The Ethical Investor: 7 major opportunities in the energy transition, and where ASX investors can find them
The signs of a low carbon economy are almost everywhere these days.
Electric vehicles are growing in popularity in major cities, while solar panels and wind turbines are growing explosively in rural areas.
Meanwhile, green buildings that make use of cutting-edge technologies like sensors to monitor energy use are sprouting up everywhere. In retail, consumers’ desire for sustainable products is also gaining rapid momentum.
Against this backdrop, Fidelity Australia says investing in the transition towards cleaner energy is no longer a niche, and is now much more attractive to investors than a decade ago.
Fidelity believes investors can capture the transition towards a low carbon world as investment opportunities emerge across a much broader and more diversified range of geographies and industries.
The fund manager has identified seven segments that it says could do well over the next few years as we transition toward a renewable energy world:
Renewable energy comes from natural sources with constant replenished power such as from sunlight or wind.
After years of development, Fidelity says the sector no longer relies heavily on government subsidies.
For example, solar energy now stands out as one of the most attractive opportunities in the booming renewables sector.
This comes as the International Energy Agency announced that the world’s best solar projects now offer “the cheapest electricity in history”.
“With solar starting to outperform traditional energy sources, the solar energy opportunity is a big deal,” says Fidelity.
“Regulated utilities are leading the energy transformation, offering investors both stronger returns potential and high transparency.”
Solutions such as smart lighting and industrial insulation are increasingly being favoured by businesses as a means of improving energy efficiency in their offices, and saving costs.
A wide variety of investment opportunities can be captured in the providers of these efficiency solutions, says Fidelity.
“These tech providers enable companies to use materials, energy, water or other resources in a more cost-effective way,” said the fund manager.
The journey towards a lower carbon world needs to be empowered by enabling technologies to reach international emission targets.
For example, countries need to improve or build smart grids in a bid to integrate renewable energy into existing power systems.
“This will in turn boost demand for semiconductors, which are used to help control power flow and prevent power loss in the electric grids,” says Fidelity.
Electric vehicles are becoming the preferred choice as the world transitions to low-carbon transportation.
Thanks to improved battery technology, lower vehicle prices and increasing government subsidies, demand for electric cars is sustaining strong growth.
According to the International Energy Agency, the number of electric cars, vans, trucks, and buses on roads is forecast to grow from 11 million in 2021 to 145 million by the end of 2030.
“If governments accelerate their efforts to reach their climate goals, this figure could grow to as high as 230 million by 2030,” said Fidelity.
Also, opportunities will emerge in parts and components makers in the smart mobility sector.
The share of energy-efficient components in a vehicle is set to jump by 7x ~ 9x versus today’s level as electrification develops.
“The boom in electric and autonomous vehicles is also set to catalyse growing demand for high-tech components and semiconductors,” the fund manager said.
Artificial intelligence, automation, industrial software and sensors are playing an increasingly important role in driving companies’ transformation towards efficient use of resources and energy in the manufacturing process.
E-waste is also major challenge for manufacturers, and those that have the technology to turn e-waste into forms of energy would do well.
Industrial decarbonisation is being accelerated as businesses look to co-invest in shared carbon-storage infrastructure, as well as researching and developing promising decarbonisation technologies.
“Many governments are also optimising rules and incentives to spur investment in renewable-generation capacity,” said Fidelity.
Finally, investors and consumers will likely favour companies that produce or sell environmentally-friendly products.
Those taking the initiative to lower or eliminate carbon from their supply chains will be looked upon favourably by investors.
“There are expectations those companies will outperform their competitors,” said Fidelity.
To capture the opportunities spelled out by Fidelity, ASX investors could get into any of these stocks.
(Note these stocks were not suggested by Fidelity and they are not exhaustive).
For batteries or battery technology, the obvious choice would be to invest in lithium explorers/producers.
In the renewables space:
Province Resources (ASX:PRL) is developing the HyEnergy green hydrogen project in WA’s Gascoyne region, where a scoping study has been carried out with global renewable energy independent power producer (IPP) Total Eren.
Delorean Corporation (ASX:DEL) is conducting bioenergy and commercial production of renewable gas in the form of biomethane, specialising in the design, build, ownership and management of bioenergy infrastructure.
Genex Power (ASX:GNX) has a portfolio of more than $1bn of renewable energy generation and storage projects across Australia, including the company’s flagship Kidston Clean Energy Hub in North Queensland.
In the green building space:
Calix (ASX:CXL) has a technology it calls Project LEILAC (Low Emissions Intensity Lime and Cement), which you guessed it.. reduces carbon dioxide emissions from cement.
Eden Innovations (ASX:EDE) also has a technology that aims to improve the strength and durability of concrete used in infrastructure, while reducing carbon usage.
Meanwhile, construction adjacent companies like First Graphene (ASX:FGR) has cutting-edge graphene that it calls the ‘wonder material of the 21st century’.
In the energy efficiency space:
X2M Connect (ASX:X2M) owns a patented technology that can be connected with water and gas meters, enabling utlities to obtain live data from the one platform.
ClearVue Technologies (ASX:CPV) has a product that could produce near or net zero energy for buildings. The company’s patented glass technology sits within an activated interlayer between two panes of glass, and reduces energy use in a building.
For consumer products:
Close the Loop (ASX:CLG) is a sustainable packaging company focusing on the circular economy. It creates packaging products that includes recyclable and made-from-recycled contents. The company also collects, sorts, reclaims and reuses resources that would otherwise go to landfill.
Papyrus Australia (ASX:PPY) has developed a world-first sustainable technology that converts the waste trunk of the plantain and banana palm into alternatives to forest wood products – to be used in paper, furniture, building, and eco packaging.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.