Electrifying Everything

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It’s already Thursday!

We hope you’re enjoying the short workweek, at least those of you in the US who were able to take off Monday for Presidents’ Day.

We’ve got power on our minds this week — and not just the kind that comes from wielding a concert ticket monopoly (we feel your pain, Beyoncé fans). In between reading articles about creepy chatbot conversations, we’ve been following a few developments worth sharing from the electricity sector:

• Rooftop solar’s staying power: As earnings reports roll in from US residential solar companies like SunPower, Sunnova, and Sunrun, we’re getting a peek at the state of the market. According to one BloombergNEF analyst, while the residential solar industry faces serious headwinds (think rising interest rates and a weaker economy), it likely set records for installations last year and may do it again in 2023.
• Europe’s renewable transition: Efforts to wean Europe off Russian gas have accelerated the continent’s transition to renewables, reports Vox. By the end of 2022, renewables overtook natural gas in electricity generation, and European households and businesses tripled their amount of installed rooftop solar systems compared to 2021. Funnily enough, there’s now a natural gas glut due to warmer winter weather, and shares in producers are falling.
• Tidal power: It’s not just surfers who draw energy from the waves. SAE Renewables announced a new milestone this week — it became the first company to generate 50 gigawatts of electricity from tidal devices.

We also took a deep dive into the “electrify everything” movement and identified several ways you can invest in it — more on that below.

News you can use

• What’s “SUPP”? Activist investor Engine No. 1’s new Transform Supply Chain ETF (which goes by the ticker symbol “SUPP”) is one of several sustainability-focused funds to make their debut in February. Morgan Stanley launched six new ESG ETFs under the Calvert brand. Sprott introduced four focused on critical minerals essential to the generation, transmission, and storage of cleaner energy. Faith-based investors have another option from Timothy Plan, and NBA star Giannis Antetokounmpo became the first professional athlete to partner with an investment firm on a fund.
• United Airlines and its partners are investing over $100 million in greener air travel as flyers grow more conscious about their carbon footprints. The venture capital fund will support start-ups working on making sustainable aviation fuel (SAF). Other corporations and even passengers can contribute to the effort — the first 10,000 United ticket holders to do so will each receive 500 MileagePlus miles in exchange. Last year, 300 million liters of SAF were produced globally, but we need to reach 450 billion liters by 2050 to achieve net-zero emissions.
• Impact investing opportunities are more plentiful than ever, says FWIW’s Jean Case in this interview with the Associated Press. She talks about the expanding opportunities for investors who want to generate both financial and social returns.

Plugging in your portfolio

In less than two years, Congress has passed three multi-billion-dollar bills to put the US on the path to a greener future: the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. We’ve also seen record-breaking investments in clean energy technologies, but we’re still in the early stages of decarbonization.

There are two parts to this mighty effort: a push to stop relying on fossil fuels for electricity and make the power grid clean, while simultaneously replacing technologies that run on fossil fuels. As climate reporter Robinson Meyer described it, “The administration is, in a sense, trying to conduct a high-stakes heart transplant on the economy while the patient remains alive on the table.”

In the past, we’ve covered different renewable sources of energy — like wind, solar, and hydrogen — that could gain from these tailwinds. But, as it seems like everything we are pitched these days (from how to power our cars to how to heat our homes and cook our meals) centers around electricity, today we touch on the movement to “electrify everything” and how you can invest in it.

We’ve broken down four areas for you to consider when starting your research into everything that buzzes, beeps, shocks, and hums. All companies and funds mentioned are examples only and are not stock suggestions or investing advice.

Electrification raw materials: The energy transition is going to require a significant amount of electrical equipment made of metals and minerals like aluminum, copper, nickel, zinc, cobalt, and lithium. For instance, battery-powered electric cars contain four times the copper of conventional vehicles. Analysts expect critical shortages of these raw materials in the future; this 2021 chart from the IMF shows the low ratio of supply to demand for different metals in a net-zero-by-2050 scenario. One can bet on this area with shares in individual miners or resource recovery battery recyclers like Li-Cycle Holdings. Funds covering this area include the VanEck Green Metals ETF and KraneShares Electrification Metals Strategy ETF. Click here to read more about this space and ESG concerns with mining.

Electric infrastructure: A nation that runs on reliable, zero-carbon electricity will need an upgraded, expanded, and modernized electric grid, electric equipment and semiconductors, energy storage and batteries, accessible charging stations, and home solar power installations, among other changes.

Investors can gain exposure to this overhaul with funds, like the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index ETF and Global X Lithium & Battery Tech ETF, or target companies investing in sustainable solutions. These include:

• Utility, power management, and grid companies like Brookfield Renewable Partners, NextEra Energy, Clearway Energy, Eaton Corporation, ABB, Quanta Services, and Digi International
• EV charging companies like Blink Charging, ChargePoint Holdings, and EVgo
• Battery and energy storage stocks like QuantumScape, Stem, Flux Power, and EoS
• Solar panel and micro-inverter makers like Enphase Energy, FirstSolar, and Sunrun
• Chip makers like Nvidia and Analog Devices

Vehicles: Since almost 30% of US greenhouse gas emissions come from the transportation sector, there’s an urgent need to convert our vehicles to electric. There are numerous publicly listed companies, like Tesla, Nio, and Rivian. Funds that cover this popular space include the KraneShares Electric Vehicles & Future Mobility ETF, Global X Autonomous & Electric Vehicles ETF, and iShares Self-Driving EV and Tech ETF. You can read more about electric vehicles beyond cars.

All-electric residences: According to government data, 26% of US households used electricity as their only source of energy in 2020. The remaining relied on fossil fuels like natural gas or propane for cooking and heating both water and indoor spaces. Making more homes all-electric will require new panels, induction stoves, and heat pumps. Companies that offer these, like Carrier Global, Schneider Electric, Whirlpool, and Trane Technologies, could benefit.

No matter how much the rise of electrification sparks joy within you, it’s important to remember that these areas are undergoing significant transformations. As with all rapidly shifting sectors, not all of these companies will thrive. That’s why we always remind FWIW readers to do their own research and to talk to a qualified advisor before making any financial decisions.

Before you go -

Always searching for that emoji you think should be there? No worries; new emojis are coming soon. The shaking-head emoji would have been useful in describing this week’s stock market performance…

** FWIW team members own shares of ABB, Carrier Global, NextEnergy, Nvidia, QuantumScape, Rivian, Sunrun, and Tesla.

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