Investment Week: Bull and Bear Column (external content)

Responsible Investing/ 10 May 2020

At the beginning of 2020, it seemed that the long-term benefits of investment in sustainability had found its place at the forefront of investors’ thinking. Although investor sentiment toward sustainable investment remains strong, the COVID-19 crisis has called into question long understood market norms, particularly in the energy market.

Once the current crisis has passed, attention will move to figuring out the most effective way to re-start and re-invigorate stalled economies. This presents an historic opportunity for investment in sustainable, clean and efficient energy generation and demand reduction projects to act as critical economic levers.

Following unprecedented reductions in energy demand, oil and natural gas prices could remain low for a prolonged period. This might reduce the perceived immediacy of the well understood and obvious benefits of investment in projects which reduce energy demand and costs or provide efficient generation of energy. However, failure to seize the momentum of investment would be to miss a great opportunity, as when demand eventually does return, a spike in energy prices could act as a sharp brake on rapid economic recovery.

Efficient and sustainable sources of power are now so cheap that they present the most attractive option for new build generation. With demand currently suppressed, variable supply renewables now represent a higher proportion of power supply than ever before. Low prices of carbon fuels and structural issues within the grid could lead to this proportion being temporarily scaled back to pre-crisis levels, but investment in simple and cost-effective on-site generation, demand reduction and storage projects can help to consolidate and balance the increased proportion of renewable energy over the long term. In general, cheaper, cleaner and more reliable energy solutions should be at least as attractive to government, businesses and investors as ever before.

Bull Points
• Strong investor sentiment for sustainable investment and growing corporate commitment to reducing energy costs by focusing on cheaper, cleaner and more efficient energy
• Significant and growing pool of essential investment opportunities to compliment widespread variable renewable supply in the energy grid

Bear Points
• Energy demand at historic lows and dislocated energy markets
• Immediate crisis-related priorities may not be focused on delivering a more efficient energy market