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Electricity in the age of climate infrastructure

Jun 14, 2019

In the global push for climate-friendly infrastructure, no task
is more central than the modernization of the world’s
electric power sector.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

 


Financing phase two of the renewables revolution

By 2050, renewable sources — wind, solar and hydro — are projected to produce two thirds of the world’s electricity, and electricity is expected to be the world’s main way of consuming energy. (See charts below.) Employing variable renewable energy on this scale is a massive undertaking, one that entails sweeping changes across the electricity value chain and presents opportunities for investors to pursue both financial and sustainability objectives.

In this dynamic and competitive market, we believe investors need to:

  • Find the institutional-quality investments within the global megatrend. In an industry defined by networks, connections and collaboration can enhance access to new growth sectors and partnerships such as corporate power purchase agreements.
  • Take a comprehensive and calibrated view of risk. Today, valuations for operating assets in some markets have reached the point that we believe development- or construction-stage assets may have a better risk-return profile.
  • Pursue diversification in multiple dimensions. Opportunities in generation assets continue, while newer possibilities are arising in storage and transmission. A mix of resources—onshore and offshore wind as well as solar—can combine with a global approach to help build a resilient portfolio.
  • Measure an investment’s contribution to sustainability goals. Renewable power is a quintessential impact investment category, backed by a particularly robust data set. But investors still need to measure the effects of the specific assets they own.

Climate concerns are now combining with technological advances to transform a sector which, despite the mainstreaming of wind and solar power, still relies mainly on fossil fuels and centralized architectures that date back a century or more. We believe this deep, durable trend presents attractive opportunities for investors equipped to act on them.

A growing role for renewables—and also for electricity

Left: Current and projected sources for electricity generation; Right: Electricity’s share of final energy demand

A growing role for renewables.

 

Sources: Left: BlackRock using data from IEA, Bloomberg New Energy Finance, May 2019. Right: BlackRock, using data from DNV-GL, May 2019. Final energy demand accounts for direct use of energy carriers in transport, buildings and manufac­turing. Power generation is excluded. PJ: one quadrillion joules.,Important Information: Any opinions or forecasts represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events or a guarantee of future results. There is no guarantee that any forecasts made will come to pass.

David L. Giordano
Global Head of Renewable Power, BlackRock Real Assets
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Rory O’Connor
Global Chief Investment Officer and Head of European Renewable Power, BlackRock Real Assets
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Freek Spoorenberg
Global Product Strategist, Lead for Renewable Power, BlackRock Real Assets
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Global Renewable Power at BlackRock
The shift in global power generation from fossil fuels to renewables provides an opportunity to help our investors achieve financial returns with a purpose.
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