The energy transition could be as big as the industrial or digital revolution
\nBut the market may not be pricing in the speed of the transition
\nStockhead reached out to George Whiting at\u00a0Perennial Better Future Trust<\/p>\n
\u00a0<\/p>\n
John Kerry<\/strong>, the US Special Presidential Envoy on Climate<\/strong>, has described the world\u2019s energy transition as the greatest economic opportunity since the Industrial Revolution.<\/p>\n \u201cThe decisions of some of the largest financial institutions in the world are being driven by ESG factors, and trillions of dollars are going to be invested in this new sector to avoid sheer catastrophe.<\/p>\n \u201cThis is going to be the biggest transformation, economically, since the industrial revolution,\u201d he said.<\/p>\n One thing humans have proven throughout history is an incredible capacity for innovation. <\/p>\n We\u2019re well into the energy transition \u2013 and perhaps the greatest economic opportunity since the Industrial Revolution. pic.twitter.com\/s4SCqmL3oo<\/a><\/p>\n \u2014 Special Presidential Envoy John Kerry (@ClimateEnvoy) August 24, 2023<\/a><\/p>\n\n The phrase \u2018Energy Transition\u2019<\/strong> has indeed been one of most used in the market over the past few years.<\/p>\n It refers to the global energy sector\u2019s shift from fossil-based systems \u2014 including oil, natural gas and coal \u2014 to renewable energy sources like solar, wind, as well as lithium-ion batteries.<\/p>\n While results have been mixed, the market is unanimous when it comes to predicting that it will boom as investors prioritise ESG factors.<\/p>\n \u00a0<\/p>\n But there are experts who think that the market is failing to factor in the speed of this transition.<\/p>\n George Whiting<\/strong>, Head of Institutional & Retail Business Development for the Perennial Better Future Trust<\/a><\/strong>, says the market is currently pricing in a low probability of material impacts from this revolution, for a number of reasons.<\/p>\n \u201cFirstly, the market is typically more focused on short term impacts \u2013 such as the impacts of recent conflicts on short-term energy prices,\u201d Whiting told Stockhead<\/em>.<\/p>\n \u201cSecondly, as discussed by Oxford academics in their paper \u201cEmpirically grounded technology forecasts and the energy transition<\/em>\u201d, forecasters typically underestimate the rate of cost reduction of technology, and hence the deployment rate of new technologies as they scale, which means that they are likely to underestimate the medium term impacts.\u201d<\/p>\n Whiting says that in his view, this short-term focus represents an opportunity for investors who have a more medium-term mindset.<\/p>\n It\u2019s also a good opportunity for investors looking to avoid the many potential headwinds and harness the tailwinds of companies exposed to the DEM (decarbonization, energy and mobility) revolution<\/strong>.<\/p>\n \u00a0<\/p>\n George Whiting of Perennial Better Future Trust<\/em><\/p>\n \u00a0<\/p>\n \u201cInterestingly, recent falls in the price of materials that are currently key to the technology \u2013 such as the lithium price \u2013 are likely to accelerate the cost reduction and hence the deployment rates relative to what thinking was 3 to 6 months ago,\u201d Whiting said.<\/p>\n \u201cIn our view, this pricing volatility is one of a number of factors that is likely to cause consumers, businesses and governments to adopt new technology as part of the DEM revolution.\u201d<\/p>\n \u00a0<\/p>\n Whiting draws a bullish picture of a world transitioning away from fossil fuels faster than anticipated,\u00a0with solar and roof top solar poised to be a significant source of energy by 2026.<\/p>\n Wind is also increasing its percentage share of energy capacity, while coal and natural gas are reducing as a percentage of the overall energy mix.<\/p>\n He believes the push for renewable energy is a revolution with the potential to be as disruptive as the digital revolution of the past 20 years.<\/p>\n \u201cMorgan Stanley expects renewable generation to contribute 45% of global electricity consumption by 2030, and the share of solar and wind will nearly triple by 2030 in the power consumption mix,\u201d he said.<\/p>\n \u201cThe rate of technological change is enormous, and we think people underestimate this. For example, the batteries that are in today\u2019s electric vehicles (EV) are quite different to those sold a few years ago.\u201d<\/p>\n \u00a0<\/p>\n In Australia, the uptake of renewables has been significant, especially since 2021-22, a trend Whiting expects to continue.<\/p>\n \u201cWhen it\u2019s considered that one-third of the ASX will be directly impacted by the energy revolution and another third indirectly, it doesn\u2019t seem feasible for it not to be a critical element of any investment strategy.<\/p>\n \u201cBut despite this tailwind, we believe that markets are inefficient, and are not pricing it in the short term.\u201d<\/p>\n Whiting says that as a result of this mispricing, the Perennial Better Future Trust<\/strong> is bullish on the prospects of these 3 ASX stocks:<\/strong><\/p>\n \u00a0<\/p>\n Meridian Energy (ASX:MEZ)<\/a><\/strong><\/p>\n Meridian is New Zealand\u2019s largest renewable electricity generator with 100% of generation from renewable resources, primarily hydro.<\/p>\n \u201cIt generates strong cash flow, has a good balance sheet and has tailwinds from electrification as EVs and NZ industrial energy users convert from fossil fuels to electricity.<\/p>\n \u201cRenewable energy also currently represents around 80-85% of all electricity generated in NZ,\u201d says Whiting.<\/p>\n \u00a0<\/p>\n Calix (ASX:CXL)<\/a><\/strong><\/p>\n Whiting says Calix has multiple \u201cshots on goal\u201d in assisting industries to decarbonise.<\/p>\n The Calix technology was developed in Australia, and now has an impressive list of global partners.<\/p>\n The company\u2019s kiln technology is at an increasingly advanced stage of development across a number of industries.<\/p>\n These include the cement and lime industry (which generates around 8% of global greenhouse gas emissions) where it is partnering with global producers such as Heidelberg Materials<\/em> and Cemex.<\/em><\/p>\n The technology is also being used in Australia in lithium ore processing where it is partnering with Pilbara Minerals (ASX:PLS)<\/a>.<\/p>\n In addition, it is being used in direct air carbon capture where it is partnering in the US with Heirloom Inc<\/em> and Microsoft,<\/em> as well as zero emissions iron and steel where it is partnering with global iron ore companies.<\/p>\n \u201cWhile we invest in the Australian and NZ market, we also keep an eye on listed decarbonisation companies in other markets.<\/p>\n \u201cAnd in our view, Calix is one of the more interesting listed companies in the decarbonisation space globally,\u201d said Whiting.<\/p>\n \u00a0<\/p>\n Alpha HPA (ASX:A4N)<\/a><\/strong><\/p>\n Alpha HPA has developed a low carbon and low cost process to produce high purity alumina.<\/p>\n High purity alumina (HPA) is used a range of products including products involved in decarbonisation.<\/p>\n Alpha\u2019s production process results in HPA which has around 70% lower total emissions compared to incumbent processes.<\/p>\n Applications include lithium-ion batteries, semiconductors, and LED lights, all critical to decarbonisation as well as sapphire glass, which is used in display screens such as for smartphones.<\/p>\n The company\u2019s key partners include Orica,<\/em> which has recently acquired an equity stake and uses Alpha\u2019s byproducts as inputs to its process.<\/p>\n \u201cAlpha has also partnered with global industrial company Ebner Industrieofenbau<\/em> to enable it to produce synthetic sapphire glass, which is a downstream product of the company\u2019s high-purity alumina.<\/p>\n \u201cThis agreement will result in the production of value-added product in Australia at the company\u2019s Gladstone, Queensland production facility using Ebner\u2019s low-energy technology and Alpha\u2019s HPA,\u201d said Whiting.<\/p>\n \u00a0<\/p>\n The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.<\/em><\/p>\n Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.\u00a0<\/em><\/p>\n <\/span><\/p>\n The post Ethical Investor: Energy transition to be as big as industrial or digital revolution, and these 3 ASX stocks could benefit<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Market not pricing in the speed of energy transition<\/h2>\n
\u201cAs disruptive as the digital revolution\u201d<\/h2>\n
3 ASX stocks to benefit from energy transition<\/h2>\n