The global energy complex is under pressure. In recent months we have seen energy supplies constrained due to Russian sanctions, with further disruption arising as a result of the summer heatwave. In France, EDF has had to shut down over half of its nuclear plants. Whilst some of these plant closures have been attributed to corrosion issues, the recent heatwave has also led to a rise in temperatures of the local rivers used to cool the nuclear reactors, a crucial element in production, therefore reducing overall efficiency of this energy source. Germany’s Rhine River is currently too shallow to transport cargo, including traditional energy. The Sichuan province of China, which relies on hydropower for 82% of its power generation, experienced its worst drought in more than half a century in August, resulting in hydropower capacity being halved and causing a number of factories to close. Even the efficiency of solar energy is impacted by hot weather. For every degree above 25C, the efficiency of a solar panel can drop by as much as 0.5%. When a panel temperature reaches 45C, the solar efficiency could fall by 10%.
Whilst green energy has proven more inefficient during the summer heatwave, this has not deterred investment from around the world into this technology.
Last month, the US passed a historic Inflation Reduction Act. Whilst many countries have recently approved climate packages and enforced regulation, the size and scope of this Act should not be underestimated. It represents more than $370 billion of investment and subsidies to be spent over ten years dedicated to climate and energy measures. These include tax credits for EVs, $20 billion spent on clean vehicle manufacturing facilities, ten years of consumer residential energy tax credits and $20 billion to support climate-smart agricultural practices.
In response to the outbreak of war in Ukraine, the European Union published their plan to reduce reliance on Russian oil and gas. This plan is estimated to cost circa €300 billion by 2030 and includes investing in solar and wind power, energy storage investment, green hydrogen innovation and promotes awarding of permits to renewable energy projects.
Whilst these significant commitments by some of the developed world’s largest economic powers seem encouraging, they pale in comparison with the levels of deployed climate investment by China. Last year, China accounted for 46% of the world’s new construction of renewable energy infrastructure, investing $380 billion, more than any other country during 2021. China’s solar energy spending for the first six months of this year has totalled $42 billion (173% higher than last year). The country’s spending on new wind projects totalled $58 billion (107% above 2021 levels). According to China’s Renewable Energy Engineering Institute, the country is set to install a record 156 gigawatts of wind turbines and solar panels this year. By comparison under the Inflation Reduction Act, additions to US wind capacity could increase from 15 to 39 gigawatts per year by 2025-2026, according to researchers at Princeton University.
Public and private investments, 2012-2021
Source: BloombergNEP, Note: The UK is included in EU calculations until 2020
The energy transition represents one of the most environmentally, but also economically, important shifts of recent times.
4 Bloomberg article
6 Bloomberg New Energy Finance
7 FE Analytics
8 FE Analytics
This communication is provided for information purposes only and is intended for the exclusive use of the recipient to whom it has been directly delivered by LGT Wealth Management UK LLP and is not to be reproduced, copied or made available to others. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Wealth Management UK LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Wealth Management UK LLP, employees and associated companies for any direct or consequential loss arising from this document. LGT Wealth Management UK LLP is authorised and regulated by the Financial Conduct Authority.