View: Q2 2021 Review
By Ron Pernick
The second quarter of 2021 will be remembered for several significant events in the energy transition (more on that topic below). As the United States and other large economies began to emerge from COVID-19 lockdowns, prospects for increasing economic growth supported strong total returns in the S&P 500, which rose 8.55%, and in the traditional energy-focused IXE index, which increased 11.11% on the expectation of higher fuel consumption. Among the Nasdaq-Clean Edge indexes, those with an emphasis on infrastructure also produced meaningful results. Prospective significant investments going into the electrical grid and water systems in the U.S. and elsewhere supported an 8.32% return in QGRD (global smart grid and grid infrastructure) and a 7.18% return in HHO (U.S. water) on a total return basis. The Nasdaq-Clean Edge indexes that focus on the clean energy and wind sector, CELS (U.S. clean energy) and GWE (global wind), had more modest results as the indices continued to recover from corrections from record highs. For the quarter, CELS returned 1.09% and GWE -3.39%, both on a total return basis.
Year to date (YTD), the Nasdaq-Clean Edge indexes centered on the electrical grid and water infrastructure outperformed the S&P 500’s 15.25% result. QGRD increased 15.88% and HHO was up 16.29%. Indexes focused on renewable energy continued to correct from high levels experienced at the end of 2020 and the start of 2021. CELS declined -1.14% and GWE fell -6.30%. IXE experienced a significant 45.22% increase fueled by optimism about a return to more normal economic activity. All results are on a total return basis.
Over the past 12 months, CELS was the best performer of the Nasdaq-Clean Edge indexes, increasing 135.06%. The remaining Nasdaq-Clean Edge indexes also produced robust results on a total return basis. QGRD rose 72.49%; GWE and HHO increased 53.61% and 51.55%, respectively. Over the same period, the S&P 500 experienced a 40.79% return and IXE had results of 49.84% on a total return basis.
Data Dive: Tech Maturation Model
Clean Edge recently released its inaugural Tech Maturation Model, drawing on the team’s collective industry experience to analyze 30 clean energy technologies. We hope this model is useful for investors, governments, and other stakeholders to assess the market availability and cost competitiveness of these technologies over the next 10 years.
Technologies at the top right of the chart, such as solar PV, onshore wind, and LEDs, are both widely available and cost-competitive with their established counterparts today or in the next 1-3 years. Those at the bottom left, such as all-electric long-haul air travel, are at least 10 years from maturity in our view. In future model updates, we expect less established technologies (such as green hydrogen, solid-state batteries, and bidirectional grids) to gain traction, becoming more commonplace and moving toward technological maturity. We welcome your feedback on our model, which we plan to update annually.
Quarterly Insight: Energy Transition Pivot Point
|At Clean Edge we believe that the second quarter of 2021 will be widely viewed as a central pivot point in the global transition from fossil fuels to clean energy. On May 17th, the IEA (once very conservative on energy shifts) issued its Net Zero by 2050 report, saying, among other things, that investors should stop funding all new oil, gas, and coal supply projects if the world wants to reach net zero emissions by mid-century. Near the end of May, a district court in The Hague ordered Shell to slash its CO2 emissions by 45% by 2030 from 2019 levels. Then on the very same day, activist shareholders led by investment firm Engine No. 1 gained two ExxonMobil board seats in an unprecedented win in their bid to push the company to finally make a climate strategy change (a third board seat was later confirmed for activist investors in June).
At the G7 June summit in the U.K., the seven world leaders pledged to increase climate finance and called for an end to all new coal investments by the end of this year. “International investments in unabated coal must stop now and we commit now to an end to new direct government support for unabated international thermal coal power generation by the end of 2021,” said the G7 communique. Then three weeks later, an Australian court issued an unprecedented ruling ordering the federal government to halt a major coal mine expansion until it fully assesses the mine’s potential emissions and their climate impact (Australia is the world’s fifth-largest producer of coal).
These are seismic shifts, and it’s clear that governments and investors are moving their focus away from fossil fuels to net-zero ambitions and clean-energy targets. We are already seeing this dramatic change playing out and new fossil fuel initiatives, we believe, will become increasingly “unbankable.” Investors are calling for more transparency from oil and gas companies, weighing the risks of their potential stranded assets as both climate regulations and market demands move the energy supply faster toward decarbonization. These trends have been accelerating for years, and we believe they have just passed a key pivot point.
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