7th Annual Sustainability & Energy Transition Primer

THE COWEN INSIGHT

We have created our 7th Annual Comprehensive Primer on the Sustainability & Energy Transition sector (see the 6th & 5th). The primer is meant to assist investors in navigating the complex and varied sub-verticals of the sustainability & energy transition sector.

THE COMING SURGE IN SUSTAINABILITY INVESTING

Historically, the two primary challenges facing our coverage were the availability of low-cost capital coupled with cost declines needed to be competitive with the grid. As sustainability investing has surged, the availability of capital is no longer a problem either at the corporate or project level. Levelized cost of energy (LCOE) of renewable power choices fell sharply in recent years. They then ticked up in 2021 and YTD in 2022 due to inflationary pressures; however, the competitiveness relative to the grid remains compelling given that the marginal cost of power largely emanates from natural gas, which has seen costs increase in the wake of the Russia/Ukraine conflict. ESG investment mandates continue to aid sentiment as the secular shift toward a decarbonized economy is becoming ever more visible in society.

FACTORS ACCELERATING ENERGY TRANSITION

Six Cowen senior analyst teams spanning various industries and our Washington Research Group Sustainability and ESG Policy Analyst collaborated to form a comprehensive view of the sustainability and energy transition ecosystem. They cover current key themes impacting stock performance and potential investment considerations for stakeholders.

Analyzed within our report are:

• Cost competitiveness across renewable energy sources
• Viability of commercialization
• The related infrastructure needed for implementation on a global scale

Meanwhile, the war in Ukraine has not only amplified the need to transition away from fossil fuels but has also served as an accelerant in the deployment of easily accessible and scalable renewable energy resources. While supply chain constraints have somewhat hindered these deployments, we continue to believe the transition is inevitable. We see a marriage evolving of economic and “green” stimuli around the world benefiting our sector and gradually increasing investor interest in what are becoming more mainstream as opposed to “alternative” technologies.

TAKEAWAYS

Our forecasts consider the increasing need to leverage technology (both networking and software) that manages distributed energy resources or DERs, and the key pillars of grid modernization needed to better manage the $3 tn global electricity market. Within our report, we outline key drivers and forecasts by industry to form our overall sector view.