Clean energy: Myths, reality, and opportunities

Vivek Gandhi
CFA, Portfolio Manager, 04/14/21


  • The average cost of all renewable power-generation technologies, with the exception of concentrated solar power, fell to the same range as fossil-fuel energy two years ago, in 2019.
  • The European Green Deal and possible similar measures in the United States, especially under the Biden administration, are creating a big shift toward clean energy.
  • We believe several European companies are poised to benefit significantly as the United States transitions to clean energy.

Renewable energy, also known as “clean” energy, refers to energy derived from natural resources that are not exhaustible, such as wind and sunlight. It is an alternative to traditional energy that relies on fossil fuels such as oil, coal, and gas. We believe renewable energy offers attractive opportunities for investors, but its potential may be overshadowed by some myths.

Myth 1: Renewable energy is more expensive. A common belief is that costs are higher for renewable energy businesses than for those involved in conventional fossil-fuel-generated energy.

  • The average cost of all renewable power generation technologies, with the exception of concentrated solar power, fell to the same range as fossil-fuel energy two years ago, in 2019.
  • Declines in renewable costs have been much sharper than what experts had recently predicted.
  • More than half (56%) of the new global utility scale renewable energy capacity in 2019 cost less than the cheapest new coal option.
  • On a lifetime levelized basis, renewable energy is cheaper than the marginal cost of burning coal. Many coal plants would find it cheaper to simply stop operations and build a renewable plant instead.

Many coal plants would find it cheaper to simply stop operations and build a renewable plant instead.

Myth 2: The costs are not comparable. Some believe it is unfair to compare the costs without considering the reliability of fossil fuels. Renewable power depends on the vagaries of wind and sun and is therefore less reliable than fossil-fuel energy sources.

  • Renewable power can be less reliable, and redundancy needs to be built into systems. However, fossil fuels have a massive negative externality in the form of carbon-emissions and their impact on climate change.
  • For renewable energy, battery costs are falling sharply, which will help convert intermittent power to reliable power. According to Engie EPS, a European specialist, the cost for firm solar power (solar+battery) is falling, and today it costs 25% less than what solar alone cost a decade ago.
  • As of 2019, Bloomberg New Energy Finance saw a further drop of 25% in solar+battery cost in the next five years, an estimate that we believe may prove conservative given the scale of productivity improvement in the past five years.

Myth 3: Capex requirements are too high. Another view is that renewable energy installation is expensive, and there is not unlimited money to fund it.

  • Of the total global energy capital expenditures, 2/3 continues to fund fossil-fuel energy, and only 1/3 goes toward clean energy, according to IEA World Energy Investment, 2019. If capex were swapped to 1/3 fossil fuel and 2/3 clean energy, we could manage a transition to net-zero emissions.

Clean energy may be creating big winners

The European Green Deal and possible similar measures in the United States, especially under the Biden administration, are creating a big shift toward clean energy — wind, onshore and offshore, as well as solar.

As an early adopter of green policies, Europe has become home to many of the largest global renewable companies. Four of the top five, by revenue, are based in Europe: Iberdrola, Vestas, Siemens Gamesa, and Orsted. We believe these companies are poised to benefit significantly as the United States transitions to clean energy. Among the top 10 developers of clean energy in the United States, six are European companies, and European companies dominate pipelines for future growth.

As of 3/31/21, Orsted represented 1.70% of Putnam International Equity Fund assets. The fund did not hold Iberdrola, Vestas, or Siemens Gamesa.

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