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The Unintuitive Winners of the Energy Transition

•    The global annual investment on energy transition initiatives matched fossil fuel investment for the first time in 2022, reaching $1.1 trillion.1 

•    Traditional energy has experienced years of underinvestment, originally due to shareholder pressure to return profits and increasingly due to political/public pressure to decrease carbon output.

•    Traditional energy giants may stand to gain immensely from the transition, both from higher prices of traditional energy sources and expansion into the clean energy business of the future.

In 2022, the year that saw a 260% spike in European natural gas prices and $124 spot oil prices2, spending on clean energy initiatives crossed $1.1 trillion, almost as much as Tesla’s market cap at its peak in 2021.3 Too illusory of an example? How about this: in 2022 the world spent just less than the GDP of Spain and just more than the GDP of Saudi Arabia on the energy transition.4

20230214-chart-1-01This is explosive growth in investment and is driven by electric vehicles (EVs). EVs went from zero-investment ten years ago to accounting for HALF of investment in 2022.1 Given that EV sales were 10% of total auto sales in the world in 2022 and that every major car manufacturer has plans for major expansion of EV sales, we expect EV spending to continue outpacing other categories (unless Tesla comes out with 1,000 horsepower, self-driving solar panel).

20230214-chart-2-01However, we cannot get distracted by the hype of EVs. Contrary to intuition, the traditional energy giants may stand to gain immensely from the transition, both from higher prices of traditional energy sources and from subsidized expansion into the clean energy business of the future.

The investment in renewable energy production (which excludes energy storage devices such as EVs) still significantly lags fossil fuel investment, at $495 billion in 2022.1 Even if investment in renewable production can catch up, fossil fuel production enjoyed decades of investment and development before renewable energy was even a consideration. The real measure of success is the percentage of energy produced by renewable sources, which in 2019 stood at only 11%.6 With global consumption of energy still growing, disincentives to expand traditional energy production7, and renewable energy production making up only a sliver of the pie, energy prices over the medium-term should be expected to rise (5-10 years, the short-term on the energy transition timeline).

Some clean energy firms on the forefront of the transition will become the energy giants of the future, and diversified exposure to these firms is becoming a safer bet. Along the way, many of these firms will drop out of competition due to failed ideas, as is normal during the shakeout stage of the industry life cycle. The oil and gas giants, on the other hand, are cash flow heavy and pay consistent high dividends8, and the price for their product will likely creep higher as the industry begins to die.

These traditional energy giants also have the opportunity to expand into the green energy space, either prolonging their decline by making their existing products greener, or by diversifying into entirely new renewable energy businesses. While investments by oil and gas firms thus far have been negligible and possibly just window dressing, these firms at least realize that the energy transition isn’t going away, and they’re positioned well to capitalize on it for years to come. 

Important Disclosures & Definitions

1 Source: BloombergNEF (BNEF), “Energy Transition Investment Trends 2023.” As of January 2023.

2 Source: Bloomberg. Time period for European Natural Gas (using the Dutch Transfer Point Day Ahead Index, TTFGDAHD) is 2/17/22-3/7/22. As of date for oil price (using WTI Cushing Spot Index, USCRWTIC) is 3/8/22.

3 Source: Bloomberg. As of date: 11/4/21, Tesla’s market cap reached $1.24 trillion.

4 World GDP. IMF. Reference year: 2022. Retrieved February 9, 2023, from

5 Zinkula, J. (2023, January 16). Electric vehicles accounted for 10% of global auto sales last year - this could quadruple by 2030. Business Insider. Retrieved February 9, 2023, from

6 Hannah Ritchie, Max Roser and Pablo Rosado (2022) - "Energy". Published online at Retrieved February 9, 2023, from: ''. Underlying data sourced by Our World in Data from BP Statistical Review of World Energy.

7 As we noted in “Forces Driving the Trend Component of Inflation” in September 2022 and “Life After Wartime” in March 2022, there has been significant underinvestment in traditional energy sources for several years. There was some reversal in this trend in 2022, as the $1.1 trillion investment in fossil fuel production was the highest of the last five years. However, emphasis remains on returning profits to shareholders over investing in new capacity. Given the concerted global effort to move away from fossil fuel reliance, there is little incentive for long-term projects, especially when profits are hitting record numbers at the existing capacity levels.

8 As we noted in “No Quarter” in January 2023, and in “A Rising Interest in Dividends” in November 2022, dividend paying are particularly attractive during periods of uncertainty and higher interest rates.

Dutch Transfer Point Day Ahead Index, TTFGDAHD: Physical Forward Prices for natural gas delivered to Virtual Trading Point Netherlands Title Transfer Facility (TTF). One cannot invest directly in an index.

WTI Cushing Spot Index, USCRWTIC: Prices for physical shipment of WTI crude oil in Cushing, OK. One cannot invest directly in an index.

Definitions of sectors included in chart (source: BNEF):

-    Renewable Energy: wind (on- and offshore), solar (large- and small-scale), biofuels, biomass and waste, marine, geothermal, small hydro.
-    Energy storage: stationary storage projects (large- and small-scale), excluding pumped hydro, compressed air and hydrogen. The majority are battery projects.
-    Nuclear power: reactors under construction and major refurbishments.
-    Hydrogen electrolyzer projects, thermochemical hydrogen production, pipelines and underground storage
-    Carbon capture and storage (CCS): large- and small-scale commercial CCS projects, dedicated transport and storage
-    Electrified transport: sales of electric cars, commercial vehicles and buses, as well as home and public charging investments. We also include hydrogen fuel cell vehicles and refueling stations in this category.
-    Electrified heat: residential heat pump investments
-    Sustainable materials: circular economy (recycling) and bioplastics

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

One may not invest directly in an index.

AAI000224 3/31/2024


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