Global Decarbonisation Monthly Report | May

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• President Biden hosted a summit with 40 country leaders on April 22nd, the Earth Day. As anticipated, the US made a bold pledge to halve its emissions by 2030 (versus 2005 levels). China committed to phasing out coal use by 2026 to 2030, pledging that coal use would peak in 2025 and fall thereafter. Japan and Canada also raised their commitments, with Japan targeting a 46% reduction to 2013 levels (versus previous target of 26%) and Canada targeting a 40% to 45% reduction to its 2005 baseline (previous target was a 30% reduction).        
• The CEO of the California Independent System operator announced that on Saturday April 24th California’s main power grid hit for the first time a nearly 95% electricity from renewable energy.  Many climate change and sustainability researchers focus a lot on the path towards 100% green grids, critics often pointing out the many challenges in getting there. The April 24th milestone reached by a State that, with 39 million people and a $2.9 trillion GDP would be the 5th largest economy (right between Germany and the UK) the California milestone is a relevant one. This record rate lasted for just a few seconds achieved just before 2:30 PM (as can be seen on the graph below) in a spring day with abundant sunshine and relatively cool weather. As LA Times reported, this record is not an isolated spike, during most of that day renewables represented over 90% of the electricity and if taking into account the Diablo Canyon Power Plant 2,256 MW (scheduled to be decommissioned in 2025) of nuclear generation and 100% of California’s electricity needs would be coming from zero emission sources. See Figure 1.        
• On July 14th the European Commission is set to enact the new GHG 2030 emission target of at least 55% reduction vis-à-vis 1990 levels. The different national governments and the European Parliament will need to consent to make the rule binding. The European Union tougher climate policies can also be seen on the region’s carbon market, the world’s biggest. At the end of April, the EU carbon price passed the €50/ton mark for the very first time (graph below), up over 50% since the beginning of the year. See Figure 2.

iClima Global Decarbonisation Enablers Index Performance

Past performance is no guarantee of future performance. Source: Bloomberg, HANetf *TNR Index, in USD. 12 Month figures based on 30.04.20 -30.04.21.

Performance in April

The month was marked by several material conflicting trends that markets have tried to price in: the reopening of developed economies, but the worsening of pandemic in large emerging economies like Brazil and India. Progressive green agenda by the Biden administration versus the debate on increase in taxation – US corporate rates and capital gain rates. Also, overall macroeconomic concerns on inflation and potential interest rate increases and solid 1Q21 earnings reporting. At the end of the month, roughly 50% of S&P 500 has reported earnings for the 1st quarter that were on average 22.7% above earnings forecast (way above the historical beats of ca. 3% to 5%).

The Climate change ETF closed the fourth month of the year down [1.19%], YTD now up [5.34%]. In April we continued to see a correction on some of the best performing stocks in 2020, particularly in the EV and Fuel Cell segments, with NIO (down 6.44% in the month), Workhorse (down 22.6% in the month), Tesla (down 4.82%), Plug Power (down 31.63%), Ballard Power Systems, Blink Charging (down 18.85%) as investors took profit, part of the rotation we are seeing in the market. Source of all data: iClima/ Bloomberg

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 a 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 30/04/21 

Newsworthy Recently Reported 1Q21 Results – Distributed Generation Trends

Tesla (TSLA, down 6.27% YTD, down 4.82% in April) In the last week in April, Tesla reported its earnings for 1Q21, at US$438 million, out of a $10.39 billion revenue. Revenue grew 75% over 1Q2020. In terms of units delivered in the quarter, the company reported 184,877 of Model 3/Y units (a 140% growth over 1Q20). The company reported a decline in average selling price of EVs from US$ 84k back in 2017 when production of Model 3 began, to US$38k in 1Q21. The company claims that their Model 3, now 3.5 years in production, was the best-selling premium sedan in the world, outselling ICE counterparts such as the 3 Series and the E Class. The company did not give further guidance on 2021 EV units to be delivered, but continues to expect a 50% growth (which means over 750,000 units by year end).

Tesla’s energy business has also reported a solid quarter. Solar deployed reached 92 MW (a 163% growth over 1Q20) and storage deployed passed 445 MWh (a 71% growth over 1Q20). We would like to highlight some of the strong points that Elon Musk made in the earnings call, pertaining to the relevance of Tesla’s distributed generation energy business:

• On the challenges for the solar rooftop business and the outlook of 1,000 roofs per week: Elon confirmed the decision that solar roofs will not be sold without a Tesla Powerwall, so the combo will be the standard configuration. The solar solution will be either the conventional panels on the roof or it can be the Tesla Solarglass Roof. He explained that selling a combo is extremely important for scalability as every house will “look the same” because the addition of the Powerwall means that at installation the main circuit breakers of a house do not need to be touched. Moreover, this configuration makes every house “be its own utility”.    
• On the Powerwalls operating as a “giant distributed utility”: In Elon’s view, the Powerwalls will give users energy security. Moreover, it will give the ability for Tesla (with consent from the owners of the installations) to release power onto the grid to take care of peak power demand. Elon refer to this ability as “profound”. As countries electrify transportation and heat, the demand for electricity is to increase significantly, putting pressure on the utilities that will face increasing risk of “failing to serve their customers”.   
• On the importance of solar + battery at local level: Elon made the point that increase in demand for electricity in combination with more extreme weather events, makes it “very important to have solar and batteries at the local level (at the house)”. He said - “It needs to occur at the local level and at the utility level. If it doesn't occur at the local level, what will actually be required is a massive increase in power lines in power plants. So they have to put long distance and local power lines all over the place. They'll have to increase the size of the substations, is a nightmare. This must occur. There must be solar plus battery. That's the only way.”

SUNRUN (RUN, down 17.4% in April, down 34.72% YTD) The largest solar rooftop installation company in the US reported solid results in the first quarter. CEO Lynn Jurich stated that the 4Q20 momentum has continued, and that “now is the time for us to move to a distributed energy system to meet the increased demands placed on our energy system from broad-based adoption of electric vehicles and improve the resiliency of our aging energy system”. With that, the company increased its growth guidance to 25% to 30% (from 20% to 25%). They expect their Brightbox (Sunrun’s home solar battery storage solution) to grow 100% in number of installations in 2021 (versus 2020). Total revenue in 1Q21 was U$334.8 million, up $124.1 million, or 59%, from 1Q20.

• On Investment Tax Credit (ITC) extension: The company made the case that ITCs were extended by two years in December 2020, and that “within the first 100 days of being in office President Biden has proposed a 10-year extension of the ITC as part of his infrastructure plan” Lynn made the point that US Congress have proposed specific legislation that would extend the ITC for 10 years and make standalone or retrofit storage eligible for the ITC. 

SUNPOWER (SPWR, down 32% in April, down 13.12% YTD) The California based competitor to SunRun also reported 1Q21 results, showing the continued solid demand their solar and storage solutions in both residential and commercial markets. Residential bookings are up 25%, with 55% of the sales in 1Q21 being full systems. Bookings for commercial & industrial (C&I) users are up 50% over 1Q20 with revenue up over 20% for C&I segment. This month was also when new CEO Peter Faricy assumed his position, as Tom Werner retired after 18 years as CEO.

Past performance is no guarantee of future performance. Source of all data: Bloomberg. Data as of 30.04.21