Energy, security and electricity demand: why environmental technologies are entering a new phase

The global energy sector is at a turning point. What was long discussed primarily as an issue of climate protection and energy efficiency has now become a key concern regarding supply security and competitiveness. The rapidly rising demand for electricity, driven by electrification and artificial intelligence, is giving environmental and energy technologies a new, strategic significance.

This trend was most recently confirmed at the 38th Annual Roth Conference in California, one of the most important international industry gatherings for renewable energy and clean-tech companies. Over 20 meetings with key companies in ERSTE WWF STOCK ENVIRONMENT and ERSTE GREEN INVEST (about 25% of the fund’s assets under management) provided many exciting insights and findings regarding the current market environment.

An extraordinarily strong environment for electricity and energy

In discussions with CEOs, many of whom have been working in the energy sector for decades, the general consensus was remarkably clear: the current demand and price environment for electricity is better than ever before. Utility companies are no longer planning on a short-term, project-by-project basis, but are increasingly entering into five- to ten-year framework agreements. This increases cash flow visibility and improves investment security across the entire value chain.

The rising demand for electricity is structural: data centres for AI applications, electric mobility, heat pumps, and the ongoing electrification of industry and households are driving a surge in demand that is historically comparable to the period following WWII. Back then, the cycle lasted several decades – currently, there is little to suggest any form of short-term weakening.

The Roth Conference in California is one of the most important industry gatherings for renewable energy and clean-tech companies. Copyright: Wil Matthews

Renewable forms of energy as quickest and cheapest solution

Renewable energies are currently also the only form of energy that is available quickly, at scale, and cost-effectively. Wind and solar energy are now among the cheapest sources of electricity around and can be connected to the grid much more quickly than gas or nuclear power stations.

While these still play a role in the energy mix, they simply take too long. One currently has to wait three to four years for a conventional gas turbine, and the actual construction of the power station then takes another two years. Nuclear projects have even longer implementation phases – even the much-discussed SMRs (Small Modular Reactors) will remain a topic for the period after 2030.

Batteries are also increasingly taking centre stage: with the growing penetration of renewables, the use of battery storage can help balance out price fluctuations and massively stabilise the entire grid.

Energy security is national security

The latest geopolitical tensions – most recently the conflict in Iran – have made it abundantly clear that the energy supply is inextricably linked to national security. This view is also becoming more popular in the USA. Ideological divides have become less significant, while pragmatic solutions are coming to the fore. The fact that Texas, of all places, is now a leader in wind and solar energy as well as battery storage underscores this shift.

Europe, too, is once again facing a turning point. Despite the war in Ukraine, the continent remains heavily dependent on energy imports. The lesson is clear: the accelerated expansion of renewable energies, high-performance grids, and efficient storage systems is not a luxury, but an economic and strategic necessity. We hope that strategic measures will be consistently implemented and that Europe will become more energy-independent. This also includes the expansion of renewables, grid capacity, and more efficient use and storage – for a diversified and smart energy supply has the potential to cushion price shocks in the energy sector.

Alexander Weiss, fund manager of ERSTE GREEN INVEST at this year’s Roth Conference in California

Market sentiment: fundamental strength meets caution

What is striking at this point in time is the discrepancy between the strong operational performance of many companies and the continued cautious stance of major investors. Hedge funds still dominate market activity, while traditional long-only investors are sitting on the sidelines.

Why is this the case? Well, the interest rate rises of recent years have led to high capital and refinancing costs, and these naturally weigh on balance sheets when revenues are only expected in the future. Due to their business models, many companies in the renewables sector face a substantial cost of capital at the outset; consequently, this segment suffered particularly from the historically steep and rapid rise in US interest rates. No paradigm shift in perception has yet taken place here.

However, this also confirms our view that we are still very early in this new cycle and that the positive performance may continue for some time – provided, of course, that companies continue to deliver on their promises.

Positioning and outlook

In this scenario, we are continuing to focus more heavily in our environmental technology funds on the structurally rising demand for electricity and have increased our exposure to the energy sector, as the earnings outlook here is currently better than in our other thematic areas. We are also investing more heavily again in Europe (about 36–37% in ERSTE WWF STOCK ENVIRONMENT and ERSTE GREEN INVEST).

The link between environmental technologies, energy independence, and geopolitical stability lends the megatrend of environmentally friendly energy generation a new and, for many, unexpected dimension – namely that of geopolitical independence in energy production.

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Risk notes ERSTE WWF STOCK ENVIRONMENT

The fund employs an active investment policy and is not oriented towards a benchmark. The assets are selected on a discretionary basis and the scope of discretion of the management company is not limited.

For further information on the sustainable focus of ERSTE WWF STOCK ENVIRONMENT as well as on the disclosures in accordance with the Disclosure Regulation (Regulation (EU) 2019/2088) and the Taxonomy Regulation (Regulation (EU) 2020/852), please refer to the current Prospectus, section 12 and the Annex “Sustainability Principles”. In deciding to invest in ERSTE WWF STOCK ENVIRONMENT, consideration should be given to any characteristics or objectives of the ERSTE WWF STOCK ENVIRONMENT as described in the Fund Documents.

Risk notes ERSTE GREEN INVEST

The fund employs an active investment policy and is not oriented towards a benchmark. The assets are selected on a discretionary basis and the scope of discretion of the management company is not limited.

For further information on the sustainable focus of ERSTE GREEN INVEST as well as on the disclosures in accordance with the Disclosure Regulation (Regulation (EU) 2019/2088) and the Taxonomy Regulation (Regulation (EU) 2020/852), please refer to the current Prospectus, section 12 and the Annex “Sustainability Principles”. In deciding to invest in ERSTE GREEN INVEST, consideration should be given to any characteristics or objectives of the ERSTE GREEN INVEST as described in the Fund Documents.

 

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