Investing in the Resource Transition: Massive Acceleration, But Much More Needed
March 31, 2023
Watch Time 2:30 MIN
How has the Inflation Reduction Act changed the outlook in this sector?
Since the passage of the Inflation Reduction Act (IRA) legislation, we've seen a very dramatic increase in the number of projects announced as well as the investment in energy transition from solar to wind to battery storage to carbon capture and hydrogen, pretty much across the spectrum.
Interestingly, the IRA has really stoked the concerns of Europe in that they've seen a number of their companies run to the U.S. to start new projects because they're getting immediate tax relief and immediate incentives to begin those projects here in the U.S., while they are being kind of dragged out in the EU. They, in turn, are starting to put together their own kind of IRA or green package that will create short term incentives.
The bottom line is that we're seeing massive acceleration across the spectrum in terms of energy transition. We're seeing that in terms of projects announced and money spent. And we're starting to see that in some of the publicly traded equities as well.
What is the biggest risk the market is facing?
The biggest risk continues to be underinvestment in this area. The IRA was important, but we're talking about maybe $400 billion or maybe a trillion dollars over the next 10 years. The amount of money that needs to be spent on an energy transition across the globe is in the hundreds of trillions of dollars. That works out to be trillions of dollars a year.
So, we continue to see a lot of opportunity for money to flow into the space, but that has to be backed up by business models -- not just aspirations but business models, management teams and money. Our concern is with regards to finding management teams that either have proven track records or have the capability of taking the capital that needs to be spent into the area and applying it and using it appropriately.
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