Investing in clean technology for tomorrow's renewable economy

Global growth in demand for oil is set to slow significantly by 2028, according to a recent report by the International Energy Agency (IEA). In stark contrast to slowing oil demand, the pace of investment in renewables energy is rising much faster than people realise. The IEA forecasts that renewables will account for over 90% of global electricity capacity expansion, with output growing by almost 2,400 GW over 2022-2027.¹

Such a seismic shift in the global energy mix will require large scale changes and solutions to some of the current sticking points surrounding renewable energy. However, there are still many hurdles to overcome for renewable energy to become fully integrated the global economy.

Scaling manufacturing capacity to meet targets

Renewable companies have responded to government incentives with major plans to expand current operations and develop new low carbon projects. In the UK, SSE recently announced plans to invest up to £40 billion in low-carbon energy infrastructure. Similarly in Europe, Iberdrola has committed €47 billion to investing in projects which are driving the energy transition. While these ambitions are positive for the climate agenda, the challenge will be finding the capacity to meet these goals.

Long-term partnerships with suppliers is one way to boost manufacturing capacity and protect against volatility in supply chain prices. One example of such a partnership is Danish power company Ørsted’s recent strategic partnership with German steel producer Salzgitter which will see Ørsted supply the renewable energy needed for Salzgitter to produce green steel for Ørsted’s wind turbines. We expect to see similar capacity growth in the US, with the Inflation Reduction Act allocating US$30 billion in production tax credits to supply chain-specific manufacturing in the renewables space, including solar photovoltaics (PV), electric vehicles and energy storage.

Circular principles and effective waste disposal

Currently, wind and solar infrastructure have fixed lifespans of 20-30 years, which poses the problem of what to do with projects when they reach the end of their lives. New solutions are emerging to tackle components of renewable infrastructure that are less easy to dispose. Turbine blades for example contain complex composite materials which create lighter and more aerodynamic blades but pose challenges when recycling. Danish wind turbine manufacturer Vestas recently announced a new chemical technology to break down old blades into liquid before extracting high quality materials to use in new blades. In the solar space, the first specialist recycling facility is opening in France to manage the large amount of waste that is anticipated as the uptake in solar panels increases, with the intention to recycle 99% of components.

Smart energy storage

Batteries, thermal energy storage and pumped hydro allow for energy to be stored and accessed when it is needed. SSE recently announced plans to convert an old hydro power station in Scotland into pumped storage, which involves pumping water uphill at times of low energy demand and releasing the water through turbines to create electricity when it is needed. This will play a significant role in managing the energy supply and is an example of how firms can upgrade existing infrastructure to meet today’s needs.

While pumped hydro makes up the majority of current energy storage, grid-scale battery growth is on the rise. According to the IEA, grid-scale battery growth is projected to account for the majority of storage growth worldwide. In 2021, grid-scale battery installation increased by 60% compared to 2020, with the US leading the way. China is the leader in battery making today but Canada, which has the necessary minerals and skilled workforce, is emerging as the next competitor in battery production.

What does this mean for investors?

The growth runway for renewable energy is huge; not only is it backed strongly by governments across the globe, but the pace of investment in clean technologies is much faster than many have anticipated. As such, we expect to see seismic shift from fossil fuel-based to renewable industries in the next decade. It is important to note that renewable energy companies are only one aspect of achieving a low carbon economy. Electrification and digitalisation are two highly important vectors for decarbonisation and there are many different companies playing a part in these trends.

¹ International Energy Agency, Renewables 2022 report, 6 December 2022. There is no guarantee that past trends will continue, or forecasts will be realised.

Important Information

The views presented are as of the date published. They are for information purposes only and should not be used or construed as investment, legal or tax advice or as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. Nothing in this material shall be deemed to be a direct or indirect provision of investment management services specific to any client requirements. Opinions and examples are meant as an illustration of broader themes, are not an indication of trading intent, are subject to change and may not reflect the views of others in the organization. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its use. Janus Henderson Investors is the source of data unless otherwise indicated, and has reasonable belief to rely on information and data sourced from third parties. Past performance does not predict future returns. Investing involves risk, including the possible loss of principal and fluctuation of value.

Not all products or services are available in all jurisdictions. This material or information contained in it may be restricted by law, may not be reproduced or referred to without express written permission or used in any jurisdiction or circumstance in which its use would be unlawful. Janus Henderson is not responsible for any unlawful distribution of this material to any third parties, in whole or in part. The contents of this material have not been approved or endorsed by any regulatory agency.

Janus Henderson Investors is the name under which investment products and services are provided by the entities identified in the following jurisdictions: (a) Europe by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK   Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and  Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial  Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Outside of the U.S.: For use only by institutional, professional, qualified and sophisticated investors, qualified distributors, wholesale investors and wholesale clients as defined by the applicable jurisdiction. Not for public viewing or distribution. Marketing Communication.

Janus Henderson and Knowledge Shared are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.

The information, materials or opinions contained on this website are for general information purposes only and are not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice of any kind.

We make no warranties, representations or undertakings about any of the content of this website; including without limitation any representations as to the quality, accuracy, completeness or fitness of any particular purpose of such content, or in relation to any content of articles provided by third parties and displayed on this website or any website referred to or accessed by hyperlinks through this website.

Although we make reasonable efforts to update the information on this site, we make no representations, warranties or guarantees whether express or implied that the content on our site is accurate complete or up to date.