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In this edition of Investment Themes we focus on the latest developments surrounding the energy transition.
Scotiabank analyses the hydrogen market, and explains why Next Era Energy should be a core holding for nearly all portfolios, and Sustainable Market Strategies highlights companies likely to benefit from air pollution control.
Meanwhile, Aletheia Capital says water, which is already in short supply in China, Australia, Southern Europe and California, is likely to become a way that investors can play the exponential growth in demand for generative AI, Wood Mackenzie examines what will make nuclear power viable in the energy transition, and Washington Analysis says US Treasury guidance on the Inflation Reduction Act is likely to see clean tax credit transferability conform with its initial proposals.
Scotiabank: Ballard initiation; Opportunities in hydrogen (March 9)
We share this March initiation from Scotiabank on Ballard as it provides some interesting depth of analysis on hydrogen, where Ballard, which manufactures fuel cell modules of various sizes, is active in several markets. See pages 6-17 for their analysis of the hydrogen markets. In Ballard’s key geographic markets of Europe, North America and China, the growth of hydrogen supply and demand is supported by some of the strongest government policy and commitments globally, says the bank. Ambitious European climate goals and available incentives have started a hydrogen revolution, according to Scotiabank, while the US is pushing hydrogen forward as a clean fuel, and China is tackling emissions and air quality with hydrogen. Hydrogen demand for shipping and road transport under a net-zero scenario is expected to top 43 Mt annually by 2050 versus less than 1 Mt in 2021, with the US, Europe and China comprising around 63% of future demand, says the bank. Click here if you would like to speak to the analyst.
Scotiabank: NextEra Energy; Turned the corner (June 1)
According to this report from Scotiabank, NEE is ”best in class” in renewable development” but it’s had a difficult few years and even though the stock is richly priced already, their analysts are encouraged by the future direction of the company after their recent meeting with management. They say they’re drawn to the company’s robust growth outlook, best-in-class renewable development and operations, operational excellence at the utility (including strong reliability), and ongoing cost controls to help utility customers as well as support renewable investment returns. Indeed, the bank sees NEE as being one-of-a-kind and believes that the stock should be a core holding for nearly all portfolios. Click here if you would like to speak to the analyst.
Sustainable Market Strategies: Clearing the air; which names are best plays on clean air (June 1)
Companies that offer solutions for pollution control should expect growing demand for their products as stricter regulations drive the need for innovative technologies and practices in order to comply with updated environmental standards, according to Sustainable Market Strategies. This is a major opportunity for sustainable companies in agriculture, industrial processes, power generation, waste management, and the fossil fuel industry, according to the firm. In this report, SMS highlights potential beneficiaries, including Alfa Laval, Siemens Energy, Veolia, Cummins and Johnson Matthey. Click here for the full report. Click here if you would like to speak to the analyst.
Aletheia Capital: Keeping AI cool; Opportunities in water (May 18)
We wanted to highlight this ”picks and shovels” idea off the back of the AI boom that feeds into the realms of sustainable investing: Water. Up until now, as Keith Woolcock at Aletheia Capital points out, air cooling has been sufficient to regulate a conventional data centre, but it is likely that high performance AI data centres will need water cooling. The reason why is that water is 25 times more efficient at conducting heat than air, he says. Water, which is already in short supply in China, Australia, Southern Europe and California, is likely to become a way that investors can play the exponential growth in demand for generative AI, says Woolcock and he highlights some firms that play into this themes. Click here for the full report. Click here if you would like to speak to the analyst.
Wood Mackenzie: The nuclear option (May 2023)
Wood Mackenzie believes nuclear should play a central role in decarbonisation for many countries. In this report, the firm examines what will make nuclear power viable in the energy transition. The biggest economic hurdle to the uptake of the latest nuclear and small modular reactors is cost, according to Wood Mackenzie. However, at present, nuclear is just one of a number of technologies – geothermal, green and blue hydrogen-fired power, gas or coal with carbon capture and storage, long-duration energy storage – vying to deliver reliable decarbonised electricity supply, says the firm. All are expensive and need technological innovation to build a position in the market, says Wood Mackenzie. For nuclear power to flourish, governments, developers and investors must work together to establish a new nuclear ecosystem, one that makes nuclear affordable and acceptable, says the firm. The challenge of reshaping the future of nuclear is vast, but so is the opportunity, according to Wood Mackenzie. Click here for the full report. Click here if you would like to speak to the analyst.
Washington Analysis: Clean tax credit transferability (May 31)
In this report, Whitney Stanco at Washington Analysis highlights the key takeaways from a hosted call with a leading renewable tax credit transferability entrepreneur on the outlook for Inflation Reduction Act (IRA) Treasury guidance. She notes the IRA included a novel mechanism to support clean energy development in the US – the ability to sell many of the clean energy tax credits to a third party for cash. This change allows projects without enough tax liability to claim the full value of the tax credits to sell them without having to enter complex tax equity structures to realise the value of the tax credits, says Stanco. She continues to believe the Treasury will likely issue guidance by the end of Q2 or early Q3. As the agency has done on many IRA topics thus far, Stanco expects it will indicate its plans to undertake a full rulemaking that generally conforms with its initial guidance. Click here for the full report. Click here if you would like to speak to the analyst.