Investing Within The Conflict Of Two Power Megatrends

[Global environmental conferences with cross-government support are helping build knowledge-based awareness and proactive action to gain traction for decarbonization and renewable power. These decarbonization efforts and the rapidly declining costs of renewable energy sources have been propelling a changing dynamic that will meaningfully impact the future of energy production and consumption across the world. Thanks to the technological progress already achieved over the past decade, renewable power is now the cheapest source of energy in most countries, according to the Forum for Sustainable and Responsible Investing.

There are massive multi-decade investment implications, risks, and opportunities in the monumental task of re-engineering our established energy system. But the global actions referenced above demonstrate how the burgeoning renewable energy industry is becoming a firmly entrenched movement backed by environmental facts, economics, long-term business strategy sense, and global alignment of government policies. Even the largest oil companies are investing in renewable efforts and technologies. While not a fully mature area, it is in process. Today already renewables are projected to provide 22% of U.S. generation in 2022 and 24% in 2023 per the U.S. Energy Information Administration (EIA).

To better understand renewable energy investment opportunities, we were introduced to Michael Cerasoli, co-head of the Renewable Energy Business at Eagle Global Advisors – an independent, registered investment advisor located in Houston, Texas. We asked questions to explore the global dynamics and underlying technologies at play and the role that investors can play on this intricate road to a more sustainable and cleaner energy future.]

Hortz: What was your pondering and motivation behind creating your renewable power infrastructure funding methods?

Cerasoli: The pondering and motivation behind our funding methods for renewable power infrastructure has been fairly easy. We acknowledged years in the past that this conflict of two megatrends – the falling price of renewable power and growing international efforts to decarbonise the economic system – presents a uncommon multi-decade funding alternative for savvy traders. The level is that almost all traders are specializing in the dangerous “emerging technology” shares and never the homeowners and operators of the renewable power belongings themselves, which stay effectively below the radar but ship spectacular risk-adjusted returns.

Hortz: Can you give us extra particulars on the scope of those two power megatrends of decarbonisation and the price of producing energy from renewable sources?

Cerasoli: The falling prices of renewable power are vital and effectively documented, with photo voltaic and wind growing by greater than 90% in latest a long time. This has been achieved primarily by way of authorities coverage, which continues to lift the bar with the passage of recent guidelines akin to these within the Inflation Reduction Act (IRA). This has created a digital cycle that we imagine is not going to solely speed up, but additionally ship financial new applied sciences (e.g. power storage) which can be essential to the power transition.

Hortz: What particular funding autos and techniques have you ever developed primarily based on these efforts that you just provide traders?

Cerasoli: We not too long ago launched an energetic ETF (ticker: RNWZ) that provides traders a simple approach to leverage the paradigm shift in renewable power infrastructure. We additionally provide Separately Managed Accounts (SMAs), a technique with a observe document of greater than 5 years.

Hortz: We’ve heard quite a bit about photo voltaic, wind, hydro, and nuclear, however what different applied sciences and areas are creating when it comes to renewable power infrastructure?

Cerasoli: We imagine that power storage would be the subsequent know-how to take an enormous leap ahead, whether or not it’s lithium-ion batteries or the event of inexperienced hydrogen. In reality, AES Corp and Air Products not too long ago introduced a $4 billion inexperienced hydrogen facility, which would be the largest within the United States. The electrolyser is predicted to be powered by wind and photo voltaic power, producing clear, carbon-free hydrogen that may be saved and supply reliability to networks that more and more want it.

Hortz: How do you steadiness investments in established power corporations with renewable power efforts versus newer startups or different standalone renewable power funding choices? What are the choices you’re looking at and contemplating?

Cerasoli: First, we imagine there’s room for any enterprise to profit from the power transition, a “rising tide lift all boats” situation. That stated, we predict the bigger gamers are finest positioned to ship breakthrough utility-scale tasks that may transfer the needle in a giant means for clear power. But as we have seen numerous instances over time, small however sensible corporations can develop into business leaders. It’s now actually extensive open to all companies.

Hortz: Investing in such a quickly creating space with new applied sciences, what are your due diligence and funding choice parameters for an funding choice?

Cerasoli: We are basic traders with an in depth background in infrastructure investing. The key to selecting infrastructure shares in such a fast-growing sector is steadiness sheet administration and lowering growth dangers, to call a couple of. We’re on the lookout for corporations that not solely develop, however develop, and that does not simply occur. Insight into your corporations and the built-in sustainable power chain is important to maintain administration groups below management.

Hortz: How would you advocate that advisors place a technique for power infrastructure and renewable power in consumer portfolios and the way finest to proceed to observe this area for threat/reward developments?

Cerasoli: Renewable infrastructure presents a novel mixture of progress and revenue, if performed correctly. This might oversimplify issues, however we imagine that traders divide investments into two classes: ‘core investing’ and ‘threat investing’. The majority of an investor’s wealth is often within the “core”, which is characterised by safety and/or steady progress. Renewable infrastructure totally suits the “core” profile, given its steady money move profile supported by long-term contracts and the sturdy credit score high quality of its contracts.

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