8th Annual Sustainability & Energy Transition Primer
Insight by Jeffrey Osborne, John Miller, Joseph Giordano, David Deckelbaum, Thomas Boyes, Nick Amicucchi, CFA, Jeffrey Rossetti, John-Anthony Di Tullio and John Miller
The TD Cowen Insight
We have created our 8th annual comprehensive primer on the Sustainability & Energy Transition sector. Click here to see last year’s primer.
Our Sustainability & Energy Transition Primer aims to assist investors in navigating its complex and varied sub-verticals. Given the improving unsubsidized economics, healthier demand, and less reliance on government support, we remain bullish on long-term prospects.
TD Cowen Sustainability and Energy Transition Primer Overview
We have compiled a 456-page primer on the sector. Four TD Cowen senior analyst teams spanning various industries and our Washington Research Group Sustainability and ESG policy analysts collaborated to form a comprehensive view of the sustainability and energy transition ecosystem.
Our report includes:
- Key themes impacting stock performance
- Potential investment considerations for stakeholders
- Cost competitiveness analysis for renewable energy sources
- Viability of commercialization
- Related infrastructure needed for adequate implementation on a global scale.
Sustainability and Energy Transition Industry Outlook
Historically, the two primary challenges for this sector were availability of low-cost capital coupled with cost declines needed to be competitive with the grid. Energy policy and evolving technologies now support continued outperformance by this group in the years ahead.
As sustainability investing has surged, the availability of capital is no longer a problem either at the corporate or project level. The levelized cost of energy (LCOE) of renewable power choices fell sharply in recent years and then ticked up in 2022 due to rising interest rates and inflationary pressures. However, the competitiveness relative to the grid remains compelling given that the marginal cost of power largely emanates from natural gas.
There’s a compelling opportunity for environmentalists and people working on social problems in global supply chains to come together. Recent supply chain disruptions and China shutdowns led to challenges in raw material and component availability in 2022, but passage of the Inflation Reduction Act (IRA) on August 16, 2022 seemingly served as an investment catalyst for clean energy.
Technology and Grid Modernization
Our forecasts consider the increasing need to leverage technology (both networking and software) that manages distributed energy resources, or DERs. We also consider the key pillars of grid modernization needed to better manage the $3 tn global electricity market. Within the report we outline key drivers and forecasts by industry to form our overall sector view.
What to Watch
Looking ahead, we see four mega themes within the energy transition playing out.
- The evolution of traditional hydrocarbon firms over multiple decades as the overall need for fossil fuels declines
- An increase in renewable energy’s share of energy mix as new and lower cost technologies continue to evolve
- Grid improvement to better handle an increase in intermittent power supply and more electrified solutions in heating and transportation
- Further adoption and evolution of newer technologies like hydrogen and carbon capture and sequestration