Vontobel Conviction Equities Boutique
Concentrated and fundamentally driven high-conviction equity portfolios managed by four teams specialized in emerging markets, impact investing, thematic investing, and Switzerland.
The recent energy price crisis has increased the spotlight on the UN climate conference COP26 that brings together international leaders over the course of this month on the global climate and green energy agendas. Brown energy supporters have been quick to blame soaring energy prices on a too hasty decarbonization of energy production. However, if the current energy shortages tell us anything, then that there is an urgent need for a faster deployment of green energy solutions, including renewable energy as well as storage and energy grid infrastructure. Investments in innovative companies can enable this process and ease nefarious effects on global energy supply chains.
2021 has exposed vast gaps in the global energy market. Despite the ongoing rise in renewables generation, there is not enough to cover the rising demand for electricity according to the International Energy Agency. As a result, coal-fired electricity generation was used to fill the gap this year reversing its downward trend of the past two years dealing a blow to broad-based decarbonization efforts.
If the goals of the Paris Agreement in 2015 are supposed to remain within reach, all segments of our economy must decarbonize which requires significant investment. According to UNCTAD, the global net-zero goals require between 5 and 7 trillion US dollars in funding annually until 2030. While the public sector plays a crucial role in this, it cannot shoulder this task alone. The investment industry must pitch in via private and public debt as well as private and public equity, with the latter increasing in importance fast. Investing in publicly listed companies providing innovative products for green energy transition needs supports them in improving their products and services and investing in R&D.
The current energy shortages have pushed solar energy companies into the limelight as solar energy technology is the fastest way to expand electricity expansion capacity curbing the use of coal. Compared to traditional energy sources such as nuclear and gas, solar panels are relatively easy to install. The same applies to onshore wind farms.
The Israeli company Solaredge Technologies is a solar inverter manufacturer and an important player in the decarbonization race, especially for residential solar panel applications in the US and in Europe. According to our analysis, Solaredge’s Potentially Avoided Emissions (PAE) amount to at least 1.8mln tons of CO2e in absolute terms. In 2020, Solaredge shipped inverters with a total capacity of 6.1 GW to its customers who use the company’s power optimizer and monitoring systems in their facilities for improved power generation capacity. Its optimizer products aim to increase energy output through module-level Maximum Power Point Tracking (MPPT). The company is also active in battery storage solutions.
Another important area of alternative energy production is wind energy. Vestas Wind Systems for example, is a pure-play company in this industry based in Denmark. The company is the global market leader in onshore wind turbines with a strong position in offshore turbines and hence is critical to the development of the global renewable energy sector. According to our analysis, Vestas’ Potentially Avoided Emissions (PAE) are c150mln tons of CO2e. Furthermore, Vestas has committed to carbon neutrality by 2030 without carbon offsets.
In general, good companies combine structural growth opportunities with a clear strategy and the ability to drive innovation. The capability to scale up new and existing technologies creates a defendable competitive advantage.
Any investments discussed are for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
Certain of the information contained in this article is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Vontobel believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.