- Global investment bank Morgan Stanley has revealed the companies it believes are best positioned to profit from a transitioning energy economy.
- In the report provided to Business Insider Australia, Morgan Stanley identifies five key areas of growth: renewable energy, electric vehicles (EVs), clean hydrogen, biofuels and carbon capture and storage (CCS).
- Within those industries, it picked some 33 companies as being in the best position to profit in the near term from growing investment and friendly regulation.
In order to halt climate change, some $US50 trillion ($73 trillion) of investment will be required to decarbonise the economy.
That’s according to the latest analysis by investment bank Morgan Stanley, which found five key areas will be required: renewable energy, electric vehicles (EVs), clean hydrogen, biofuels and carbon capture and storage (CCS).
“Our 2030 base case suggests we are far from being on track to stay within a 2 degree Celsius scenario. However, there is hope,” analysts said in a report provided to Business Insider Australia.
“We outline … the level of investment needed in each technology to reach a scenario aligned with the Paris Agreement, and also which we think could be the most successful. Accelerating the adoption of these technologies could remove 25Gt of carbon emissions by 2050.”
The need for that to happen will help see money flow into the hands of those working at the forefront of those essential technologies, potentially turning a tidy profit for those companies.
Here we outline a few Morgan Stanley is particularly excited about.
Unsurprisingly, it’s renewable energy that Morgan Stanley recognises as “the cornerstone of decarbonisation”.
“In our calculations to be on track for a 2 degree Celsius scenario, renewables need to deliver [up to] 80% of global power generation in 2050, which will require over 11,000 [gigawatts] of additional renewable capacity excluding hydro-power over the next 30 years,” analysts said.
In order to do so, $US14 trillion will have to be invested by 2050 according to those same calculations, presenting a huge opportunity for those green energy companies that help power the world.
Of those, Morgan Stanley thinks companies like Germany’s Siemens, Italy’s Prysmian, North American NextEra Energy, China’s Goldwind, and Hong Kong-listed CGN New Energy are particularly set to benefit.
With just five million battery electric vehicles (EVs) sold last year, the market still has plenty of ground to cover, but it will need to if it’s going to satisfy looming demand.
“We have no doubt that the transition to EVs is underway, with regulation making it nearly impossible to meet tighter carbon emission standards without significant battery EV penetration, especially in Europe and China.”
However, it’s not necessarily automakers that Morgan Stanley is keen on.
With the exception of Mercedes, owned by Germany’s Daimler, all the major companies it is betting on are part of the supply chain. From Japan’s Rohm and Panasonic to Korea’s Iljin and China Molybdenum, it’s largely the makers of parts that dominate its portfolio recommendations. That’s not to mention miners like Northern who’ll need to dig up the raw materials required to make the damn things.
That’s right: we need miners to combat climate change.
Carbon capture and storage (CCS)
CCS might be less well-known when it comes to climate tech, but its inclusion in the list serves as an important reminder of one crucial reality.
“Over 200,000 [megawatts] of new coal-fired generation capacity is currently under construction globally and CCS is the only option for decarbonising these plants,” Morgan Stanley notes.
“It will also enable gas power stations, probably needed for grid stability, to be carbon neutral. Regarding the industrial sector, certain processes in the steel and cement industry need fossil fuels, and CCS is one of the few options available for removing the emissions from these activities.”
The need to offset the carbon emissions of these industries translates to an enormous demand for the corporates behind the tech, to the tune of $US2.5 billion by 2050.
It’s American fuel cell manufacturer Bloom Energy and French industrial gas supplier Air Liquide that analysts are backing to take advantage.
Hydrogen and specifically clean hydrogen produced by renewables or CCS power could be the next big energy source.
“Clean hydrogen offers a material opportunity to reduce carbon emissions in industry, which so far has struggled to find clean alternatives to many of the processes needed in steel and cement, for example,” Morgan Stanley said.
It projects the hydrogen supply could expand ten-fold by 2050, requiring an investment of $5.4 trillion into the electrolysers required to make the gas and another $313 trillion to go into renewables. British multinational chemical company Johnson Matthey and Air Liquide are expected to benefit.
However, clean hydrogen not the only fuel that will be crucial to a new energy economy. Biofuels are made from food crops, waste agricultural feed and algae and could provide the clean energy required for clean aviation.
“Biofuels will be an effective transition fuel for light road vehicles over the coming decades to reduce the carbon intensity of the remaining combustion engines,” Morgan Stanley said.
Brazilian ethanol producer Sao Martinho SA and Finnish biofuel manufacturer Neste are Morgan Stanley’s top picks.