Recent developments at the CIO Investing in Energy Transition Webinarexperts in the field discussed sector trends, research, and global developments that investors should know about.
Webinar speakers include Deborah Byers, retired partner at EY, John DiMarco, managing director at Igneo Infrastructure Partners, and Bruce, professor at Columbia Business School and Columbia Climate School. – Asher, both with energy expertise, and moderated by Amy, CIO Executive Editor. Resnick.
What investors should pay attention to
Investors should be wary of decades-old projections about the costs of emerging energy sources. Asher gave the example of solar energy, which he said was a very small energy source in the early 2000s, but has grown exponentially over the past 20 years.
“If you add up all the solar power on Earth in 2001, [it] “If you add up the output of about one coal-fired power plant, the price was about $5 per watt or more,” Asher said. He pointed out that in 2023 alone, the equivalent of about 200 to 300 coal-fired power plants’ worth of solar power was added around the world at a cost as low as 20 cents per watt. “Nobody expected that 20 years ago. It certainly wasn’t, so I think we need to be cautious in our predictions.”
DiMarco cited other examples, such as batteries. Batteries weren’t on the radar of investors seven years ago, but now they’re top of mind for investors when considering decarbonization and grid transition.
“So while we don’t know when other technologies will have their day, to the extent that we’re investing in them now, we need to think seriously about the risks associated with them and be compensated accordingly. I mean,’” DiMarco said.
Decarbonization efforts and increases in overall electricity usage mean that energy consumption will increase in all aspects of the economy, especially with the growth of power-hungry artificial intelligence services. [AI] is heavily driven by its data center business, which is heavily driven by its power business, and its power business is driven by renewable energy,” DiMarco said.
According to Asher, energy transition investments fall into two buckets. The first is commercially viable businesses that offer products at scale, and this category includes renewable energy such as wind and solar. The challenge with investing in this category, according to DiMarco and Asher, is that returns are low. “It’s very difficult to get any kind of better performance in these buckets,” Asher says. The risk is also low.
Usher said the other bucket is proven technology, but not built at scale or commercially competitive. These are niche and emerging technologies, but with the potential for higher returns. This bucket includes hydrogen power generation, carbon capture, and other less developed technologies.
“These technologies offer very attractive potential returns, but the risks are very high,” Asher said of these emerging technologies.
global policy
A variety of regulations and disclosure regimes are emerging around the world, regulating everything from carbon emissions to ensuring portfolios reach net zero by a certain date. The panel agreed that there are many ways to leverage regulatory requirements related to climate and energy.
Mr. DiMarco said there has been an increased focus on the carbon footprint of large companies, especially in the past five years.
The Panel agreed that attitudes towards climate change and climate reporting differed by region. In Europe, many companies and regulators are focusing on this issue, but the situation is more volatile in the United States.
The Commission also agreed that consumers are not willing to pay a premium for using green power. Byers said many emerging technologies in climate change have often been supported by government tax credits and other support. “Solar and wind power [have] It’s pretty economical without credit, but that helped us get there. ”
Asher said transparency in climate change reporting is important, but not as important as people think for two reasons. “Knowing the emissions of different companies doesn’t really change behavior,” Asher says. The second reason is that there is controversy surrounding reporting standards such as Scope 3, and some metrics may not be accurate. Scope 3 emissions originate from a company’s supply chain and are not directly controlled by the company disclosing them.
The panel agreed that, at least in the United States, one of the main factors explaining why the energy transition is so difficult is local zoning and permitting. “Try building something in America right now. It’s really hard to get permits, it’s really hard to get interaction with local laws, state laws, regulations that you have to go through over and over again. ” Usher said.
As a result, projects are delayed, and delayed projects mean delayed returns for investors. DiMarco cited examples of transmission projects that have been approved in the past two years but were first proposed in his 2006 year. “Not only do you need a very high return to justify that risk, but you also need to be comfortable with investing capital.” Doors… and you may not see the fruits of your labor for perhaps 10 years. yeah. ”
Related article:
What monetary policy means for portfolio returns
Can investors make money and eradicate cancer?
innovators
Tags: Amy Resnick, Bruce Asher, Columbia Business School, Columbia Climate School, Deborah Byers, Energy Transition, EY, Igneo Infrastructure Partners, John DiMarco
