Corporate appetite for green energy is increasing

Thought of the day

by Chief Investment Office 20 Aug 2019

Around USD 100bn of investment in renewable energy will be required to support commitments by the RE100, a group of companies committed to offsetting 100% of their electricity demand from green sources, according to the latest analysis by Bloomberg New Energy Finance (BNEF).

As of the latest count, the 191 signatures of the RE100, including Apple, JP Morgan Chase, and Lyft, currently meet around 39% of their electricity from clean energy. But to reach their 100% target from solar and wind alone would require an additional 94GW of capacity, almost equivalent to Spain's entire current power generation capacity, Bloomberg calculates. This underlines our view that renewable energy presents an opportunity for investors, driven by action from governments, consumers, and companies.

  • High carbon emissions are facing mounting financial headwinds. The price of a carbon permit in the EU, the world's largest cap-and-trade program, is up 243% since the start of last year at USD 26.7, having hit a record USD 29.8 in late July. Insurance premiums could also rise for coal producers: North American insurer, Chubb, announced on July 1 that it would follow the lead of European insurers, such as Axa and Allianz, and stop offering coverage to utilities that generate more than 30% of their output from coal-fired plants.
  • The commercial appeal of renewable energy is increasing. Between 2009 and 2017, prices of solar panels dropped 76% and wind turbines 34%, based on an analysis from the IMF, making them competitive with, or cheaper than, fossil fuels in most major markets.
  • The range of options for environmentally conscious investors has been growing. Issuance of bonds used to finance clean energy projects—green bonds—has reached a record USD 85bn this year. Green bonds as an asset class have grown from nonexistent to a USD 600bn market in just over a decade, and issuance of higher yielding green bonds from emerging markets has also been rising. Phone companies also appear to be ramping up issuance of green bonds to fund ecologically friendly projects, according to BNEF. Such projects include replacing power-hungry copper wires with fiberoptic cables, or 5G networks, which can increase the ecological efficiency for homes, cities, and factories.

We believe clean energy offers potential for long-term investors. For more details, see our long-term themes on renewable energy and energy efficiency. Green bonds, meanwhile, are becoming an established asset class and have so far offered comparable returns to conventional bonds, while allowing investors to align their portfolios with their ethical values.

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