Sustainability & Energy Transition Primer

Cowen Research shares highlights from the 6th Annual Sustainability & Energy Transition Primer, a 446-page overview of the sector. Learn how green energy and increases in ESG investing have affected the energy markets. Press play to watch the video.

THE COWEN INSIGHT

We have created our 6th annual comprehensive primer on the Sustainability & Energy Transition sector to assist investors in navigating its complex and varied sub-verticals. This 446-page reference piece covers the various sub-sectors and emerging technologies in this space including the smart grid, wind, solar, geothermal, energy efficient lighting, fuel cell, electrolyzers, hydrogen, microturbine technology, water, natural gas, and sustainable food.

Deep Dive Into the Sustainability & Energy Transition Sector

As renewable energy becomes the most cost-effective source of energy, utilities are embracing a world of distributed and decarbonized energy. No single silver bullet will solve the world’s energy crisis. We see room for multiple technologies to succeed, enabling investors to capitalize on next-generation energy technology investments. Global consensus has grown around a shift to net-zero emissions, which is driving economic (not subsidized) demand for wind, solar, and, increasingly, energy storage.

Growth in this sector is no longer predicated on subsidies and government policy. Sentiment greatly improved in 2020 despite COVID-19 challenges. 2021’s prospects remain positive despite recent pullbacks in valuation. ESG investment mandates are helping sentiment, as is the secular shift toward a decarbonized economy that is becoming more visible in society.

5 Ways Sustainable Energy Has Changed in Recent Years

We see five primary ways that sustainable energy has changed in recent years. Investors are beginning to recognize these factors:

  1. Investor preference shift toward ESG
  2. Consumer preference changes to more sustainable brands and products
  3. Technical advancements integrating technologies such as hydrogen from low-cost electricity, storage with wind/solar, digitized energy management
  4. “Mainstreaming” of the definition of clean/climate/sustainable technologies
  5. Financial viability of many companies in the sector without the need for subsidies

Utilities are deploying wind and solar due to economic drivers rather than subsidies that were needed in the past. Solar and wind are now the lowest cost forms of electricity in two-thirds of the globev. Prices are oftentimes lower than new natural gas plants and, in many cases, existing coal facilities.

We are most excited about multi-year investment prospects in the smart grid, wind, and solar markets. We see all three sectors incorporating batteries to extract more value. This edition of our primer includes a new sustainable food and expanded hydrogen sections, as well as an update of our existing sections.

COVID-19 Impact on Sustainability & Energy Transition

We see COVID-19 serving as an accelerator of many trends that were well underway. 2020 exhibited delays in solar and smart grid. However, both sectors have largely returned to pre-pandemic growth. Governments have embedded green priorities into economic stimulus bills globally. The U.S. is in active negotiations around an infrastructure package that would likely serve as a tailwind for our coverage.

Read more from this series

2020 Sustainable Energy & Industrial Technology Primer
2018 Sustainable Energy & Industrial Technology Primer

Video Transcript

Cowen’s 6th Annual Sustainability & Energy Transition Primer explores the evolution of the energy markets.

The 3 “D’s” are taking over in energy as the world becomes decarbonized, decentralized and digitized. Solar, wind and batteries are becoming cost effective and economical without the need for government subsidies. Over 80% of global electricity added to the grid in 2020 was renewable power and wind and solar are now the lowest cost solution on an unsubsidized basis in about two-thirds of the world.

Advancements in farming and green hydrogen present compelling growth opportunities. Low-cost renewable power is enabling the hydrogen economy to develop a new fuel for difficult to decarbonize industries like heavy duty mobility (trains, trucks, buses and boats) as well as heavy industry such as steel and cement.

Demand for ESG investing has skyrocketed in recent years driven by government policies, demographic shifts, and an evolving view of risk. Roughly one in four dollars in the U.S. is now invested through an ESG lens.

Government and corporate shifts to net zero emissions continue to accelerate. COVID-19 has accelerated trends that were well underway as green investment levels have played a major part of economic stimulus.

Cowen recently launched a uniform ESG score that will appear on the front page of every company research report published as we aim to be ahead of the curve.

Based on recent research by Jeffrey Osborne, Joseph Giordano, CFA, Marc Bianchi, CFA.

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