While tech is the flavour of the season, renewables could soon give it a run for its money.
By: Ashutosh Sinha
May contract for crude oil futures series was set to expire. All eyes have been on Nymex prices. The world had run out of storage. The price for delivery slipped to never before levels, falling to an incredible minus $37/barrel.
It had never ever happened before.
Plummeting of Nymex crude oil prices hogged the limelight. A more fundamental change could be taking place in the world energy market. Some economies are stuttering to a halt and others hardly running at full steam. Demand for power has fallen. Power plants are running at a lower capacity. That has been causing an upheaval.
The International Energy Agency has predicted a six per cent drop in energy demand for 2020, the biggest since the Second World War. Demand is expected to slip 9 per cent in the US and 11 per cent in the EU region.
Renewable energy could be the only silver lining though.
According to the IEA’s projection, renewable energy demand is expected to grow by 1 per cent for the year. The falling demand for energy in 2020 becomes significant because industries and businesses could find a reason to pivot from traditional to renewable sources.
Power generating companies that rely on solar, wind, hydro and others are finding favour in several European countries. These countries are cutting down on use of power generated by coal-fired power plants. Renewable energy companies are already feeding a significant part of energy into grids around the world. According to the International Renewable Energy Agency (IRENA), the capacity for renewable energy at 176,000 MW was up 7.4 per cent during 2019. The companies from solar and wind power registered the biggest gains with 98,000 MW and 59,000 MW respectively in installed capacity.
According to the US Energy Information Administration (EIA) the installed capacity of wind power has now exceeded the gas-fired power plants in 2019; a trend that will continue. 9100 MW of wind power was installed in the US while 8300 MW of gas-fired capacity was added during the year.
Importantly, renewable energy projects are getting approvals from governments across the world. That makes financing and insurance easier, making such projects more bankable and far easier than projects which are run by conventional fuels.
Stockal investors love renewables
While tech is the flavour of the season, renewables could soon give it a run for its money. Investing in renewable power companies could be a once in a lifetime opportunity for smart money. When comparing March and April 2020, there has been a 2.5X increase in the number of trades on the Stockal platform.
Among the stocks, for example, investors are putting their money into Brookfield Renewable Partners. It had bought out the hydroelectric power assets from Alcoa some years ago. With nearly 20,000 megawatts generating capacity, it is now one of the leaders in hydroelectric power.
Solaredge Technologies is another company that investors are preferring in the renewable energy sector. As the world expands its usage of solar technology, Solaredge’s expertise could make investors ride this global opportunity.
NextEra Energy is one of the world’s largest producers of wind and solar power. Little wonder, its stock is one of those that Stockal investors are beginning to repose faith in. It has been a popular stock in the past and with every passing year.
Plug Power and SunPower Corporation are some of the other stocks that have caught the attention of investors during this tumultuous period for the markets.
Pressure on banks
Banks in the US are looking to turn a new leaf with their investment focus. Morgan Stanley, JPMorgan Chase, Wells Fargo, Goldman Sachs and Citibank have decided not to lend to businesses oil drilling in Alaska. For conventional energy, banks may now be averse to funding projects with such risk.
Big bulge investors could be facing the ire of green protesters too. Banks in Japan have been asked to stop funding power projects that are coal-fired. Japan’s Mizuho Bank is the biggest source of funds for coal-fired power projects and directly lent $16.7 billion since 2017.
At a time when the world is looking to shave cost, cutting down on coal usage could be the first priority. Adverse public reaction and cutting costs are not the only reasons, though.
Coal going out of favour
Several countries are now shutting down coal-fired power plants. During 2019, the US cut down coal power installed capacity by 14,000 MW. As energy demand slows down across the world, coal’s future looks increasingly bleak. Except in several Asian countries, where it is cheaper than other alternatives.
Easy availability of green and renewable fuels has made it very easy to replace coal for power plants. According to the US Energy Information Administration, coal pollutes way more than natural gas, producing twice as much carbon dioxide.
The change in the energy mix – fossil fuel to renewables – is now turning into a reality. Carbon Tracker says that nearly half the coal-fired power plants will be running into losses this year.
With a large part of the world going through various stages of a lockdown, it has reduced monthly energy consumption by 1.5 per cent, according to the International Energy Agency. IEA expects demand to fall six per cent during 2020, nearly 7X the kind of a fall seen after the 2008 crisis. Energy demand has fallen nearly 25 per cent in countries that have witnessed a complete lockdown and nearly 18 per cent in countries with a partial lockdown.
This could just be the right time for the world’s energy industry to pivot.