The Wall Street Journal is, of course, a Rupert Murdoch property, and their opinions page reflects that ignorance and bias.
The news side of the journal, on the other hand, is pretty reliable, as the audience of serious money managers and investors has to rely on good intel to do business. So I’ve always looked to the Journal for good reads on energy developments, and it’s a dependable, credible citation for the conservative groups I often speak to.
Some new takes from the Journal on the renewable revolution.
The decline of oil-and-gas supermajors over the past two years has been matched by the rise of previously obscure utility companies. In Europe, Enel ENEL -1.55% and Iberdrola IBDRY -0.28% have emerged as green-energy giants, in part by taking leaves out of the big-oil playbook.
Like Shell and BP before them, the companies have built global portfolios to meet growing energy demand, only with wind and sun rather than fossil fuels. The strategy has already made them the world’s two largest renewable energy producers by capacity, but they want to get even bigger.
Enel said Tuesday that it will nearly triple its capacity to 120 gigawatts by 2030. Earlier this month, Iberdrola laid plans to double its capacity to 60 gigawatts by 2025. The companies are similar to U.S. peer NextEra, which trades for much higher earnings multiples, but with an international rather than domestic footprint.
All three are gearing up for dramatic growth in clean-power demand as emerging markets get richer and developed economies decarbonize. Renewables can now be cost-competitive with fossil fuels, and governments are accelerating plans to cut carbon emissions.
The two companies share traits with the oil supermajors. They are vertically integrated: They secure government rights to many wind and solar sites; develop those projects; and then manage power plants and distribution networks. Their big, international operations provide the scale for cost efficiencies, as well as local know-how and relationships.
Oil producers maintain a bank of drilling rights. Similarly, Enel and Iberdrola hold permissions to develop a large pipeline of renewable projects around the world: Enel has 141 gigawatts worth, while Iberdrola has 70 gigawatts. They continue to bid for new opportunities.
There are some important differences, too. Oil projects are typically high-risk, high-return investments, while new power plants are a surer thing and generate correspondingly lower profits.
After a stormy, dependent youth, the wind-and-solar-energy industries have matured into boring, profitable middle age. This year’s plunging interest rates make that a more appealing proposition than ever for investors.
Wind turbines and solar panels, which once proliferated thanks to government handouts, now produce energy more cheaply than coal and natural gas. Chinese manufacturers sell solar panels at a fifth of the price a decade ago. Bigger wind turbines and better installation methods have halved their cost. These developments tripped up a previous generation of green-minded investors, but look to have run their course.
Subsidies now mostly focus on upgrading the distribution infrastructure. Wind and solar are intermittent, but can provide a constant flow of electricity in combination with storage—batteries or hydro—or gas.
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Pension funds, insurance companies and other institutional investors have been attracted partly by the green theme, but mostly by the promise of a steady, long-term income. In private markets, projects typically pay returns in the high single digits in developed countries and more elsewhere. That compares with a 10-year Treasury yield of around 0.67% in the wake of the pandemic.
Another reliable source is Bloomberg, for the same reason.
Meet the clean supermajors. They have the clout and financial might of the energy behemoths that plumbed the world over for oil and gas before them. But instead of digging mines and drilling wells, they’re leading the race to electrify the global economy.
These four companies—Enel, Iberdrola, NextEra Energy and Orsted—prioritized the building or buying of clean-power plants when those assets were still considered alternative and expensive. Now they’re on the cusp of a breakthrough. Ever-cheaper solar panels and wind turbines are beginning to dominate new power installations, threatening the growth of natural gas on our power grids and upending energy markets.
China has also shifted its biggest state-run energy companies toward renewables. In 2017, it formed China Energy Investment Corp. by merging two state-owned giants. The company has close to 40 gigawatts of renewable power generation capacity, according to BloombergNEF, more than any of the European and American majors. Coal is still a huge part of its business, with 185 gigawatts of thermal power produced in 2019. Unlike the biggest clean-energy giants in Europe, China Energy is almost entirely focused on its home market.
Other big renewables players include Brookfield Renewable Partners, whoseportfolio includes 7,900 megawatts of hydro and 4,700 megawatts of wind, and RWE AG, whose renewables unit is planning to invest up to5 billion euros ($6 billion) until 2022 on renewables and storage technologies.
Renewable energy such as solar and wind can be generated without producing heat-trapping carbon dioxide. A global transition to these cleaner fuels is the only chance we have of avoiding the most catastrophic effects of climate change. An estimated $11 trillion of renewables investment will be needed in the next 30 years to make that happen, and investors want in.
The tipping point may come next year, when Goldman Sachs Group Inc. projects that spending on renewable power will overtake that of oil and gas drilling for the first time. And it’s all happening as the electrification of automobiles and heating in buildings start to take root. “Over the long term, electricity is going to steal market share from other sources of energy,” says Shayle Kann, a managing director at Energy Impact Partners, a New York-based investment fund.
Florida-based NextEra Energy Inc., the world’s most valuable utility, briefly surpassed Exxon Mobil Corp. in market capitalization in early October. It wasn’t a one-off. Enel, Iberdrola and Orsted are now worth more than comparable oil majors, underscoring how mainstream clean energy bets have become for investors.
The term “supermajor”–which traditionally refers to the world’s largest publicly traded oil and gas companies–wasn’t coined until the 1990s. But energy giants have been around for a long time. Fossil fuels begat the Industrial Revolution, but it was the harnessing of petroleum to power cars, planes, trucks, ships and trains that helped forge the modern economy. Unceasing demand for fuel prompted explorers to scour the globe for new discoveries—painstaking and costly expeditions that created some of the world’s most powerful companies.
Renewables are now the cheapest form of new electricity in most of the world, which helps explain why they’re spreading in the majority of markets—powered by the clean supermajors. Wind and solar supply about 9% of electricity globally and their share will rise to 56% by midcentury, according to BloombergNEF.
Note: I would bet that by mid-century the renewable share will be much higher, if not 100 percent. Historically, predictions have consistently underestimated the buildout of renewables.
Once the investors find out how to make a profit of renewable energy they will love it.