Applied philosophy - Can the utilities sector afford the “green revolution”?

The utilities sector is increasingly seen as a beneficiary of the conversion into a low-carbon economy. However, to reach alignment with the Paris Agreement, annual investment must increase by 75% from current levels. We doubt the sector has the immediate capacity to do that on its own and worry that energy consumption growth is expected to remain below historical norms.

However, given time, we believe they have the potential to reach those investment levels. Though they may underperform during economic upswings, we believe utilities have the potential to provide good long-term exposure to the zero-carbon theme, but we would wait until there is more visibility on how they will finance both higher capital expenditure and dividends.

We find utilities fascinating, for they do something almost mythical. They convert elemental forces into pure power, something we can use to run our devices, heat our homes and transport ourselves. We depend on them for almost everything we do, and they will take centre stage in the debate on how to achieve a sustainable future for our planet. Nevertheless, they remain unloved among investors.

If we are serious about preserving our climate as close to its current state as possible, we will have to change how we produce the energy we need, because population growth will lead to more energy consumption. According to forecasts by the United States Energy Information Administration (EIA), global energy consumption will grow by an annualised 1.2% between 2018 and 2050. Even though they expect renewables to be the fastest growing segment, fossil fuels (petroleum, natural gas and coal) will still generate about two-thirds.

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