Thiemo Lang, Portfolio Manager of the RobecoSAM Smart Energy strategy, discusses the future of the energy sector in the wake of the COP21 agreement to limit global warming to well below 2°C.
“COP21 is the first global agreement to combat global warming that includes both developed and developing countries. It is truly transformative. The investment implications for the energy sector will become clearer over the next few years as each country formulates its own action plan. The COP21 agreement’s goal of achieving zero net emissions in the second half of the century hangs like the Sword of Damocles over carbon investments. Companies intending to invest in conventional energy sources such as oil exploration or coal power stations must think twice before doing so. Likewise, utilities using centralized conventional power generation and distributing it to millions of customers will have to adapt their business models to the trend of decentralized clean power generation and storage, or face their demise.”
“The COP21 agreement is an important tailwind for the clean energy industry, enabling it to reap the benefits of the improvements to its cost competitiveness over the last 10 years.”
“In the very long term, the entire traditional energy sector is at risk, not necessarily because of stricter regulations, but because of increasingly better economics for future clean energy solutions. As more investors recognize that it is becoming increasingly risky and detrimental to their performance to remain invested in hydrocarbon-heavy industries, we will see more moves to divest out of these sectors. Still, the impact of these structural headwinds will be felt from, say, 2020 onwards. Until then, we may still see some short-term cyclical improvements in the oil & gas sector.”
“We have not seen any decrease in activity in renewable energies as a result of low oil prices. One of the main reasons for this is that renewable energies essentially compete with coal and natural gas for electricity generation and not oil: only around 3% of the world’s electricity is generated from oil.”
“Coal and natural gas prices have also been depressed in recent years, but we still haven’t seen any declines in retail electricity prices. In fact, quite the opposite has happened. For example, US residential electricity prices have increased by more than 3% per year over the last 10 years. This steady price increase is mainly driven by transmission & distribution costs, which account for an increasingly larger share of total electricity costs. They currently make up more than 40% of the total cost of electricity. As a result, the competitiveness of renewable power generation will only improve over time. For example, the cost of electricity generated from solar has declined by 5-10% per year over the last 10 years.”
‘COP21 hangs like the Sword of Damocles over carbon investments’
“Natural gas is by far the cleanest energy form compared with other conventional energy sources such as oil and coal. A natural gas power plant emits roughly half of the CO2 compared with a coal power plant of the same size. We view natural gas as an important transitional energy source over the next few decades. However, from an investor’s perspective, we think that this is not necessarily an interesting sector, as companies have considerably increased their leverage over the last years, and are now suffering from deteriorating fundamentals. As a result, we recently removed the natural gas exploration & production sector from the eligible universe for our strategy. Meanwhile, we still invest in natural gas distribution and transport companies. These are mostly natural gas utilities, which show very high earnings predictability.”
“In our strategy, we always try to find a good balance of sectors addressing different growth and value areas. In renewable energy, we currently focus on upstream solar companies and wind turbine manufacturers. As far as energy management is concerned, we have a decent exposure to the semiconductor power management sector, as companies in this sector enable the efficient conversion of power for consumer electronics, IT, storage and automotive applications. Within energy distribution, not only do we own electrical and natural gas utilities, but also equipment companies for smart grid and smart city solutions. And finally, in the area of energy efficiency, we like industrial automation and processes companies.”
The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).
This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.
This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.