Energy Sector: Renewable Energy Growth

Updated: Aug 18, 2020

Today’s article covers the hot topic around the world at present, renewable energy. With Covid-19 allowing governments to pump money into the economy, many are pledging to do so in a green way, and as such, we could see huge growth in renewable energy production over the coming years. I hope to outline two key areas any individual should look into if they want to understand the future of the energy industry; hydrogen and ESG investing.

Is Hydrogen fuel finally here?

Despite the best efforts of governments, particular industries are still heavily reliant on fossil fuels. Long-haul transport and steelmaking are two of the most dependant industries. For these industries to become cleaner, many see hydrogen as the most viable option. There has been a buzz around hydrogen as a fuel for over a decade now, but many do not see it as anything more than a buzz. However, recent events in the midst of Covid-19 show a lot more optimism, and as such, I believe it is necessary to explore this area.

Before we get into the nitty-gritty of hydrogen investment, one needs to understand how hydrogen can replace fossil fuels.

Put simply, hydrogen produces energy when it burns, just like fossil fuels. The difference? When it combusts with oxygen, it forms water, instead of producing carbon dioxide. Thus, it is clean, as it does not produce greenhouse gases.

It may come as a surprise to many that hydrogen has in fact been produced on a large scale for many years. However, the production process of this so-called “grey hydrogen” generates a lot of greenhouse gases, as it is made from natural gas and coal. Each year, this pumps more CO2 into the atmosphere than the U.K. and Indonesia combined. Clearly, an alternative production method is needed for the use of hydrogen to be successful.

There are two ways to make clean hydrogen. Firstly, “green” hydrogen, which is made directly from water, using power from renewable energy (this production technique is shown below). Secondly, there is “blue” hydrogen, which is made from natural gas, but with almost all the CO2 emissions captured and stored.

Now that one understands how hydrogen can be clean, we must dive into why it is such a hot topic. Hydrogen is such a popular source of energy as it can be used as a green transport fuel, or as a way to store energy. These two properties are the main reasons for large companies investing into the production of hydrogen. Here are two noteworthy examples of investment:

Firstly, in southern Spain, in Puertollano, a 150-million-euro project by Iberdrola is in the process of construction. It will be the first commercial facility in the world to use solar-power-produced hydrogen to make fertiliser. Other companies are focusing on “blue” hydrogen. For example, the energy company Equinor is planning a project in the U.K. which is hoping to commence construction in 2023, and be fully operational by 2026.

From these examples, along with the range of targets put in place by various companies to become carbon neutral within the next few decades, it is clear that renewable energy is being driven in the right direction. This growth is only being accelerated by Covid-19 and the resulting government spending. It remains to be seen how long it will take for the world to be able to produce clean energy on a mass scale. But, with the EU targeting at least 40GW of “green” hydrogen capacity by 2030, the future is bright.

Investing in Energy

Investing in energy is not like it used to be. In the past, investors could rely on oil and gas companies such as BP and Royal Dutch Shell to secure them an income through dividends.

However, the pandemic has put a halt to this. With Shell cutting its dividend for the first time since 1945 as the oil price slumped, the lure to invest in big oil companies seems to have evaporated. In addition to the pandemic, there has been a push for greater regulation aimed at carbon emissions. All this change has led to investors divesting their portfolios of stocks deemed harmful to the environment, and instead putting their money in what they see as the future – clean energy.

It is still unclear which environmentally friendly investments will be winners of the future. But the growth of Tesla, which can be read up on here, is definitely something to watch out for as their technologies improve. Could this huge growth be an ongoing trend among futuristic companies? Other investors could opt for clean energy mutual funds like Schroders’ Global Transition fund. But there are even less obvious ways to invest in clean energy. For example, Liberty Global are creating the U.K. network of electric vehicle charging points using their telecom businesses infrastructure.

This is only the beginning for investing in clean energy. But what is clear is that there are a whole range of potential options, and an investor needs to try and understand exactly what the future will hold. One thing is for sure, the future will not always need gas and oil to the extent that it is produced at present, and all large investment institutions are now beginning t recognise that.

It remains to be seen. Will hydrogen be the future of energy? Will investors move away from oil companies completely any time soon? Will you be ESG investing? Let me know your thoughts in the comment section below.

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