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Distributed Renewable Energy Monthly Report | October

 

Renewable Energy ETF Monthly Report: Key Takeaways

The US Infrastructure Bill, a necessary but not sufficient kickstart: The US House speaker set [1] Sunday 31 October as the deadline to pass the $1tn bipartisan infrastructure bill (which passed the Senate in August). Key statistics from the bill, including many that could directly benefit companies in our universe, are subject to intense bipartisan negotiations, but are along the following lines: $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. [2] It could also be argued [3] that the bill bends to fossil fuel interests, rather than piling money into proven electrification solutions. 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.

US Department of Energy (DoE) Solar Futures Study: With a grid still primarily powered by fossil fuels, the Solar Futures study explored the pivotal role of solar and storage in decarbonizing the grid and helping to achieve US climate goals. The Biden administration previously stated their ambitious targets of achieving a carbon pollution-free power sector and for the US to be net-zero by no later than 2050. [4] The Department of Energy projected that, should the US follow their ‘decarbonization’ scenario, installed capacity for solar could increase by as much as 10 times by 2035. [5] Through innovations and cost reductions solar is already the cheapest source of electricity generation in the world and looks set to continue along this trajectory only strengthening the economic case to replace outdated infrastructure with sources which continue to increase in cost competitiveness. However, for the full potential of intermittent generation to be unlocked, clean energy storage will need to receive material investments. At the end of 2020, the US energy system had 3GW of installed battery storage. In the scenarios where solar deployment accelerates at an unprecedented rate across the US, install battery storage could be ca. 124 times that by 2035. These lofty projections align with our thinking regarding the ‘bright’ future of solar and battery storage. You can read our article summarising the findings from the Solar Futures study as well as what this means for the prospects of technologies within the Renewable Energy ETF here.

DoE and the Hydrogen Shot: On September 1st, the first Hydrogen Shot Summit ended, with the US DoE announcing initiatives that could accelerate reaching the goal of reducing the cost of green H2 by 80%, to “$1 per 1 kilogram in 1 decade”. [6] Achieving this goal will be significant in enabling hydrogen to be used in new markets and potentially boosting consumption in the US by at least 5-fold. Hydrogen Shot aim to achieve this through “catalysing innovation”, providing regional incentives and a framework for clean hydrogen deployment under the American Jobs Plan. Growing efforts to accelerate the commercialisation of hydrogen transition in the US is apparent with the Biden administration looking to massively increase fiscal spending in hydrogen activities to $400 million as per President Biden’s 2022 budget request. This represents nearly a 40% increase from 2020 levels or roughly $115 million

 

What Will it Take for Battery Recycling to Take Off?

Batteries are at the centre of the green economy and by connection, the raw materials required to assemble them. Mobile and stationary battery applications are set to explode with both the transport sector and energy sector undergoing a radical shift toward electrification. However, with an explosion in demand, simply increasing mining activity to extract lithium, cobalt and copper will be insufficient to ensure demand is met. The IEA’s latest report [7] on The Role of Critical Minerals in Clean Energy Transition state that by 2030, if we are follow a pathway aligned with existing climate goals, the supply of lithium and cobalt from existing mines and projects will only meet 50% of the projected demand while copper will only meet 80%.

Currently, battery recyclers can earn attractive margins. Comparing the Net Recycling Profit (NRP) of five different cathode chemistries for five countries (China, South Korea, US, Belgium, and UK) we observed [8] that financially viable recycling can be achieved via:

  • Recycling in locations with low labour and fixed costs such as China, which reaches an NRP of up to 21.91$ per kWh, helps with cost minimisation;
  • Recycling the batteries in the same country as they were used and collected is relevant, as it can reduce overall costs by up to 70% due to reduced transportation (from 1.24 $ per kWh if used and collected in the UK but recycled in China to 0.39 $ per kWh if used, collected and recycled in the UK);
  • Economies of scale are relevant;iv. Recycling high value battery chemistries like nickel cobalt aluminium (NCA) can be more profitable;v. Using direct instead of pyrometallurgical recycling method reduces cost;
  • Developing standardised and easy to disassemble battery packs is needed.

 

However, with lithium-ion batteries currently serving as the most widely used battery technology for EVs and stationary storage for renewable energy, only Europe has clear targets and laws. Battery storage is an essential component of the green economy and therefore to ensure resource efficiency of the finite key materials earth has, sustainable battery recycling plays a central role in growing the circularity of global economies. iClima’s full research report on battery recycling, published this month, can be found here.

 

Performance in September – Worst Month for S&P500

Our renewable energy ETF closed September down 6.67%, suffering the worst monthly performance in the year. In September the Dow Jones dropped 2.8%, S&P500 down 3.69% and the Nasdaq down 4.85%. [9] 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 indicated that tapering "may soon be warranted" [10] 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. [11]

Only ca. 20.4% of the constituents of DGEN ended September in positive share performance, and on a YTD basis 46.3% of the constituents are up. Some of DGEN’s best performing stocks in 2020 are the worst performing stocks in 2021: Sunpower Corporation (SPWR, up 368.67% in 2020, down 11.54% YTD), Sunrun Inc (RUN, up 402.39% in 2020, down 36.58% YTD), Ballard Power Systems (BLDP, up 220.91% in 2020, down 40.30% YTD), Bloom Energy (BE, up 283.67% in 2020, down 34.68% YTD), Vivint Smart Home (VVNT, up 99.52% in 2020, down 54.46% YTD), CleanSpark (CLSK, up 442.99% in 2020, down 60.10% YTD), Veritone (VERI, up 1,042.57% in 2020, down 16.03% YTD), Enphase (ENPH, up 571.53% in 2020, down 14.53% YTD), and SolarEdge Technologies (SEDG, up 235.60% in 2020, down 16.89% 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 leading the decentralisation of the grid, based on renewable energy sources and clean energy storage digital solutions.Source of all data: iClima/ Solactive /Bloomberg. Past performance is on guarantee of future performance. Data as of 30.09.21. Please note that all performance figures are showing net data.

 

iClima Distributed Renewable Energy Performance (As of 30.09.21)

 

1M

3M

6M

YTD

12M

SI

iClima Distributed Renewable Energy UCITS ETF (Acc)

-6.74%

-5.93%

NA

-2.48%

NA

-2.48%

iClima Distributed Renewable Energy Index

-6.67%

-5.53%

-1.23%

-2.22%

75.16%

-2.22%

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 Events

FuelCell Energy (FCEL, up 7.21% in September, down 40.11% YTD) In their Q3 earnings call [12], FuelCell Energy announced a strong performance in Q3 seeing revenue growth of 43% and gross profits increase by 135%. Despite the strong financial results with line items at the top, FuelCell's backlog decreased by 2% suggesting they are gaining less contracts for service provision than they are serving. Secondly, FuelCell Energy also announced they have been and will continue to raise capital using equity financing for future projects, diluting shareholder stake further, an important consideration for shareholders moving forward.

Ballard Power Systems (BLDP, down 16.37% in September, down 40.30% YTD) Ballard Power Systems announced its partnership with Eaton Corporation [13] and the Department of Energy’s National Renewable Energy Laboratory (NREL), to develop heavy-duty truck fuel cell technology, a positive step in expanding the viability of hydrogen fuel cell technology within the US transportation sector. 

Nuvve Holding Corp (NVVE, up 6.3% in September, down 21.17% YTD) The California based pure V2G player announced they it has earned a competitively awarded contract with Sourcewell, [14] a cooperative purchasing company, to ensure it is quicker and easier for participating agencies to transition to electric vehicle (EV) fleets. The partnership will allow governments, education, nonprofits, and other publicly funded entities to streamline access to Nuvve's intelligent energy platform. With this contract the 50,000 Sourcewell users can gain immediate access to Nuvve’s V2G platform. Nuvve’s systems create cost savings to EV fleet owners, by controlling that charging takes place when electricity utility rates are lower. Moreover, Nuvve’s system allows fleet owners to monetise the clean energy storage assets (i.e., the batteries) to perform services that help stabilize the grid. Nuvve can earn revenue from these services: values differ by region but start at $2,000 per vehicle per year for light-duty EV vans.

Stem (STEM, down 4.40% in September, down 11.68% YTD) Stem announced they will be developing the first virtual power plant (VPP) in Chile. [15] This project came from a previous partnership announced in 2020 with energy company Copec. [16] The artificial intelligence (AI) driven clean energy storage services provider will seek to aggregating behind-the-meter (BTM) distributed energy facilities using their market leading Athena software.

Sunnova (NOVA, down 9.01% in September, down 27.01% YTD) The US residential solar and battery providers announced pricing of a $400 million aggregate principal amount of green 5.875% senior notes due in 2026. The holding company, Sunnova Energy Corporation, has said its subsidiary will be using the net proceeds to fund or refinance existing or new eligible green projects, as described in its recently launched new green financing framework. [17]

Proterra (PTRA, down 3.44% in September, down 40.32% YTD) The producer of electric buses and provider of energy turnkey solutions for EV fleets, announced this month that it will supply key elements of an electric bus charging microgrid in California, a project that can become a blueprint for fleet electrification throughout the US. [18] This Northern California project is part of the local transport authority effort to transform its fleet to 100% zero emissions by 2036 (CA requires that all public transit agencies to transition to 100% zero emissions by 2040), currently with a fleet of 441 buses of which only 10 are electric. Proterra will provide two 1.5-MW fleet chargers and 34 charging dispensers and cables.

Sunrun (RUN, down 0.56% in September, down 36.58% YTD) The Californian leader in residential solar rooftop, storage and energy services announced on the 22nd September that it has priced the securitization of new leases and purchase power agreements their  ‘solar-as-a-service’ offering through Sunrun selling, installing, financing and maintaining solar systems for customers. [19]

Chargepoint (CHPT, down 5.48% in September, down 33.61% YTD) The EV charging network provider has strengthened commitments to accelerate further electrification of fleets and commercial segments in Europe and North America after acquiring electrification solutions provider VeriCiti for €75 million. [20] ChargePoint’s ambition to ease the transition to EVs and EV charging networks for businesses and regular drivers will also be given a boost with the agreement reached back in July for the acquisition of European e-mobility technology providers Has.to.be for approximately €250 million. [21]

EVGo (EVGO, down 11.22% in September, down 46.03% YTD) EVGo’s public electric vehicle (EV) fast charging network reached achieved 300,000 customer accounts at the beginning of September as they continue to expand all over the US. [22] Also this month, EVGo announced the EVgo Optima™ software package and the EVgold™ service guarantee as they look to expand their reach to more fleet operators and make the transition toward electric vehicles effortless. [23]

Past performance is no guarantee of future performance. Source of all data: Bloomberg. Data as of 30.09.21

 

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