Paving the way for the great energy transition

John Cook, portfolio manager of the Mackenzie Greenchip Global Environmental All Cap Fund, discusses how the pandemic has shaped the future of renewable energy.

 

 

Paving the way for the great energy transition

It’s pretty early to tell exactly how COVID is going to affect the great energy transition, the transition from fossil-based energy to renewable fuels. But it is absolutely offering some glimpses into what might lie ahead.

 

How has the pandemic impacted global electricity demand?

One of the areas we’re watching closely is electricity demand. In the hardest-hit areas, we’ve seen demand declines in the area of 15 to 20%. What’s interesting about it is that most of the curtailment, the reduction, of electricity generation is coming from fossil-based technologies; coal, natural gas, and though it’s not fossil based, even nuclear. At the same time, we’ve seen increases in generation coming from solar and wind.

Now, it’s not all good news for our space. We are seeing some of the developers pushing out new developments of solar and wind into 2021. We don’t think that this will be a long-term thing and it is offering us a tremendous opportunity to buy securities at a time when, for short-term investors, the security prices might be depressed.

 

How will the pandemic transform transportation?

Another area we’re watching closely is transportation. It accounted last year for 24% of greenhouse gases, so it’s really important that we see this transition take place, but it’s going to be spotty. Right row, through COVID, we’ve seen declines in ridership, in buses and subways, and certainly people are staying home and leaving their cars in the garage, and airplanes are grounded. Nobody’s travelling on cruise lines anymore. And one of the concerns is that maybe as we come out of COVID, people will get back into the cars.

The reduction in transportation is leading to an historic shift in oil demand. The International Energy Agency has suggested this year it will see a decline of 8 to 9% year over year. This is wreaking havoc, as most know, on oil producers, but it may be that COVID has pushed forward peak global demand, and I think it’s likely that oil demand is going to decline in the future and investors should take note.

 

How has the pandemic shaped your view on investing?

One thing we’ve seen in our portfolio are the companies producing goods that we really need. Our best performers through COVID have been a toilet paper manufacturer, the utilities that provide electricity and a company that supplies and distributes natural and organic foods. Taken on face value, I would say COVID is helping us understand in this world that we need what we need and that includes clean air, fresh water, a secure supply of food and a future supply of sustainable electrons that will help us rebuild the economy.

If you ask us, investing in these things, in the most basic needs, is a great way to secure future investment returns.