LUXEMBOURG
MARK LACEY, HEAD OF COMMODITIES, SCHRODERS

An analysis by Mark Lacey Head of Commodities, Schroders

About Schroders

In Luxembourg since 1991

The British asset management company Schroders was founded in 1804. Today, it has more than 5.500 employees on six continents. Its headquarters are located in the heart of the City of London and it has also been present in Luxembourg since 1991 with Schroder Investment Management (Europe) S.A., whose Senningerberg team has 194 employees. Schroders manages 582 billion of euros of assets invested in a broad universe of equities and fixed income, mixed and/or alternative products for institutional and retail investors, financial institutions and high net worth clients around the world.

The energy transition isn’t just about producing renewable energy. Investment, and earnings opportunities,  are spread across four different areas.
The energy transition involves shifting from a system based on fossil fuels (oil, gas and coal) to one dominated by clean, renewable electricity. Its aim is to reduce energy-related carbon dioxide (CO2) emissions to help meet global climate targets.
The transition is a long-term investment opportunity that will transform the entire energy system over the next 30 years and beyond. The crucial point is that to meet climate targets, investment will be needed across the entire value chain, i.e. all the areas mentioned above.

Clean energy generation

Clean electricity generation is perhaps one of the more advanced investment areas of the energy transition, but there’s still a long way to go. Demand looks set to rise as costs fall. Improvements in technology and economies of scale mean that renewable energy is now cost-competitive with fossil fuels, even without subsidies. And the desire of consumers for more emissions-friendly technologies - such as electric vehicles – is set to fuel the growth of clean power generation.
This creates new opportunities for utility companies with expertise in renewable power, as well as a fast-growing set of smaller independent power producers (IPPs) that solely develop and manage renewable assets. It also benefits companies who produce renewable energy equipment, such as wind turbines and solar panels.
Away from renewable electricity, hydrogen has enormous potential to be a key fuel at the centre of a low carbon economy, given its energy density, versatility and chemical reactivity – and the fact that when combusted it emits no CO2. Hydrogen can do almost everything natural gas does in the current economy, and can displace many of the non-power sector uses for coal and oil too. Unlike wind and solar power though, it is still significantly more expensive to produce green hydrogen when compared to more carbon-intensive alternatives. That could change in the coming years with the EU, Japan, Korea and the US all targeting increased use of clean hydrogen in their economies.
Transmission & distribution
Generating power from renewable sources like wind and solar brings some specific challenges. Chief among these is that locations with the best characteristics for renewable generation – such as strong winds or high solar irradiation levels – are often not where the power is needed. This is a big difference from conventional power plants, which can be built more or less anywhere.
Connecting new renewable projects to the electrical grid therefore creates investment opportunities for companies that manage the large-scale electrical transmission system. By 2050, the world will need to more than double the length of global power lines and transformers to enable the growth of renewables. Many existing networks and the entire distribution network will need to be replaced or upgraded.

Energy storage

Renewable energy is not always produced when it’s needed. Storage solutions can help manage this intermittent power supply and ensure that electricity is there when it’s required. As the need for storage becomes clearer, opportunities are emerging for expert battery operators, as well as those companies that design and manufacture the growing range of storage products.
Electric transport infrastructure
The ability to charge electric vehicles, whether at home or out and about, will become increasingly crucial. According to the European Commission, if the ratio of vehicles to charging points exceeds 10, then the average consumer will start to be discouraged from purchasing an EV in the first place. The potentially huge earnings opportunities from the manufacturing, installation and operation of charging points has already attracted a range of different players, including utilities, new pure-play companies and even the oil and gas majors.