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These Clean Technologies Are Supporting the Energy Transition

Published 06/10/2024, 02:15 PM
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When the Inflation Reduction Act (IRA) was signed into law in 2022, it represented one of Congress' largest investments in the global climate and the U.S. economy and energy security in all of U.S. history. Now as we approach the two-year mark since the IRA was signed into law in August 2022, this is an excellent time to take stock of the progress that has been made in that time.

Of course, the financial media quickly grabbed onto the IRA narrative, inundating investors with related headlines and lists of the companies and industries that would benefit the most from the legislation. Now upon a closer look two years later, we're finding that even some of the most optimistic projections circulated in 2022 have ended up being quite conservative.

Thus, the potential opportunities for investors are much greater now than they were two years ago, although it might take a bit of extra work to uncover some of the best investment opportunities.

Growth in solar-energy capacity surpassed fossil fuels in 2023

Of course, many investors have already been winning with their solar-related investments. While those who got in earlier have seen even larger gains, plenty of opportunities remain. For example, the Nasdaq OMX Solar Index, which holds 24 solar-related stocks, has skyrocketed from about 1,170 five years ago to about 4,700 in October 2021.

In early 2022, the Nasdaq solar index bottomed out at around 2,813, but since the IRA was enacted, it has approached 4,700 as of late May. The good news is that it doesn't look like the investment opportunities in solar will slow down anytime soon.

In 2022, annual renewable-energy generation surpassed coal for the first time in U.S. history. In fact, the Solar Industries Association (SEIA) reported that the U.S. added 32.4 gigawatts of new electric-generating capacity last year — a 37% increase from the previous record set in 2021.

In its "U.S. Solar Market Insight 2023 Year in Review" compiled in cooperation with Wood Mackenzie, the SEIA reported that solar energy accounted for more than half of the electric-generating capacity added to the U.S. power grid in 2023. As of the end of the year, the U.S. had 177 gigawatts of installed solar capacity, and the utility-scale sector accounted for 22.5 gigawatts of extra capacity in 2023.

By 2025, the U.S. Department of Energy expects domestic solar-energy generation to rise by an impressive 75% from where it stood in 2022.

Beyond solar

Of course, solar energy is just one small piece of the energy-transition puzzle. In fact, many of the new technologies required to meet all the energy-transition goals are still in development, which means more potential opportunities for green-energy-savvy investors.

According to the International Energy Agency's Net Zero Roadmap, over one-third of the emissions reductions expected to be in place by 2050 depend on technologies still in development. Additionally, the World Resources Institute estimates that annual installation rates of renewable-energy infrastructure would have to almost double what we saw in 2023 — if we're going to achieve 90% clean electricity in the U.S. by 2035.

The "Clean Investment Monitor" shows that the U.S. brought in a whopping $265 billion worth of new investments for deploying and manufacturing clean energy and vehicles, carbon manufacturing, and building electrification in 2023 — a 39% increase from 2022.

In 2024, we're already on track for a huge increase versus last year. The first quarter brought in a record $71 billion worth of investments, a 40% increase versus the year-ago quarter. Additionally, clean investments accounted for 5.1% of total U.S. private investments in structures, equipment and durable consumer goods during Q1, versus 3.7% in the same quarter a year ago.

Investing in technologies that are building our net-zero future

Of course, as more and more renewable-energy sources are added to the U.S. power grid, additional technologies will be key to maintaining a steady flow of energy across the country while ensuring stability and energy security for the power grid.

While the long-term benefits of renewable energy for the planet are widely known, the vulnerability of renewable sources to weather conditions is also very well known. Thus, while building the infrastructure necessary for zero-carbon electricity across the U.S., significant headway is also being made on storing the excess energy generated during optimal conditions for use on rainy days (literally in the case of solar).

Technologies like Ideal Power Inc's (NASDAQ:IPWR) B-TRAN™ bidirectional switch, which has applications in a wide range of renewable-energy and energy-storage solutions, will be key to building out all areas of the infrastructure required for a power grid driven by renewables. Renewable-energy installations that utilize B-TRAN™ can generate more usable kilowatt hours of energy than those using conventional switching solutions.

One other crucial area that doesn't get a lot of attention yet is the need for renewables forecasting. For example, International Business Machines' (NYSE:IBM) Renewables Forecasting Platform provides solar and wind forecasts for the day ahead with 92% accuracy.

IBM's Environmental Intelligence Suite provides additional data and information needed to optimize renewable-energy generation and storage. Energy-storage systems must be optimized to provide a consistent supply of energy, and as grid-scale battery technology improves, utility companies will better be able to store electricity for longer periods to help them manage load during times when renewables production is less than optimal.

The U.S. military does its part for the energy transition

The U.S. Department of Defense is also taking some critical steps to help advance the energy transition in the U.S. The DOD signed a contract to utilize Canadian startup Eavor's geothermal energy to power a U.S. Air Force base in Texas.

Under the terms of that contract, the Air Force Office of Energy Assurance will provide guidance to Eavor, which is also receiving technical and operational assistance via a partnership with U.S. oil giant Chesapeake Energy (NYSE:CHK). Eavor's closed-loop geothermal system is similar to other geothermal systems in use, except that it incorporates a thermosiphon approach.

This approach involves heating cold water until it turns into steam and then cooling it again for use. As a result, Eavor's system is more energy-efficient than previous geothermal technologies because it doesn't require a pump.

The contract with Eavor is just one of a growing number of ways the U.S. military is doing its part for the energy transition. A few years ago, Ideal Power partnered with the DOD's Naval Sea Systems Command (NAVSEA) project to develop and demonstrate a high-efficiency 12kV medium-voltage DC circuit breaker equipped with B-TRAN™.

Under the terms of that NAVSEA contract, the company delivered its first B-TRAN™ devices to Diversified Technologies in August 2022, wrapping up those deliveries in 2023. Separately, Ideal Power recently started filling orders for its first SymCool Power Modules, which also utilize B-TRAN™, for a major global customer earlier this year.

How working together is maximizing the value of all these investments

It's no secret that the energy transition is requiring a colossal effort requiring a global cooperation of technology companies, regulators and policymakers, governments, and other stakeholders. However, sometimes it's necessary to look a little deeper to see just how these partnerships are helping push toward a net-zero future.

For example, Schneider Electric (EPA:SCHN) hosted a series of roundtables in December at COP28, encouraging even more collaborations among some of the world's largest tech firms. Some of the most well-known participants at those roundtables include Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO) and Accenture (NYSE:ACN).

Meanwhile, large asset managers are collaborating on a massive effort to mobilize the capital and investment dollars needed to pull off the energy transition. For example, BlackRock (NYSE:BLK) has teamed up with Singapore-based Temasek to pour $600 million into proven technologies that can help reduce or even eliminate carbon emissions.

Investing for a net-zero future

Although we're still some years and decades away from completing the global energy transition, legislation like the Inflation Reduction Act is going a long way toward helping mobilize the necessary capital. Of course, investors who want to participate in funding this transition may sometimes have to dig deep to uncover hidden value plays.

For example, legendary value investor Warren Buffett has shown keen interest in Occidental Petroleum (NYSE:OXY) in recent quarters. Despite its name and over 100-year history in hydrocarbon exploration, Occidental is working on several green-energy initiatives, including removing carbon dioxide from the atmosphere.

As the many different names featured here demonstrates, there is a wide array of investment options available, including buying stocks or investing in the private equity of companies that are building the technologies needed to complete the energy transition. Other options include exchange-traded funds that hold a diversified portfolio of clean-energy stocks.

Ultimately, investors who know where to look can help support the energy transition while earning attractive returns on their investments.

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