The energy crisis is creating almost unlimited investment opportunities
Crises always have unexpected consequences. For instance, the war in Ukraine and the energy crisis it created are likely to accelerate the global energy transition by five to ten years. For long-term investors, the energy transition is creating momentous opportunities.
The energy transition is creating the next industrial revolution
Crises are a time of upheaval – with risks and opportunities. While Ukraine is locked in an existential defense struggle, Russia's aggression and the associated energy crisis are also accelerating positive developments. The political will to rapidly transform energy supply worldwide has not been this strong in decades. No rich country wants to be open to blackmail with regard to energy policy. This has further strengthened the will and the possibilities for becoming less dependent.
For traditional energy importers such as Europe and China, the expansion of renewable energies, rapid electrification, and greater energy efficiency are priorities. But the world's largest oil and gas exporters also want to profit from this. Booming gains from energy production are driving an industrial policy race that ends with much more than the restructuring of an industry.
Accelerating the energy transition by five to ten years
The world's largest energy importers, China and the EU, have gone into an energy offensive and have significantly increased the expansion plans for renewable energies by one-third each. This is likely to accelerate the respective energy transitions by around ten years. But the US, the world's largest exporter of fossil fuels, has also increased its expansion plans, thereby also bringing its energy transition ahead by years. This led to an upward revision of the IEA by more than a quarter.
By 2025, China wants to generate one-third of its electricity from renewable energy sources. This is equivalent to more than Japan's total electricity production, the world's third-largest economy. Worldwide, renewable energy capacity is to be expanded by 2,400 gigawatts in the next five years. This is equivalent to all current electricity generation in China.
Energy transition: Share of renewable energies increased by 27%
Upward corrections to the forecasts for the expansion of renewable energies (2022 vs. 2021)
Source: IEA.
These forecasts are not reliable indicators of future performance.
Pioneering technological advancements offer new investment opportunities
The momentum with which companies are currently setting the course for the future with investments is enormous. This also applies to sectors that are already investment intensive, such as IT, digitalization, and artificial intelligence. Given how the energy transition is equally driven by new hardware and software, the outlines of an industrial revolution are already emerging.
According to the MIT Technology Review, some examples of technology breakthroughs are battery recycling and e-mobility. This is because an e-mobility transition is being called for and encouraged both in the West and the East. Innovative power plays an important role in this context, for example with regard to new technologies and factories for battery recycling. China is currently the world market leader. A company based there was recently awarded a contract from a US automotive manufacturer for the complete technological equipment of the largest battery and battery recycling factory in the US. The US automotive manufacturer is currently building the new factory for USD 3.5 billion in Michigan – with the support of the Inflation Reduction Act (IRA). The automotive manufacturer plans to produce at least two million electric cars per year soon.
This example illustrates how countries around the world are taking part, making the energy transition all the more interesting from an investor's perspective.
Why the energy transition is so attractive for investors
With the global energy transition, investors will have great, even historic investment opportunities:
- The acceleration of the energy transition is likely to favor the risk/return profile of corresponding investments. It's like the transition from a start-up to a growth company. As the business scales, break-even points are exceeded, technology risks are diversified, and strategic risks are often more manageable.
- The energy transition concerns small, large, and medium-sized enterprises. For manufacturing companies as well as service providers, it’s about greater energy efficiency and greater energy security. For traditional energy providers, the future of their business model is at stake. IT companies sell "smartness," artificial intelligence, and digitalization benefits in all areas.
- The energy transition will create new global giants. At the same time, others will disappear. Professional diversification supports the necessary perseverance to take advantage of the above-average opportunities offered by this momentous opportunity.
- Geopolitics is an integral part of the change in industrial policy. In the future, many energy transition technologies will be developed in parallel in competing countries. This makes global diversification without alternative, promising, but also challenging.
- If companies can benefit from the industrial subsidies of the energy transition, investors shouldn’t hesitate to do the same. The costs that companies save with government aid when investing in the energy transition have a positive impact on the dividends paid to investors.
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