Imagine you have $50 million with a prestigious private bank. Next week, you will sit down with your relationship manager and an investment analyst for your semi-annual portfolio review. You plan to ask for their advice on investment opportunities arising from the energy transition. We took a look at the latest research from J.P. Morgan, Goldman Sachs, Morgan Stanley, Natixis and Deutsche Bank to show you how they would answer that question.

The J.P. Morgan Private Bank sees the energy transition as an attractive long-term investment opportunity, driven by government involvement and the array of opportunities available. In a June 2023 note, Jessica Matthews, the Global Head of Sustainable Investing, and Analyst Conner Bercik, both from the Private Bank, suggest three areas where they see opportunities:

• Renewable energy manufacturers: They are particularly focused on companies poised to benefit from the Inflation Reduction Act, such as solar PV cell and wind turbine makers with U.S. production facilities.

• The EV Supply Chain: J.P. Morgan sees government policy and corporate adoption of EV fleets as catalysts for a tripling of the EV fleet in the United States between 2022 and 2026. “We are watching the equities of companies ‘upstream’ of EVs, such as suppliers of critical minerals and battery solutions, as well as private market opportunities in battery recycling.”

• Semiconductors: Chips are critical to the clean tech supply chain, as they are used in PV solar cells, wind turbines, EVs, batteries, charging stations and power grids.

“Global investment in the energy transition hit a record $1.11 trillion in 2022, up 31% from the year prior, and we expect this trend to accelerate. Government involvement and the range of opportunities available make the energy transition an attractive long-term investment.”

Elsewhere within J.P. Morgan Private Bank, the 2023 Eye on The Market Annual Energy Paper, titled “Growing Pains: The Renewable Transition in Adolescence” focuses on the current challenges facing the energy transition. This deeply researched paper discusses potential roadblocks such as:

• The intermittency of renewables
• The upgrades required to the electric grid to support electrification
• Permitting and siting issues on renewables and transmission projects

The paper also discusses trends in electrification, for example, heat pump adoption:

Charts from the paper on heat pump adoption. Source: J.P. Morgan.

While the energy transition may take longer to play out than had been previously expected, the paper is positive overall on the investment opportunities the transition will bring.

Companies that are developing and deploying renewable energy technologies, such as solar panels, wind turbines, and energy storage systems, are well-positioned to benefit from the transition. Companies that are upgrading the electrical grid are also well-positioned to benefit.

Morgan Stanley is also bullish on the energy transition, with Wealth Management Investment Strategest James Ferraioli noting, “there are significant long-term investment opportunities related to decarbonization efforts.” In a March 2023 article he highlights three areas where investors may find compelling opportunities in decarbonization:

• • Pure-play clean tech firms directly involved in renewable energy technology or production.
  • Electric utilities that are transitioning away from fossil fuels and toward cleaner generation.
  • Oil and gas companies that are investing in cleaner production, either through carbon capture or by diversifying production through renewables.

“While our strategists see strong growth potential for opportunities in renewables, investing in the space is not without risk. Growth for the sector assumes technological advancement, large-scale private investment and continued policy support from governments around the world.”

The Wealth Management team at Morgan Stanley has put out other articles with advice for investors on tackling the energy transition.

• A December 2022 article titled How to Tackle Climate Change in Your Portfolio discusses how “Investors seeking to mitigate climate change-related risks and identify opportunities that aid in the transition to a low-carbon economy have a variety of ways to develop a climate action investing strategy that meets their financial and impact objectives.”

• In March 2022 Emily Thomas, Head of Investing with Impact at the bank wrote an article with 4 Ways Investors Can Act on Climate Change.

Vikrum Vora, a Portfolio Manager and Senior Research Analyst in Liquid Real Assets, wrote The Energy Transition Trinity in early 2023. The paper looks at 3 trends in the energy sector:

Trend 1: Sustained High Fossil Fuel Prices – “Barring more stringent government policies, the more likely case for fossil fuel demand destruction would be due to continued high prices as opposed to a switch to greener alternatives.”

Trend 2: Rapid Deployment of Cheap, Clean Tech – “The transition, however, isn’t just about solar and wind. It requires a step change in investment and deployment of clean technologies.”

Trend 3: Reshoring of Energy – “some of the world’s largest economies have a short-to medium-term focus on “reshoring” energy supply”

While we believe it’s well understood that the cost of new build renewables is cheaper than new build energy sources , what we think is less appreciated is that even with the cost inflation we’ve seen in 2022, the spread between new build renewables and existing electricity prices is wide

In March 2023, the Goldman Sachs Equity Research Team put out a detailed analysis of the The Third American Energy Revolution. The team modeled the renewable revolution and came to some key conclusions:

• The US IRA provides the most supportive regulatory environment in clean tech history, unlocking an estimated $1.2 trillion of incentives by 2032.
• The bank expects $3 trillion of investments across renewable electrons and molecules, including the first deployment at large scale of green hydrogen and carbon capture.
• Increased natural resource demand – GS sees a 35%/20% incremental uplift from green capex to copper/aluminum demand by the end of the decade.
• Falling costs – the report sees the decarbonization cost curve for the USA falling 75% when incorporating the Inflation Reduction Act and other incentives.

Energy transition investors should also check out papers from the Goldman Sachs Research team such as Copper is the New Oil and one on Direct Lithium Extraction.

Natixis released its Energy Transition Whitepaper in July 2023. The paper explores multi-decade opportunities in Electrification, Wind, Nuclear, Hydrogen and Carbon Capture and Storage, while also touching on government regulation, technological risk and geopolitical risk.

“We are very, very early in a multi-decade journey into the energy transition. If this was a cricket game, we would only be in the opening overs of a 5-day test match.”

-Tim Wood, Portfolio Manager and Head of ESG, IML 

Deutsche Wealth put out a research paper titled Energy Transition The Quest for Emissions-free Energy. The report explores how greater electrification and expanding carbon-free power generation will be important themes going forward.

Carbon-free electricity generation will remain at the core of the energy transition. Huge investments in wind, solar, energy storage and transmission lines (amongst others), as mentioned in the previous chapter, will be needed to decarbonize the energy supply. Consequently, we expect these industries to experience substantial growth over the next few years, partially at the expense of industries like oil & gas as we gradually phase out fossil fuels.

The whole energy value chain, from solar panels to distribution networks and energy storage companies, will gain from this global energy shift. But there will be transition risks in this process: established energy companies will have to work hard to adapt to the changing business environment, if they want to avoid becoming stranded assets

Investors can gain exposure to the energy transition through single stocks and ETFs. 

We attempt to capture the universe of investment opportunities in U.S. markets with our Stock Lists and ETF Lists.