The US green energy sector rose out of the ashes of the pandemic in 2020 with a strong year for investment and valuations. Will 2021 deliver on the technology?
Over the last decade the United States has gone from being reliant on oil imports to becoming a net exporter of oil. This pivot saw large investments and big fortunes made in the shale oil industry. The big oil majors, frustrated with large capital spending and volatility in politics and prices, adjusted their business plans to take big stakes in the domestic oil patch and move away from international exploration.
Despite oil’s importance to the economy, the country has also seen growth in its renewable energy generation as one of the world’s largest polluters leads the world in reducing energy-related emissions. Data from the country’s Energy Information Administration (EIA) projects that the US will reduce CO2 emissions further. The EIA forecasts renewable energy generation will grow from a 17% share of U.S. electricity generation in 2019 to 22% in 2021. As a result of increasing renewable energy generation and carbon cutting policies, energy-related carbon dioxide (CO2) emissions will decrease by 2% in 2020 and by 1.5% in 2021.
With pressure on governments and corporations to continue down the path of green energy, investment will start to dry up for capital-intensive, industrial businesses and fossil fuel activities. The reality of this switch is that green energy investment and activity is still in its nascent stages and will see big growth in the years ahead.
Green energy rises from the rubble of the pandemic
The pandemic in 2020 has led to a game-changing year for green energy and technologies, after the lockdowns and reduced energy demand put the brakes on oil production and air travel. For many world leaders and economists, the economic crash has been grasped as a necessary adjustment to business as usual in the energy industry. Many are now calling for a new approach to phase out dependence on fossil fuels and heavy industry. The United States also passed the country’s largest energy bill in a decade, which is betting big on renewable energy. The U.S. Presidency is set to be handed over to Joe Biden who is fully on-board with the green revolution and is under pressure from members in the Democrat party to deliver on the ‘Green New Deal’, which would see big spending in the sector.
While energy majors have had to adjust to yet another volatile year for oil and gas prices, renewable companies have had a very strong year. In fact, a record year. Companies have seen big gains in their stock price with Enphase Energy up over 500%, SunPower higher by over 400%, and Sunnova has gaining 300%.”
Another green energy sector which saw a breakthrough this year was electric vehicles. The EV sector was driven by Tesla’s meteoric rise, with a stock price up 700% and the company moving to profitability. The sector is now seeing a rush of investors trying to find the next winner. As the rising tide lifted all boats in EV production, it also lifted those companies that are positioned to deliver on the need for advancements in battery and charging technology.
Tesla’s Elon Musk is seen as a poster boy for the industry and at the company’s annual shareholder meeting and Battery Day event, Musk made remarks that went unnoticed to many: “The US is moving toward sustainable energy.” Musk’s company and his other investments are geared towards this with contributions to electric vehicles (EVs), solar panels and energy storage for homes and businesses, greener mining, and probably home HVAC systems.
As with the electric vehicle industry, these moves will trigger a host of copycat enterprises seeking fresh investment.
Big investment will see continued pressure to invest sustainably
After a strong year in 2020, green energy may finally be ready to step out of the shadows after many false starts in areas such as solar energy. The reality of this situation is that investors were still seeing big, and easy gains in existing technologies, such as mining and deepwater drilling.
But a sign that the tide is changing can be seen in big investment vehicles, like Norway’s sovereign wealth fund. The fund is the world’s largest at more than $1 trillion, and the country’s Parliament previously decided that the fund should become greener and divest some of their big stakes on fossil fuels. Global money flowing into renewables industry saw a record high in 2019 at $282 billion and this trend should continue from 2020 onwards.
We are likely to see this trend accelerate with funds and corporations being blacklisted if they are heavily-focused in sectors that produce large emissions.
BlackRock, the world’s largest private investment house has also announced a commitment to make investment decisions, which put environmental sustainability as its core goal. The company manages around $8 billion in assets and their decision will put pressure on other money managers to follow suit.
Green energy tops coal for first time since 1885
In a further boost for the sector, a monthly from the EIA at the end of 2020 saw consumption from green energy sources exceeded coal consumption for the first time in 134 years.
The report said:
US coal consumption decreased for the sixth consecutive year to 11.3 quadrillion Btu, the lowest level since 1964. Electricity generation from coal has declined significantly over the past decade and, in 2019, fell to its lowest level in 42 years. Natural gas consumption in the electric power sector has significantly increased in recent years and has displaced much of the electricity generation from retired coal plants.
The US began using coal early in 19th century to fuel steam-powered boats, trains and steel plants. It was later positioned to electricity generation in the 1880s. The coronavirus lockdowns have seen a drop in fuel demand and this is a platform for the green industry to build on in the new year.
With investment and valuations rising in the green energy sector, 2021 will be a year where the industry shows if the technology can live up to the hype.