Global Decarbonisation Monthly Report | October

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Key Events in September – Commodity Prices Spike Highlights Challenges of Transition and the US Takes Tentative Steps in the Right Direction

The US Infrastructure Bill –A necessary but not sufficient kickstart. Joe Biden’s green credentials were a hot topic during the election race, and he quickly committed the USA to reaching Net-Zero emissions by 2050. September’s infrastructure bill was, in theory at least, the first major step on that road. Key statistics from the bill, including many that could directly benefit companies in our universe are as follows (note, some portions of the budget, as well as delineations within these allocations, are to be confirmed): $73 billion for clean energy transmission, the majority ($65 billion) of this being spent on improving grid resilience, with smaller portions for battery supply chains ($7 billion) and other clean R&D including hydrogen and CCS; $50 billion for climate change adaptation; $25 billion for carbon reductions in and around airports, including electrification and alternative fuel R&D; $39 billion to modernise transit and improve accessibility; $7.5 billion to create a network of 500,000 EV charging stations; $7.5 billion to low and zero emissions buses and ferries; $2.5 billion to create a ‘corridor’ of alternative refuelling stations; and $1 billion towards clean hydrogen R&D. Crucially, funds will be distributed through a mix of existing programs, new programs, project-based grants, public-private partnerships, and loans over a five year period. The bill, however, is unlikely to pass through the House of Congress until a $3.5 trillion social policy bill is passed by the Democrats through reconciliation in the Autumn. This bill contains more ambitious climate measures, something that many commentators feel is needed. Indeed, the infrastructure bill includes only $15 billion of total spending towards electric vehicle infrastructure, a fraction of the president’s initially proposed $174 billion. [1] It could also be argued that the bill bends to fossil fuel interests, rather than piling money into proven electrification solutions. [2] The bill is clearly a very important kick-starter, particularly through features such as the EV charging network, but more must be done through the social policy bill and beyond.

European Gas Crisis – An Inevitable But Damaging Speedbump. Across Europe, gas prices are skyrocketing, and supplies are waning, leading to fears for communities as the winter months draw in. The saga highlights well the inevitable ups and downs of transition as we try to ensure that shifting supply continues to align with demand. Gas prices have risen as a result of a complex assemblage of issues, notably a surge in post-pandemic demand, a period of low wind, low reserves, and high carbon prices. [3] The last three of these issues directly relate to the transition to Net-Zero. The first of these highlights the risks of renewable energy, and the need for robust storage infrastructure. The second and third are likely caused, at least in part, by climate friendly policies, opening the transition to criticism from those suffering from rising prices, thus demonstrating the complex reality of transitioning to a low carbon energy system. There is a real fear across the world that governments will look to coal as a means of securing short term energy security. [4] On a more positive note, electric vehicle inquiries are skyrocketing. [5] This is a seminal moment. Governments can seize it and prioritise their commitments under the Paris Agreement, or they can facilitate a major step backwards on what is already an uphill task. 

How Green Will the Grid Get? US DoE Has Answers 

This is a question we have puzzled over for a long time. In fact, it wouldn’t be unfair to say it was the question for iClima, given the impact it has on our forecasts and universe of companies. The 280-page Solar Futures Study from the US Department of Energy had our answer (well, three scenarios of them, with some room for assumptions). [6] The study is an impressive feat of modelling, offering three future scenarios for the US grid: moderate, decarbonisation and decarbonisation with electrification. In the latter two cases, assumed policies were in line with 95% emissions reductions by 2035 and 100% by 2050. The study finds that battery storage is to jump from the current 3 GW to between 59 GW and 374 GW by 2035 in order to support a grid powered by up to 78% with renewable sources. By 2050 this rises to between 196 GW and 1,676 GW to support up to a 100% renewably powered grid. Interestingly, as renewable generation capacity rises, battery storage capacity rises more (the ratio between the two is 3x in 2030 and 6x in 2050). The more solar the system has, then, the more it needs storage. For more information please see our in depth review of the study alongside some ambitious predictions from Tony Seba here. [7]

Performance in September – Evergrande Fears Spread 

CLMA closed September down 6.79%, suffering the worst monthly performance and is now up only 4.02% in the year. In September the Dow Jones dropped 2.8%, S&P500 down 3.69% and the Nasdaq down 4.85%. [8] It was the worst month for S&P500 since March 2020 when Covid led shutdowns started. The month was characterised by a succession of troubles: the Federal Reserve held benchmark interest rates near zero, and although they didn't specify when tapering would begin, FED chair Jerome Powell [9] indicated that tapering "may soon be warranted" and could begin as early as their next meeting schedule for November; inflation remains a major concern with oil and natural gas prices rising; combined with worries coming from Chinese largest real estate developer Evergrande’s debt default giving rise to systemic shock concerns. [10]

Only ca. 19% of the constituents of CLMA ended September in positive share performance, and on a YTD basis only 25.3% of the constituents are up. Some of CLMA’s best performing stocks in 2020 are the worst performing stocks in 2021: Workhorse Group (WKHS, up 550.66% in 2020, down 61.32% YTD), Plug Power (PLUG, up 973.10% in 2020, down 24.59% YTD), Ballard Power Systems (BLDP, up 220.91% in 2020, down 40.3% YTD), Sunrun Inc (RUN, up 402.39% in 2020, down 36.58% YTD), Blink Charging (BLNK, up 2,189% in 2020, down 33.08% YTD), Zoom Communications (ZM, up 395.77% in 2020, down 22.48% YTD), and Orsted (ORSTED.CO up 98.46% in 2020, down 31.74% YTD). However, as we have been reporting since January, news on production, sales, supportive policies and legislation, such as US Infrastructure bill, continue to indicate solid fundamentals and the continuation of tail winds to benefit the companies that are climate change transition leaders. 

Source of all data: iClima/ Solactive/ Bloomberg. Past performance is no guarantee of future performance. Source of all data: iClima/ Bloomberg. Data as of 30.09.21. Please note that all performance figures are showing net data.

iClima Global Decarbonisation Enablers Performance Table (As of 30.09.21)

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 30/09/21. Please note that all performance figures are showing net data.

Newsworthy Developments Across the 5 Key Segments of our climate change ETF:

Green Energy

Iberdrola (IBE.MC, down 17.26% in September, down 25.78% YTD) It was a tough month to be a Spanish utility provider. In response to soaring electricity and gas prices, the government ordered companies to return €3bn [11] of what it described as windfall profit. [12] Iberdrola and Endesa lost €4.9 bn of market capitalisation as a result. [13] Iberdrola faces further issues in the form of a court case against its President and CEO for alleged entanglement in the infamous Villarejo case. [14] Larry Fink has urged Galan to find a new CEO, but Galan has refused, attempting to speed up the court case in which he and the company claim no wrongdoing. [15] In more positive news, Iberdrola commissioned [16] Spain’s first solar plus storage project, acquired a 190-MW/245-MW DC solar photovoltaic project in NSW [17] and bought partner CIP out of two offshore windfarms in the US.

Renova Inc (9159.T, up 10.86% in September, up 16.04% YTD) The Japanese renewable energy provider had an impressive month. Having announced its first hydroelectric power project in late August – the company’s first venture into the Philippines [18] – it then declared that it had closed financing on a 49.9 MW Biomass Power Plant project in Japan’s Saga prefecture. [19] Despite this news, the main driver of Renova’s stock rise was the shock resignation of Japanese Prime Minister Yoshihide Suga which thrust the country’s minister for Covid-19 Taro Kono into the limelight as the frontrunner to succeed him. [20] Kono has been an outspoken critic of nuclear power, and markets were quick to act, flushing finance at non-nuclear renewable energy companies. At the time of writing Kono has just lost his party election to nuclear advocate Fumio Kishida. It remains to be seen how markets will react. 

Green Transportation

Uber (UBER, up 14.46% in September, down 12.16% YTD) and Lyft (LYFT, up 12.56% in September, up 9.08% YTD) On September 21st, Uber raised its guidance for the upcoming quarters, projecting that its gross bookings would be between $22.8 and 23.2 billion in the third quarter; sending shares rising as a result. [21] Driver protests in Glasgow encapsulate an uncertain near term outlook as the company wrestles regulators and drivers over their status as contractors. [22] In other news, Uber’s CEO said that they are looking to expand their Net-Zero pledge to food delivery, although gave no concrete predictions. [23] Lyft are also involved in the contractor-employee debate. On their perennial comparison to Uber, cofounder John Zimmer this month outlined the company’s ‘transport as a service’ vision, which will see them focusing on multiple forms of transport with a US focus. [24] Both companies made headlines as they announced that they would cover any legal fees incurred if drivers were sued under the new Texas abortion law. [25]

NIO (NIO, down 9.36% in September, down 26.90%YTD) The Chinese electric vehicle specialist delivered 5,880 vehicles in August 2021, representing a 48.3% year-over-year growth. [26] Covid related volatility in semi-conductor supply has, however, led NIO to revise its delivery targets for 3Q21 from 23,000-25,000 to 22,500-23,5000 considering Covid related supply chain issues. The stock, like many others, has suffered due to macro forces in September. The feared default of property giant Evergrande hangs over the Chinese economy, [27] and in mid-September China’s minister for industry and information technology said that the country has too many EV players. [28] Investors worry this could signal intervention of the kind seen recently in the Chinese internet market. 

Sustainable Products

Zoom (ZM, down 9.67% in September, down 22.48%YTD) The Californian company is clearly not resting on its laurels after its breakthrough couple of years. Zoom is now planning an assault on the wider telecommunications sector. New announcements at the Zoomtopia event include an advanced chat feature as part of a wider continuous collaboration strategy that could rival workspace app Slack. [29] A whiteboard is anticipated later this year, while there will be major advances to transcription services, with free live transcription for as many as 30 additional languages available by the end of next year, alongside real time translation in 12 languages. [30]

Beyond Meat (BYND, down 12.02% in September, down 15.79%YTD) On September 29th, the first McDonald’s McPlant burger hit stores in Coventry, with a wider release planned for October 13th. [31] The fast-food giant chose Beyond Meat to supply the patties; a huge moment for the Californian company as the meat alternative grows in adoption. Competitor releases explain some of the share price fall in September, but Beyond Meat offered news of their own in the last few days, announcing both their first foray into the breakfast market [32] and the release of their successful chicken tenders in supermarkets. [33] Alongside his competitors CEO Ethan Brown will be watching climbing pea prices closely, for they are a key ingredient of most plant-based meat products. [34]

Enabling Solutions

Doosan Fuel Cell (336260, down 5.46% in September, down 2.99%YTD) The clean energy wing of the South Korean conglomerate, Doosan Fuel Cell have just secured a $13 million contract making them the first South Korean company to export fuel cells for power generation. [35] The contract will see Doosan create a distributed generation system of four 440-kilowatt fuel cells in the city of Guangdong, paving the way, it hopes, for further ventures in China. This comes after new orders have exceeded 1 trillion won annually for the third year in a row. [36] September also saw Doosan partnering with Iris Automation to bring their success in hydrogen powered commercial drones to the US market. [37] At the start of the month Doosan finished a 10 KW solid oxide fuel cell system in partnership with Ceres Power, with whose power generation efficiency they were reportedly impressed. [38] Doosan’s new hydrogen liquefaction plant in Changwon will be completed next year. [39] 

FuelCell Energy Inc (FCEL, up 7.21% in September, down 40.11%YTD) According to Forbes analysis, the company’s strong recent performance was driven by its Q3 earnings report where its gross margins turned positive after several quarters in the red. [40] FuelCell, alongside Bloom and Plug Power, also received a boost as Californian governor Gavin Newsom signed Senate Bill 155 which includes a two-year extension of the Fuel Cell Net Energy Metering program which encourages consumers to switch to fuel cell generation. [41]

Water & Waste Solutions

Ecopro HN (383310.KQ, down 16.25% in September, up 146.13%YTD) The South Korean company is well positioned to capitalise on global Net Zero commitments. It manufacturers GHG reduction technologies such as filters, catalysts and microwave based systems. Of note, the company utilises the world’s first catalytic per-fluoro-compound (PFC) treatment technology. [42] After a strong 2020, Ecopro CO have announced that they will buy 40% of Ecopro HN’s issued stocks in a deal totalling 676 billion won. [43]

Covanta Holding (CVA, up 0.25% in September, up 52.24%YTD) Covanta are a world leader in waste-to-energy combustion, a process that they claim saves 81 million tonnes of greenhouse gas emissions per year from landfill, a high proportion of these being highly damaging methane. [44] The New Jersey based player had a strong year, the highlight being the company’s acquisition by EQT infrastructure which saw share prices soar from $17.46 to $19.95 in a July week. [45] Despite this boost, questions are emerging over the company’s commitment to environmental justice in the wake of campaigning from residents of Chester, Delaware, who believe that a major Covanta incinerator is creating harmful pollution in the community. [46] Covanta have released [47] emissions data and are supported by various political figures. [48] Delaware County held a public hearing on the 30th September. We will monitor this situation closely. [49] 

Past performance is no guarantee of future performance. Source of all data: Bloomberg. Data as of 30.09.21. Please note that all performance figures are showing net data.

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