Surge in Power Demand, Green Energy Transition Fuel Investor Opportunities, PGIM Research Finds
May 16 2024 - 8:00AM
Business Wire
A surge in power demand fueled by artificial intelligence, the
growing energy demands of a rising middle class in emerging market
economies, rising geopolitical tensions, and the push to
decarbonization are combining to dramatically reshape the global
energy system. For investors, this new energy landscape offers both
opportunities and hidden risks across a variety of sectors and
asset classes, as well as wide-ranging portfolio implications,
according to new research from PGIM, the $1.3 trillion global
investment management business of Prudential Financial, Inc. (NYSE:
PRU).
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“No source of energy and electricity is
perfect… it’s critical investors understand which companies will
power us through the energy transition and which technologies may
not live up to the hype.” — Shehriyar Antia, Head of Thematic
Research, PGIM (Photo: Business Wire)
In “Fueling the Future: Investing Across the Global Energy
Landscape,” the latest in PGIM’s Megatrends research series, 30
investment professionals from across PGIM’s fixed income, equity,
real estate, and private alternatives managers lift the veil on
their investment strategies amid the shift toward electrification
and a low-carbon energy mix.
The research finds that despite the urgency of the Paris Climate
Agreement and ambitious plans for green energy growth, the energy
transition cannot happen everywhere all at once, and a simplistic
strategy that divides the investment world into “brown” villains
and “green” heroes will not be an effective approach to achieve
environmental or fiduciary objectives.
“No source of energy and electricity is perfect,” said Shehriyar
Antia, PGIM’s head of Thematic Research. “Whether an investor has
decarbonization objectives or not, it’s critical they understand
which companies will power us through the energy transition and
which technologies may not live up to the hype.”
INVESTING IN ENABLERS OF THE ENERGY TRANSITION
Through each evolution of the energy system, legacy fuel sources
have been supplemented, rather than completely replaced. Companies
that supply, facilitate and adapt throughout the transition will
offer the best investment opportunities:
- Critical components for renewable power infrastructure –
Renewable power generation is soaring in every region. The global
need for complementary infrastructure — like power storage and
transmission — should drive demand for critical metals like copper
and grid components. Additionally, emerging markets where
renewables are just taking off, like India and Latin America, can
present opportunities.
- Leaning into lower-carbon fossil fuels – There is a need
to meet rising demand for energy while renewable power
infrastructure is being built. Natural gas — especially where it
displaces high carbon-emitting coal — is a key fuel source in this
transitionary period. Indeed, global demand for liquid natural gas
is expected to grow by over 50% by 2040 as the coal-to-gas
transition expands in China and South Asia.
- Avoiding overhyped technology – Some speculative green
technologies like hydrogen power, nuclear fusion and carbon capture
hold great promise but face immense challenges to operationalize
and scale in the near term. Furthermore, trendy green tech startups
are not likely to displace incumbent global energy players. In
fact, some research suggests traditional energy firms may actually
be leaders in select areas of innovative green tech.
- ‘Big oil’ adaptors – Oil majors that are leaning into
the energy transition — finding ways to remain energy providers
regardless of what the primary energy sources might be — are more
likely to emerge as winners. Peers that rely on the extended sunset
of fossil fuels, meanwhile, run the risk of being rendered obsolete
by efficiency gains and better infrastructure in renewables.
OPPORTUNITIES ACROSS THE GLOBE
Renewables have increasingly become the first choice for new
power generation around the world. However, the energy transition
is playing out at different paces in different places:
- Debt opportunities in mature markets – Across renewable
power projects in Europe and the U.S., there may be better
opportunities in debt rather than equity, as debt financing tends
to be less plentiful.
- Hydro and geothermal projects – These projects typically
face less competition and obsolescence risk than wind and solar
projects, and their debt can be very attractive — specifically
recapitalization of hydro projects in Scandinavia and Italy — as
well as rebuild of legacy infrastructure in Chile, Peru, Brazil,
and other parts of Latin America.
- Renewable power in emerging markets – India is already
the world’s fourth-largest electricity consumer and third-largest
renewable power producer. In this landscape of incredible growth,
companies with a track record of execution on large-scale projects
and relationships with local regulatory authorities can be
attractive.
- Critical metals – Metals and minerals are key to
renewables and their infrastructure. For example, Australia, which
supplies about half of the world’s raw lithium, is expanding its
capacity to process and export battery-ready minerals.
“How we can meet rising global demand for energy reliably,
affordably and in a way that avoids environmental harm is one of
the biggest challenges of our lifetimes,” said Taimur Hyat, PGIM’s
chief operating officer, “Resolving these challenges will create
several important long-term investment opportunities while
requiring rigorous discipline in over-hyped areas where the
rhetoric exceeds the attractive and accessible investment
opportunity set.”
To learn more, read the full paper “Fueling the Future:
Investing Across the Global Energy Landscape,” or visit PGIM’s
Megatrends microsite for additional insights for investors.
ABOUT PGIM
PGIM is the global asset management business of Prudential
Financial, Inc. (PFI). PFI has a history that dates back over 145
years and through more than 30 market cycles. With 41 offices in 19
different countries (as of March 31, 2024), our more than 1,450
investment professionals are located in key financial centers
around the world.
Our firm comprises multi-managers that collaborate with each
other and specialize in a particular asset class with a focused
investment approach. This gives our clients diversified solutions
with global depth and scale across public and private asset
classes, including fixed income, equities, real estate, private
credit, and other alternatives. As a leading global asset manager
with $1.34 trillion in assets under management (as of March 31,
2024), PGIM is built on a foundation of strength, stability and
disciplined risk management.
For more information, visit pgim.com.
Prudential Financial, Inc. (PFI) of the United States is not
affiliated in any manner with Prudential plc, incorporated in the
United Kingdom, or with Prudential Assurance Company, a subsidiary
of M&G plc, incorporated in the United Kingdom. For more
information please visit news.prudential.com.
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UK Sharan Kaur +44 (0) 786 615 4772
sharan.kaur@pgim.com
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