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Distributed Renewable Energy Monthly Report | November

 

Renewable Energy ETF Monthly Report: Key Takeaways

Earnings season is underway and many companies in iClima’s universe are posting very strong 3Q21 earnings: Tesla (TSLA) beat analysts expectation when reported on October 20th [1] year-over-year revenue growth of 57%. Operating margins hit an all-time high of 14.6% [2] (despite a 6% year-over-year fall in the average sale price of Tesla vehicles). Tesla’s growth for the quarter was driven by their automotive segment which generated $12.1bn in revenue, up 58% year-over-year. Vehicle production also soared to new highs as the company announced they had produced 237,823 vehicles in 3Q21, up 64% year-over-year. Their energy business grew 46% year-over-year with the company reporting [3] 83 MW of solar installed in the quarter, whilst installations of new energy storage reached 1,295 MW. The world’s leading supplier of microinverter-based solar-plus-storage system, Enphase (ENPH) saw revenues grow 96.9% [4] over 3Q20 after shipping approximately 2.6 million microinverters and 65 MWh of Enphase storage systems. Enphase CEO, Badri Kothandaraman, cited the company’s new IQ 7+ microinverter series as well as record revenues earned in Europe and Latin America for the company’s strong performance over the third quarter. As we look forward, another key player in DGEN set to announce earnings on November 4th is SunRun (RUN). The market is anticipating strong demand for residential solar rooftop and storage systems, encouraged by the recent price spikes in fossil fuel which seems to increase consumer sentiment towards cheaper and more sustainable sources of energy.  

The Renewable Energy ETF was up 15.81% in the month and is up 12.94% YTD: October was a month of rotation back to growth. There were notable performances across the solar rooftop key players, with Sunpower Corporation (SPWR, up 48.4% in October), Sunrun (RUN, up 31.09%) and Sunnova (NOVA, up 35.28%) all benefiting from the recent turmoil in fossil fuel prices which resulted in spot prices for natural gas quadrupling across Europe and Asia. [5] Enphase (ENPH, up 54.45% in the month) and SolarEdge (SEDG, up 33.73%), two of the dominant players in the inverters space, benefited from similar momentum. Comparably, fuel cell makers, rallied upon positive developments in green hydrogen, as Emmanuel Macron pledged to build two megafactories [6] for the production of green hydrogen by 2030. Notable movers within hydrogen include Bloom Energy Corporation (BE, up 66.99% in October) and PlugPower (PLUG, up 49.84%). This was the month where we observed Tesla (TSLA, up 43.65%) pass the $1 trillion market cap milestone, promoted by several pieces of positive news such as the deal with Hertz purchasing 100,000 EVs, the biggest order for EVs ever made. BYD (BYD, up 222.06% in the month) another EV maker that is part of DGEN universe for its battery solutions, benefited on growing momentum surrounding EV adoption. Lastly, companies in the universe that are in the software space, like CleanSpark (CLSK, up 74.81%, our best performing stock in the month) and Veritone (VERI, up 25.2%) enjoyed strong rallies over October. CleanSpark has a microgrid and distributed energy resource management software, but the recent rally seems more due to their Bitcoin mining capacity being up by 45%. [7] Past performance is no guarantee of future performance. Please note that all performance figures are showing net data. Source: Bloomberg. Data as of 31.10.2021.

 

Macro Outlook

The UK makes a big commitment ahead of COP26: On October 7th the UK announced [8] it is bringing forward original targets of fully decarbonising the power system by 2050, it has now set the goal of generating all electricity from renewable sources by 2035. This comes a month after the US released their ‘Solar Futures Studies’ backing the notion that the US is capable of achieving a 78% solar, wind & battery (SWB) electricity grid by 2035. To read more about the solar futures study, you can find one of our articles summarising these findings here. [9] Since the UK announced the 2050 target, industry experts, international organisations and special interest groups have called on the UK to be more ambitious with the IEA’s roadmap to net-zero by 2050 calling on advanced economies such as the UK to aim for net-zero electricity generation by 2035. [10] As of last year [11], the proportion of fossil fuels within the energy mix in the UK fell to a record low at 37.7%, while renewables, which include solar, wind and biogas, comprised 43%, with nuclear making up the remaining difference. In achieving a 100% clean electricity grid by 2035, the UK have stated their focus will be centred around offshore and onshore wind, hydrogen, solar, nuclear and carbon capture and storage. While the UK did publish an energy whitepaper containing illustrative pathways to achieve the goal of eliminating fossil fuels by 2050, they have yet to release any revised information or data outlining how the goal will be reached 15 years sooner. Looking toward their 2050 roadmap for guidance, the UK will likely hope to leverage the role of electrification across all sectors in enabling a clean energy grid as well as adopt a ‘systems approach’ recognising the interconnectedness of different sectors and the impact making changes in one sector has on the broader economy. Uncertainty remains as to whether the timing of this commitment is a political move by Prime Minister Boris Johnson ahead of the UN COP26 climate summit at the beginning of November. iClima Earth has also developed a powerful infographic visualising the pathway for a net zero power mix in the US, and its implications for the Renewable Energy ETF, which can be found here. [12]

The EV landscape is growing and V2G right along with it: The IEA stated that there were 6.8 million battery electric vehicles (BEVs) sold in 2020. [13] While the automobile market saw new car registrations fall 16% year-over-year during the Covid-19 pandemic, sales of electrified cars rose 70%. [14] As a rising EV tide rapidly emerges, slow incumbent players are forced to move quickly or drown from diminishing demand and ever-increasing costs. In accordance with meeting Paris Agreement targets, iClima Earth have showcased the expected progression of the key incumbent players to highlight the companies best equipped to successfully transition to 2040. The infographic summarising our findings can be found here. [15] EVs are more than a means of low emission transport. With bidirectional charging, the EV battery itself serves as the most cost-efficient form of energy storage to the grid that requires no additional investments in hardware. iClima Earth’s forecast of 50 million EVs to be sold globally in 2030 highlights the enormous value these small mobile storage units can provide to the grid as well as the emerging paradigm surrounding the distributed energy story. For many incumbent players, adapting products to accommodate converging trends in decarbonisation, decentralisation and digitalisation whilst integrating new innovative technologies introduced to the market, will enable the primary goal of C-suite executives to be achieved, to create and grow shareholder value. And incumber players recognise this. The Ford F-150 already possesses bidirectional capabilities as their partnership with SunRun seeks to enhance accessibility for customers. [16] Earlier this year, Volkswagen also announced their intention to make all new EVs bidirectional by 2022. [17] With a plethora of automotive companies introducing bidirectional charging capabilities, V2G will quickly become a standard for EVs, not because of its essential role as a decarbonisation enabler, but because of the hidden revenue opportunity that is unlocked for both consumer and producer alike, providing frequency regulation services to the grid and energy arbitrage. 

 

iClima Distributed Renewable Energy Performance (As of 31.10.21)

 

1M

3M

6M

YTD

12M

SI

iClima Distributed Renewable Energy UCITS ETF (Acc)

15.81%

9.51%

NA

12.94%

NA

12.94%

iClima Distributed Renewable Energy Index

15.88%

9.81%

13.78%

13.30%

102.66%

13.30%

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 31/10/2021. Please note that all performance figures are showing net data.

 

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