COP28 in Dubai has ended. Now what?
The wave of Electric Vehicles (EV) is spreading. In 2021, one in 25 cars sold globally was an EV. For 2023 having thirteen days left of the year, the number is expected to be one in 5 cars. In 2025, expected to be one in 2 cars, and in 2030 three in 4 cars. In 2024 it is expected there will be a significantly reduced demand for oil from ICE (internal combustion engine) vehicles worldwide. EV’s are just one of many industries changing their game.
A big target for the Biden administration is the power sector, which causes about a quarter of the total U.S. emissions. Biden wants it to be carbon-pollution free by 2035.
The IRA (Inflation Reduction Act) recently created a new tax credit for producing clean hydrogen from low-emissions sources. The climate lobby envisions clean hydrogen someday replacing fossil fuels in airplanes, long-distance trucking, shipping, and steel and fertilizer manufacturing.

So what are the key takeaways from renewable energy these days, and what is the forecast for oil?

Lets break this down!

COP28

COP28 in Dubai, held in December 2023, focused on a roadmap for transitioning away from fossil fuels, marking a first for a UN climate conference. The event emphasized the inevitability of phasing out oil, coal, and gas, aligning with the goal of limiting global heating to 1.5°C, a target of the Paris Agreement. The conference highlighted commitments to triple renewable energy capacity and double energy efficiency by 2030. Additionally, progress was made in adaptation, finance, and the operationalization of the Loss and Damage Fund, underscoring the ongoing need for climate justice and accelerated climate action.

Potential implications of COP28:

1. Increased Demand for Renewables: Commitments to reduce reliance on fossil fuels could drive greater demand for renewable energy sources, potentially benefiting companies in this sector.
2. Policy Support and Incentives: Governments may introduce policies and incentives to promote renewable energy, which can be beneficial for companies involved in solar, wind, hydroelectric, and other renewable energy industries.
3. Long-Term Growth Potential: As the global economy transitions towards sustainable energy sources, companies in the renewable energy sector might experience long-term growth.
4. Market Volatility: The renewable energy market could face volatility due to changing policies, technological advancements, and competition. This might impact stock prices and investment risks.
5. Diversification in Energy Portfolio: Investors might consider diversifying their portfolios by including renewable energy stocks, as these could represent the future of energy.
6. Risks and Challenges: While there’s potential for growth, there are also risks including technological challenges, competition, and regulatory changes.

The Big Movements and Signs

The global energy transition is more progressed than what most people are aware of!
In Q2 2023 Tesla reported a 20% increase year-over-year in net income. This could be caused be the increasing demand of EV’s, as owners of the most popular Tesla models save up to 50% to 75% in costs per driven mile compared to similar ICE models. The same goes for trucks, buses and motorcycles.
The International Energy Agency (IEA) has calculated that by 2030, 30 million new jobs will have risen in the global clean-energy economy, whereas for the fossil fuel industry, 13 million jobs will be lost.
For the first time, the annual United Nations climate summit, which was held in Dubai last week, called for a transition away from fossil fuels, and a tripling of renewable power capacity.
From 2015 to 2022 more than 600 North American oil and gas producers had either filed for bankruptcy or were bankrupt.
Early this year, 235,000 fewer people were employed in the oil and gas industry compared to the shale-boom peak in 2014. A 38% drop.
Private investors invested five times more money into renewables compared to conventional energy in November 2023.
The price of Brent crude has decreased from nearly $100 a barrel in September to $75 a barrel despite OPEC+ supply cuts.
At COP28 held in Dubai in December 2023, more than 190 countries approved an agreement to move away from fossil fuels.

Incorporating the latest developments from Tesla, the IEA, the United Nations Climate Summit, and the current state of private investments and OPEC+ decisions, we can analyze the pros and cons of investing in fossil fuel and renewable energy companies.

Pros and Cons of Investing in Fossil Fuel Companies:

Pros:

1. Short-Term Demand: Despite global shifts towards renewable energy, fossil fuels remain integral to current energy infrastructures. This continued reliance, although decreasing, could offer short-term investment gains, especially in well-positioned companies.
2. Adaptive Strategies: Some fossil fuel companies are adapting to energy transitions, potentially creating investment opportunities in those embracing change and innovation.

Cons:

1. Declining Industry: With 600 North American oil and gas producers having gone bankrupt between 2015 and 2022, there’s a clear industry decline, driven by both market forces and political decisions.
2. Employment Reduction: The 38% drop in oil and gas industry employment since 2014 indicates a shrinking industry, potentially reducing investor confidence.
3. Global Agreements: COP28’s agreement to move away from fossil fuels reflects a significant political shift that could impact long-term viability and profitability of these investments.
4. Price Instability: Despite OPEC+ supply cuts, the fall in Brent crude prices suggests market volatility, making fossil fuel investments riskier.

Pros and Cons of Investing in Renewable Energy Companies:

Pros:

1. Growing Industry: The IEA’s prediction of 30 million new jobs in the clean-energy economy by 2030 indicates robust sector growth.
2. Political and Social Support: The United Nations climate summit’s call for a renewable power capacity tripling and COP28’s agreement reinforce strong global momentum towards renewables.
3. Increasing Private Investment: The fact that private investors put five times more money into renewables compared to conventional energy in November 2023 signals strong market confidence in the sector.
4. Cost Efficiency: Tesla’s success with EVs, offering 50% to 75% cost savings per mile, exemplifies the economic viability and appeal of renewable technologies.

Cons:

1. Technology and Infrastructure Development: The shift to renewables requires significant investment in technology and infrastructure, which can be costly and time-consuming.
2. Market Competition: As the sector grows, increased competition could impact individual company performances.
3. Dependency on Policy and Subsidies: Renewable energy investments often rely on government policies and subsidies, which can change with political climates.

Conclusion: Investing in fossil fuels may offer short-term gains but carries significant long-term risks due to industry decline, political agreements, and market volatility. In contrast, renewable energy investments are aligned with global employment trends, political momentum, and increasing private investment, suggesting a more sustainable and potentially lucrative long-term investment opportunity. However, these investments also come with challenges, including the need for substantial infrastructure development and potential market competition. Investors using tools like Tradervoice can stay informed about these dynamic sectors, leveraging real-time data and predictive analytics to make more informed investment decisions.

Tradervoice on Renewables and Fossil Fuels

In the below chart from Tradervoice.io, we see the “Popularity over time” on the topic “Renewables”. It is clear to see that just before and during the COP28 in Dubai, the topic increased significantly in the worldwide financial news. This underlines that focus on this matter isn’t just local, but global indeed. The transition away from fossil fules will be a long journey, but given the information above, one might consider looking into the companies that are moving towards renewable energy.

Understanding the chart:
The below “Renewables” line is based on advanced text analysis of more than 5 million financial news articles from more than 200 of the biggest financial news platforms worldwide. The circles (clusters) contains actual news articles links, which are the most representative articles in relation to your search, on the exact time they are located on the line. Green = positive tone in content of the article, red = negative tone in content of the article. Zoom in on a cluster to “open” it. Our Sentiment score goes from -1 to 1. If the line is above zero, but decreasing it means it is still a positive sentiment, but going less positive. If the line crosses below zero, sentiment turns into being negative. Go to Tradervoice.io to be able to add financial assets prices enabling you to compare the topic line with different assets to look for investment trends.

Taking a look at sentiment of the fossil fuels industry is very relevant as well. In below chart we show sentiment on the topic “Fossil fuel” which we see had a peak during COP28, but shortly after declined significantly. Going forward, a continuous decline in sentmient on “Fossil fuel” might indicate that the transition away from fossil fuels is speeding up.

Since September 27th 2023, the price of Crude oil has decreased significantly from $94 a barrel to $73 a barrel on December 19th 2023. A decrease of 22.3%. This is a huge drop in price, worth being aware of deciding whether the global climate transition has just hit an actual turning point, leaving fossil fuels behind for good.

There are several renewable leading companies taking actions everyday trying to make the transition move faster. Below we list some of the biggest, exchange registered renewables companies, which might be worth following going forward:

• NextEra Energy, Inc.: Produces renewable energy, mainly from wind and solar sources.
• Iberdrola SA: Involved in the generation of electricity from renewable sources, including wind and hydro.
• Orsted A/S: Specializes in developing, constructing, and operating offshore wind farms.
• Vestas Wind Systems A/S: Primarily manufactures and installs wind turbines but does not typically operate them.
• Siemens Gamesa Renewable Energy SA: Focuses on manufacturing equipment for wind energy; involvement in energy production is indirect.
• Plug Power Inc.: Specializes in hydrogen fuel cells and does not directly produce renewable energy.
• Algonquin Power & Utilities Corp: Engages in the generation of renewable energy, including solar, wind, hydro, and thermal.
• Brookfield Renewable Corp.: Produces electricity from various renewable sources like hydroelectric, wind, and solar.
• Canadian Solar Inc.: Primarily manufactures solar PV modules and manages solar power projects, which may include energy production.

If you have any specific requests, questions, or feedback, please don’t hesitate to reach out to me: kristoffer@nordicanalytics.dk.