Geopolitical Trends Shaping the Investment Landscape Part 3

heat wave in the city and hand showing thermometer

We are pleased to welcome once again Dr. Robert Wescott, President of Keybridge Research and a long-time adviser to Pioneer, as a guest contributor. Dr. Wescott  attended our recent Macro Advisory Forum, chaired by Giordano Lombardo, CEO and Group CIO, discussing how geopolitical risks could shape the investment landscape.

In the third of this series of blogs, Dr. Wescott looks at Climate Change: Could it be the new endgame?

Some new opportunities for investors are likely to open up following the Paris climate change talks, Dr. Wescott predicted. He said conventional wisdom holds that low fossil fuel prices will delay the progress of renewable energy, that wind and solar subsidies are becoming too expensive to maintain, and that the COP21 meeting was mainly a “feel good moment for greens”. Dr. Wescott believes otherwise, however, and he suggested that 2015 was a watershed year for energy and the environment He said the Pope’s new stand on the environment, new views in China and India about air pollution and the environment, and most importantly, steadily improving economics of renewables have changed the debate.

The Pope has played an important role in providing a “moral argument” for doing more to tackle greenhouse gas emissions and had made this position clear in a September 2015 speech to the US Congress. Also, Dr. Wescott believes that China and India, which had been reluctant to take major steps to prevent global warming, experienced meaningful political shift  in 2015. He said that the issues of smog and greenhouse gases in both countries morphed together in public perceptions in 2015, and are now putting strong political pressure on their leaders to tackle air pollution.

Ultimately, a major swing to renewables must be underpinned by economics and utility scale solar photovoltaic plants have made huge advances in cutting the cost of energy. In the US, power purchase agreements (PPAs) for such plants are now being done at prices that make solar cheaper than coal or gas in states like Arizona, Nevada, California and Texas, where the climate is very favorable for solar. Furthermore, President Barack Obama’s Clean Power Plan – which is being challenged in the courts – imposed carbon emission caps on new power plants that disqualify new coal plants.

Dr. Wescott said the changes under way open up exciting opportunities for investors in new areas of the energy industry, including utility grade electric battery storage and dispatch software. Tesla’s giant battery factory – or Gigafactory – in Nevada is now well along in construction, said Dr. Wescott. The $5 billion plant could prove an important stepping-stone towards large-scale energy storage to because it is projected to significantly lower lithium ion battery costs. The result should be new ways to smooth output when the sun is not shining or the wind is not blowing. Dr. Wescott said he believes there will be new waves of investment in the coming years to take advantage of cheaper batteries and newly more affordable renewable power.

He believes this will be a global phenomenon, with investment in this area taking off in Africa, China and India, as well as North America and Europe. Even in a world of low oil and gas prices, he believes this will be a big growth area and an “exploding field” for investment in the next five years.

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