Welcome to Season 2, Episode 7 of Meet the Expert® with Elliot Kallen!
We’re seeing a global transition toward renewable, green, and clean energy. A friendly political climate could accelerate the deployment and scale of clean energy industries in 2021 and beyond.
In this episode, Elliot Kallen brings on Andrew Hull of First Trust to discuss the future of clean energy industries.
Meet Our Guest
Andrew Hull
ETF strategist, First Trust
Andrew provides in-depth analysis and commentary related to ETF investing, focusing on tracking industry trends and communicating ETF strategies. Andrew holds a BA in Business Economics from Wheaton College in Wheaton, IL.
What is clean energy?
Clean energy companies derive the majority of their revenue from clean energy and low carbon activities. The clean energy industry generates hundreds of billions in economic activity and is anticipated to grow rapidly in the coming years.
Clean energy firms generally fall into four categories.
Advanced materials
Examples include silicon, lithium, and bio-based materials that enable clean energy technologies.
Energy intelligence
Energy intelligence is primarily concerned with energy conservation, efficiency, and smart metering.
Energy storage and conversion
In addition to producing energy, there is demand for solutions to storing energy. Energy storage and conversion firms perform extensive effective solutions for the storage of this generated electricity, via advanced batteries and electric vehicle development.
Renewable electricity generation & renewable fuels
Renewable energy, or clean energy, comes from natural sources or processes that are constantly replenished. Sources include solar, wind, geothermal, and hydropower.
Clean energy as an investment
Renewable energy stocks are heating up as the national conversation around climate continues to generate interest and attention.
UNEP, Bloomberg New Energy Finance, and the Frankfurt School-UNEP Collaborating Centre reported that global investment in renewable energy totaled $282 billion in 2019. That year, the U.S. alone invested $55.5 billion.
The Energy Information Administration (EIA) reported that U.S. electricity generation from renewable energy exceeded coal for the first time in April 2019. EIA also projects natural gas generation will only grow 1.3% in 2020 – the slowest rate since 2017 – while non-hydropower renewable energy generation will grow 15% in 2020 – the fastest rate in four years.
What is the cost of clean energy?
The cost of building and maintaining green infrastructure has plummeted, their efficiency has gone up, and over time, they are replacing coal, nuclear, and natural gas power plants.
Source: U.S. Solar Energy Production (YCharts, December 2020).
In the most recent Levelized Cost of Energy (LCOE) analysis, Lazard reported that U.S. renewable energy prices continued falling fast in 2019, with wind and solar hitting new lows, after renewables fell below the cost of coal in 2018. Over the last decade, wind energy prices have fallen 70 percent and solar photovoltaics have fallen 89 percent, on average.
As renewable energy prices continue falling, states continue setting higher installation goals. So far, 37 states have set renewable portfolio standards or renewable portfolio goals that diversify their electricity supply and promote economic development.
What are the primary drivers of growth for clean energy?
As investors, we are always looking to the future, trying to anticipate where the market is going to be and where investment is going to go.
Public policy tailwinds are a big reason to like renewable energy right now. Solar energy received a policy boost with the most recent stimulus package, extending a 26 percent investment tax credit for two years through the end of 2022. The Biden administration came out with a trillion-dollar climate change plan that focuses on increasing the use of green energy.
That could be just the beginning now that Democrats control both the White House and Congress.
We’re also seeing similar trends across the rest of the world.
The European Union green-lit a 500 billion euro ($572 billion) climate change plan. And in the Far East, China pledged to invest 2.5 trillion yuan ($361 billion) into renewable power generation. Chinese leader Xi Jinping has announced a national climate target of 25 percent renewable energy usage by 2030.
What are the challenges faced by today’s clean energy firms?
Geopolitics
We are at some form of economic war with China right now. Think tank New America estimates that 90 percent of the rare earth elements used in motors and generators, wind turbines, and electric vehicles are produced in China.
However, it’s in the best interest—of both the U.S. and China—to work together and come to a mutually beneficial solution.
Technology
The switch to electric vehicles has been recognized as a major, necessary step to reduce carbon emissions. However, today’s electric vehicles rely on lithium-ion batteries that are neither easy nor possible to fully recycle.
As the clean energy industry matures, we expect to see more companies innovate ways to repurpose electric vehicle batteries for other power applications.
Grid stability
What happens when the sun doesn’t shine, and the wind doesn’t blow?
Grid stability refers to the reliability and consistency in power production. Grid stability will evolve in line with energy storage innovations.
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DISCLAIMER: Prosperity Financial Group and Meet the Expert® with Elliot Kallen do not make specific investment recommendations on Meet the Expert® with Elliot Kallen or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of the Meet the Expert® with Elliot Kallen guests, and not necessarily of Elliot Kallen or Prosperity Financial Group.
