This is a guest post from Garvin Jabusch, Co-founder & Chief Investment Officer of Green Alpha Advisors LLC.
What are prospects for sustainable and impact investing in the New Year?
With the election of Donald Trump and his selection of a Cabinet packed with fossil fuel executives and climate change skeptics, sustainable and impact investors are facing stiff headwinds.
Despite political challenges, Green Alpha Advisors sees resilience in an emerging economy that is powered by low-carbon, fueled by innovation, locally focused and addressing the looming systemic risks presented by climate change and resource scarcity.
Here are six trends that Green Alpha’s co-portfolio managers Garvin Jabusch and Jeremy Deems say will drive sustainable investing in 2017:
Energy Tipping Point: Though a Trump Administration pledges allegiance to coal and other fossil fuels, Jabusch and Deems say simple economics portends a structural decline in fossil fuels. Put simply, renewables are becoming too cheap for fossil fuels to compete. Solar module costs have fallen 80% since 2008, and solar power can be generated for as little as 2.42 cents per kilowatt-hour—less than half the price of fossil-based electricity.
With solar panels continuing their dramatic fall in price, panel producers face some market headwinds. But Yieldcos, such as 8.3 Energy Partners (CAFD), should benefit in 2017. 8.3 owns, operate and acquire solar energy generation projects and its primary objective is to generate predictable cash distributions that grow at a sustainable rate.
Bridging the divide with wind: What issue can unite Republicans and Democrats? The answer, say Deems and Jabusch, is blowing in the wind. Across the country, wind power has become the new corn for Red State farmers, providing a steady source of income in low-income, Red State rural areas. In fact, the 10 Congressional districts that produce the most wind energy are represented by Republicans. California and other states, meanwhile vow to push ahead in the fight against climate change—with or without President Trump’s blessing.
Vestas Wind Systems (VWDRY) and other original equipment manufacturers are well positioned for continued growth in 2017. Vestas has already sold out its 2017 capacity and with 78 GW of wind turbines in 75 countries, it has installed more wind power than any other company.
Storage Surge: Last year’s massive methane leak from the Aliso Canyon natural gas storage facility outside Los Angeles has put battery storage of electricity on the fast track. Utilities such as Southern California Edison and San Diego Gas & Electric have moved to battery storage for back-up and GTM Research estimates that as much as 1,800 megawatts of new energy storage could come online by 2021, (see: http://bit.ly/2iAbNUy). Companies that stand to benefit from this trend include, ABB Ltd (ABB), Solaredge Technologies Inc (SEDG) and Tesla (TSLA).
Jobs, Jobs, Jobs!: Though coal jobs were a focus of the 2016 Presidential election, renewables are where the most paychecks are. Wind power supports 88,000 jobs, while close to 209,000 U.S. workers are currently employed in solar—and that number is predicted to rise to 420,000 workers by 2020. As of October, coal employed fewer than 54,000, according to the Bureau of Labor Statistics.
Organics poised for record growth: As the fastest growing category in the food and beverage consumer sector, organics continue to set records. Jabusch and Deems believe 2017 will see expanded M&A activity in the category as food companies look to capture market share and growth. Deals like Danone’s $10.4 billion takeover bid for White Wave will become more commonplace with rising consumer demand for organics. Investors can catch this wave with companies like Hain Celestial Group Inc (HAIN), which produces organic food and personal care products; SunOpta (STKL ) which specializes in the sourcing, processing and packaging of natural and organic products from ‘field-to-table;’ and United Natural Foods, Inc. (UNFI), a leading distributor of natural and organic foods in the U.S. and Canada.
Global drive for Electric Vehicles: Deems and Jabusch expect Trump Administration policies may dampen electric vehicle prospects in the short term in the U.S. But globally, the EV market has taken off faster than a Model S. Mercedes plans to spend $11 billion to launch ten new electric models in the next decade, and “BMW will likely phase out internal combustion engines over the next ten years,” according to Baron Capital. Germany, Holland, Norway, India and other countries have passed or are considering bans on all internal combustion engines in the next decade, and the European Union says all new homes must have EV chargers in 2019.
As cities around the globe move to restrict the use of gasoline and diesel cars, Jabusch says investors should keep an eye on companies like FedEx, which is converting diesel vans to electric in urban areas because of greater efficiency and cost benefits.