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“The energy transition is the largest investment opportunity that has ever existed”

Pierre Abadie, Climate Director @Tikehau Capital

Among the investment players enabling the energy transition, the asset manager Tikehau Capital clearly has muscle. Since 2018, the fund T2 Energy Transition, under the lead of its Climate Director, Pierre Abadie, has been heavily involved in the decarbonization of our economy with a mantra: collect the global savings and invest in SMEs that decarbonize our industry, buildings and transport. At a time when technology appears to be the way to sort out energy issues, Pierre Abadie temperates on it and explains why.

With the various events taking place around the world, energy issues are at the heart of the news. What is your position on energy transition issues?

The energy transition is the biggest investment opportunity that has ever existed. The figures speak for themselves. According to the International Energy Agency and IPCC, 6,000 billion dollars a year are needed to decarbonize our system. The IMF estimates that 6,000 billion dollars will have to be invested to protect the adaptations that will have been made to our infrastructures in terms of decarbonization. Finally, we will also have to inject 6,000 billion dollars to adapt our agriculture. If we add up the total, we are 20,000+ billion dollars of investment in a global economy worth 80,000 billion dollars. The longer we wait to invest, the more difficult it will be to remain within the limits that our biosphere can handle! In other words, the energy transition is compulsory, it is as big as the Industrial Revolution, with one difference: its pace. The process of this transition will be as fast as the Digital revolution and will take place in only 10 years.

There is a lot of talk about tech players working on the energy transition. Do you think this media focus is relevant?

Yes and no. In the energy transition, tech is first and foremost an enabler, there to help a system pivot. We need to decarbonize the industry, transport, buildings and agriculture. Tech solutions are a lever of decarbonization thanks mostly to digitalization, but the decarbonization needs to be implemented at scale. For example, if we want to improve building efficiency, the technology through mostly digitalization will be helpful but ultimately what is required is for companies to install insulation, change windows and roofs changing fossil boilers with heat pumps. These are real assets to be installed in the real economy using existing companies. Just to give an order of magnitude to change at scale a value chain I would say that we would need to invest 1€ in VC to innovate, 10€ in private equity to strengthen the balance sheet of the companies who will scale up and implement the change and 100€ for the underlying infrastructure to be installed by those companies. Counter-intuitively it’s the low-tech that is decarbonizing our economy, but this can be efficient thanks to the tech.

What are the key investment trends?

Not necessarily the ones that get the most media coverage! For example, Hydrogen is everywhere in the media but the market is very small and not yet mature. So a lot of capital is attracted to very few projects and the valuation is exploding.

Still, hydrogen should represent 20% of energy production in 2050 which requires ramping up investment from nearly zero today to 100 billion per year until 2030 and then 300 billion per year until 2050. This seems huge and it is but more effectively and pragmatically and even if it is much less sexy to act for the existing. The real question that must prevail is: what is the most useful? Coming back to the example of building thermal renovation the International Energy Agency estimate that 700 billion per year from now to 2050 are required to reduce immediately the carbon footprint of one of the biggest emitters of CO2 of our economy… making this thematic a secular economic trend with a valuation entry point at 8x EBITDA multiple and not 20x 2026 Sales multiples.

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