Sponsored article: William MacLeod explores the ‘net zero’ investment opportunities in renewable energy and the built environment.
If COP26 emphasised anything, it was that the challenge to meet net zero carbon emissions is one that must be tackled by everyone everywhere, working together. To give investors the opportunity to participate in this drive to clean up our act, we believe the best route is to look around the world for companies involved in the funding, construction, generation and supply of clean, renewable energy.
COP26 propagated a steady stream of climate-related news hitting the media. The conference was heralded as the most important climate summit since Paris 2015, with the UK pushing the objective of “keeping 1.5 degrees alive” in refence to global temperature rises against pre-industrial levels.
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While the deals and pledges agreed at the conference will hopefully see an acceleration in climate action, we believe the exact monetary detail is largely irrelevant for investors. The energy transition has gained traction and renewable energy generation is now highly cost competitive (if not economically preferable) in many parts of the world—a secular growth trend is underway.
Renewable energy
It is, however, not always straightforward for individual investors and even some institutions to invest in many of the companies supporting the transition to net zero.
It therefore falls to fund managers and advisers to source and manage the best opportunities for investors.
Our role is to consider all of the potential opportunities around the developed world and pick those we think will have the greatest impact and deliver the best results for our investors.
One example is a Canadian company called Innergex Renewables which we identified some time ago, which offers exposure to existing renewable energy assets, and has a healthy and expanding pipeline.
Innergex has recently announced the completion of its first deal in conjunction with Hydro-Quebec, with whom it has formed a strategic alliance. The joint acquisition of the 60 MW Curtis Palmer hydroelectric portfolio in New York State for $318.4m adds a net 30 MW of high-quality renewable energy generation capacity to Innergex’s asset base.
The company is one of many that own, operate and develop renewable infrastructure designed to deliver electricity with minimal emissions. In other areas, however, there is more work to do.
Built environment
The International Energy Agency (IEA) reported in 2019 that buildings were responsible for 28% of energy-related CO2 emissions. If looking at global energy consumption, demand from the built environment and for building construction account for over a third of global final energy consumption—the majority consumed by residential buildings of which most is used to heat space and water.
Space cooling and heating requirements, increased use of appliances (leading to higher electric “plug-loads”), reliance on fossil-fuel based heat and power provision, and insufficient regulation of sustainability and energy efficiency requirements, have all contributed.
As a result, buildings offer huge potential for improvement and a consequent reduction in emissions. Simple policies such as the phase out of incandescent lamps and, more recently, halogen lamps in favour of LED lighting, can drive efficiency improvements.
More significant strides can be made through improvements in “building envelopes”—the components of a building’s structure such as insulation, window materials and air sealing—and this is where the largest element of energy-related investment in buildings is being directed.
In terms of emissions reductions, buildings’ reliance on fossil fuel-based heating technologies will be a key area of focus. Moving away from natural gas boiler systems in favour of heat pumps (which can also provide a cooling function) is a good example.
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Fossil fuels
How we build and redevelop homes is something local authorities are often heavily involved in. In the UK and across the Northeast US, commercial and residential properties are highly reliant on natural gas-based central heating systems, with very limited penetration of heat pumps or electric heating systems.
By contrast, in Sweden, domestic heating requirements are provided for by heat pumps, electric heating systems and, most significantly, district heating networks. Reliance on fossil fuel heating systems is largely non-existent.
There is a long way to go and for many, the question remains: “How can I play my part?” All of us are changing our domestic habits one way or another, and by urging those who look after our savings and pensions, we can do even more by encouraging them to support the efforts taken by some of the leading companies in the renewable energy sector.
William MacLeod is managing director at Gravis Advisory Ltd.
Photo by CHUTTERSNAP on Unsplash
Gravis Advisory Ltd is Fund Adviser to the VT Gravis Clean Energy Income Fund, as well as: VT Gravis UK Infrastructure Income Fund; VT Gravis UK Listed Property (PAIF) Fund and the VT Gravis Digital Infrastructure Income Fund. For more information click here.
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