- December proved to be another challenging month for growth equities. Although the Omicron variant may have stolen headlines, it was the messaging from the fed that drove high multiple assets lower. After spending months arguing that the surge in pandemic-related inflation was largely “transitory,” Fed Chair Jerome Powell told congress that its “probably a good time to retire that word.” This is to stay that inflation will be sticking around and will be more powerful than expected. [1]
- As a result of these prices pressures, the Fed now must consider a faster tapering to its asset purchase program, and shift stances to accelerate tightening monetary policy. With so much money previously in the system, this had an extremely adverse effect across markets, including renewable energy companies. [2]
- As inflation concerns persist, this directly impacts the raw material cost for solar companies. Steel, copper, and aluminium are all up 50% or more since the start of 2020. Photovoltaic-grade polysilicon has quadrupled, and shipping fees are up six-fold. This risks delay of 100GW of renewable power, according to the IEA. [3]
- However, since a significant portion of a wind or solar farm’s costs are incurred during construction, renewable energy is often available under fixed-price contracts, which acts as a hedge against inflation for some companies as long as they were able to secure contracts at attractive rates. [4]
- We believe that there are significant tailwinds coming when looking at the need for increased build-out of renewable sources. Once we can work through the recent supply chain issues, there is ample opportunity ahead.
Macro Outlook
The IEA issued a report at the end of November that stated 95% of all new electrical generating capacity over the next 5 years will be renewable. “This is equivalent to the current global power capacity of fossil fuels and nuclear combined,” the IEA said in the report. [5]
Yet even then, the world will need to double the rate at which it adds renewable power in the next five years to remain on track to reach net zero in 2050. To keep pace with variable wind and solar power, energy storage will have to nearly double as well. The world can’t just add more renewable power—it has to replace existing fossil fuel plants as well. [6]
In the next five years, the IEA expects that the construction of new energy storage capacity will double. By 2026, the world will be able to store 12 TWh of electricity, enough to power New Zealand for about four months. [7]
Global wind capacity additions increased more than 90% in 2020 and will continue to grow 50% faster than previous years. [8]
Annual growth in China’s renewables market will slowdown following the expansion that resulted from developers rushing to complete projects before subsidy phase-outs. However, the rest of the world compensates for China’s slowdown and maintains the pace of renewables expansion. [9]
Europe’s capacity growth accelerates thanks to further policy support and a booming corporate PPA market as PV costs continue to decline. [10]
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
HANzero
|
-12.77%
|
-5.81%
|
-15.99%
|
-16.71%
|
NA
|
-16.71%
|
|
S&P Global Clean Energy Select
|
-12.81%
|
-5.72%
|
-15.86%
|
-16.60%
|
-28.40%
|
-16.60%
|
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/12/2021. Please note that all performance figures show net data.
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