Renewable Energy Trends Should Be A Greater Focus For Investors

by: Sean Heffron, Analyst - Energy and Utilities

President Elect Joe Biden has proposed a plan that would call for United States electricity consumption to be carbon free by 2035, while also having the country produce net zero carbon emissions by 2050. Although this plan seems a bit ambitious, the Renewable Energy industry may be poised to answer the challenge. In 2019, renewable energy beat coal’s U.S energy consumption for the first time in over 200 years (according to U.S. Energy Information Administration’s). Renewables were led by the widely popular wind and solar energy products, which accounted for around 50% of the entire U.S. renewable electricity production (according to a study conducted into the industry by Deloitte.). In addition to renewables, the vehicle industry is working away from gas-reliant cars, as companies such as Tesla, Ford, and Nikola have poured billions of dollars into the production of electric cars. Political agendas aside, the rise of clean energy is upon us.

Despite reporting a $16.8 billion dollar loss for the recent quarter, London based Oil and Gas behemoth BP ($BP) revealed aggressive plans to up their stake in renewable energy. BP’s CEO, Bernard Looney announced that the company plans on investing $5 billion dollars annually into renewable products such as wind, hydrogen, and solar. This “stat” is of significance as the $5 billion annual investment is 10 times larger than the company’s current investments in renewables (according to the New York Times). Additionally, the company plans to cut oil and gas production by about 40% over the course of this plan. These aggressive measures by BP certainly indicate a sense of trust for the prospect of renewables developing a stronghold on the industry. BP is not alone, as other Big Oil powerhouses such as Exxon (XOM), Royal Dutch Shell (RDS-A) and Chevron (CVX), have all invested large sums of capital into renewables over the past five years. Last decade, renewable energy investments topped $2.6 trillion and are expected to grow exponentially within the next ten years. The time to get involved in renewables is now, and a good starting point would be doing primary research into existing energy powerhouses that have invested considerable capital into the future of renewables. Solar power alone accounted for $1.3 trillion in capacity of the renewable energy investments, making it an excellent beginning for introductory research into the industry. A good start for primary research can be found here.

Big Oil’s slow progression towards clean energy has been influenced by the evolution of electric vehicles. Over the past 10 years, the production of emission free cars has been fast growing, with companies such as Tesla, GM, and Nikola pouring billions of dollars into the development of zero emission vehicles worldwide. This growth is just starting, however, as Bloomberg research suggests the industry will just begin to hit its high growth phase within the next decade (Illustrated below). With EV’s becoming more affordable, market demand as projected by analysts is expected to increase significantly starting in 2022. J.P. Morgan projects that by 2025 EVs could be 30% of global vehicle sales in 2025. As the outlook suggests that the vehicle industry is trends away from its reliance on gasoline, Oil producers around the world are responding. A good example of this is B. P’s acquisition of Chargemaster, Europe’s largest electric vehicle charging company.

This significant oncoming change for the auto industry appears to be inevitable. As we consider possible equity investments opportunities in the energy sector to benefit from this trend, it appears crucial to do adequate research into an energy company’s capital allocation for renewables. The next decade stands as a make-or-break time for Big Oil companies to revamp their infrastructure. The future may be clean energy, and winners will be those that can successfully integrate into this technology. What we do know for sure is that companies in the Energy sector will look drastically different in 10 years.