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Power move: Why electric utilities may be the key to the energy transition

As the world consumes more electricity from renewable energy sources, the global power grid will need to be modernized. While renewables like wind and solar have attracted much of the attention from investors looking to play the energy transition, electric networks utilities may offer more upside today.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

KEY POINTS

  • Over the next 20 years, trillions of dollars in capital will be spent modernizing the global electric grid to accommodate increased electrification and the rising share of renewable energy sources.
  • We believe regulated electric utilities are an underappreciated way to invest in the energy transition and are attractive investments owing to their high growth potential and stable return profile.
  • With relative valuations at 15-year lows, we believe electric utility stocks are particularly attractive versus the broader equity market.

Introduction

As the world shifts toward a low-carbon economy to stem the effects of climate change, decarbonizing the global energy sector will be critical. The clean energy, clean transport, and electricity sectors will likely experience unprecedented growth as demand for conventional, hydrocarbon-based energy wanes. While renewables like wind and solar have so far attracted the most attention from investors seeking to capitalize on this secular trend, we believe electric utilities are a less obvious, underappreciated opportunity that merit closer inspection.

As distributors of power, electric utilities are essential for enabling the energy transition. In the coming decades, trillions of dollars in investment capital will be spent modernizing the grid to incorporate the increasing share of renewables. And critically, because they are regulated entities, electric network utilities offer investors the potential to earn attractive, stable returns for years to come. While renewables and utilities are both energy-transition plays, here’s how, in our view, the two industries stack up from an investment perspective:

Electricity consumption expected to increase

The shifting global energy mix

The world’s energy consumption is changing, with electricity expected to gain significant share of the energy mix over the next two decades, mostly at the expense of…

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