banks in Japan have been asked to stop funding power projects that are coal-fired. Japan’s Mizuho Bank is the biggest source of funds for coal-fired power projects and directly lent $16.7 billion since 2017.
At a time when the world is looking to shave cost, cutting down on coal usage could be the first priority. Adverse public reaction and cutting costs are not the only reasons, though.
Coal going out of favour
Several countries are now shutting down coal-fired power plants. During 2019, the US cut down coal power installed capacity by 14,000 MW. As energy demand slows down across the world, coal’s future looks increasingly bleak. Except in several Asian countries, where it is cheaper than other alternatives.
The easy availability of green and renewable fuels has made it very easy to replace coal for power plants. According to the US Energy Information Administration, coal pollutes way more than natural gas, producing twice as much carbon dioxide.
The change in the energy mix — fossil fuel to renewables — is now turning into a reality. Carbon Tracker says that nearly half the coal-fired power plants will be running into losses this year
With a large part of the world going through various stages of a lockdown, it has reduced monthly energy consumption by 1.5 percent, according to the International Energy Agency IEA expects demand to fall 6% during 2020, nearly 7X the kind of a fall seen after the 2008 crisis. Energy demand has fallen nearly 25 percent in countries that have witnessed a complete lockdown and nearly 18 percent in countries with a partial lockdown.
This could just be the right time for the world’s energy industry to pivot.
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