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The Potential Investment Opportunity in Renewables
By 2050, the world population is projected to reach nearly 10 billion1. At the same time, climate experts insist on implementing climate policies to limit global temperatures exceeding 2 degrees Celsius by 2050 in order to prevent the worst impacts of climate change. Due to population growth and development around the world between now and then, energy demand is expected to increase 50%2 over today’s consumption, presenting either a threat or an opportunity for achieving our climate goals. Renewable energy is at the forefront of this effort and therefore represents an incontrovertible opportunity for investment.
Renewable energy includes any energy source alternative to fossil fuels, which commonly includes solar, wind, hydropower, geothermal, and nuclear. By the end of 2020, it was estimated that 38% of global energy generation3 came from renewable sources, with aggressive efforts to increase the market share to 75% by 2050. Conversely, global oil demand for road transportation is expected to decline 75%4 while coal demand is projected to decline 60%4, eventually giving fossil fuels a projected 43% of the energy generation4 pie worldwide by 2050.
Today, hydropower accounts for the largest share of renewable energy, generating 17% of global electricity5. Generally speaking, hydro, geothermal, and nuclear energy represent the most cost-effective renewable energy sources for large-scale output but come with significant environmental drawbacks. Solar and wind currently make up 8% and 9%3 of global energy generation, respectively, but have seen the greatest improvements in electrical output and cost reduction and have therefore generated the greatest share of new investment dollars in recent years. Solar costs have declined 85%3 while wind costs have declined 45%3 over the last decade. We’re now at the point where building new wind and solar infrastructure costs less3 than adding the equivalent capacity in coal or gas in two-thirds of the world.
Investment in renewable energy has been increasing accordingly, with $366 billion2 invested in renewables in 2021, up from $282 billion3 in 2019. Meanwhile, only about $100 billion3 was invested in coal and gas in 2019. And while investment in fossil fuels should remain steady over the next several decades, its overall share of the energy market is projected to decline from 54% in 2021 to 36% in 20354. Renewable energy is clearly no longer a niche market for those morally interested in sustainability.
Historical data6 shows that over the past 10 years (as of Dec 31, 2020), renewable energy generated a total global return of 422.7% while fossil fuels generated a mere 59%. Globally, renewable energy also had lower annualized volatility than fossil fuels, with the largest volatility gap of 1.7% appearing in advanced economies. From February to April 2020, fossil fuel returns dropped 30.8% while renewable energy only dropped 18.9%, proving renewables to be more resilient than fossil fuels in even the most dire market conditions.
To capture the potential of the promising renewable energy sector, TrueShares has launched a new ETF dedicated to renewable energy. The TrueShares Eagle Global Renewable Energy Income ETF (RNWZ) is an actively managed ETF of concentrated equities of domestic and international companies with a focus on renewable energy infrastructure. The target companies for the portfolio primarily own and operate renewable energy facilities like wind farms and solar fields, energy storage, and electric transmission assets. These assets not only have significant growth potential but also have the potential to generate stable cash flow streams derived from long-term contracts with governments, utilities, and corporations.
As an actively managed ETF, geopolitics is strongly considered in the fundamental analysis of the portfolio due to the variation of location-specific government policies relating to renewable energy investment. In-depth sector research keeps the portfolio up to date with evolving and nuanced technologies in the sector in order to find the best opportunities for growth and yield. Company research based on qualitative and quantitative fundamentals cuts through the noise and potential greenwashing of the industry in order to find investment opportunities with legs. RNWZ presents a long-term investment opportunity with promising growth and yield potential for anyone interested in participating in the future of energy investment.
Learn more about RNWZ: www.www.true-shares.com/rnwz
Sources:
1 - https://sdg.iisd.org/news/world-population-to-reach-9-9-billion-by-2050/
2 - https://www.investopedia.com/articles/markets/070814/why-you-should-invest-green-energy-right-now.asp
3 - https://www.bloomberg.com/graphics/climate-change-data-green/investment.html
4 - https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022
5 - https://assets.bbhub.io/professional/sites/24/Energy-Transition-Investment-Trends-Exec-Summary-2022.pdf
6 - https://www.iea.org/reports/clean-energy-investing-global-comparison-of-investment-returns
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