Traders were left reeling earlier this week when US crude prices fell into negative territory, which by creating lower fuel prices would appear to render electric vehicles and biofuel less competitive.
Solar and wind may be hit if cheap gas floods the market, while green levies, mainly funded by the oil majors, could be cut if industry profitability continues to haemorrhage.
Fatih Birol, the head of the International Energy Agency, said the oil price crash “will definitely put downward pressure on the appetite for a cleaner energy transition”.
Bloomberg’s clean energy research arm, meanwhile, has reduced its forecast for global solar demand due to the coronavirus lockdown.
However, those who believe the UK green energy revolution will be de-railed by the recent rapid decline in the cost of oil should think again, according to Canaccord.
That’s because the wheels of change were set in motion long before WTI and Brent crude hit their historic lows.
Beginning of a radical change
“We believe we are at the beginning of a radical change, effected over two decades, that will deliver lower costs, dramatically lower urban air pollution, close to zero carbon, and maintain the UK’s enviable record of grid reliability,” the City broker said.
“At the centre of this change is the shift of transport and heating to being powered by electricity by default and hydrogen for storage and certain specialist applications.”
Canaccord, which said the UK was “fairly typical” in a European context, expects oil and gas demand to decline 55% and 85% respectively over the next two decades.
Against this backdrop, it said the nation had a vibrant green and alternatives industry, which the broker split into four ‘verticals’: batteries, hydrogen, utilities and the support services.
It singled out two potential winners from massive growth in the installed base of lithium-ion batteries: advanced materials group Ilika PLC (LON:ILK) and ‘upstream miner’ Bacanora Lithium PLC (LON:BCN).
And the winners
As hydrogen comes to the fore, so Ceres Power PLC (LON:CWR) and AFC Energy PLC (LON:AFC) will benefit, Canaccord reckoned.
It also sees names such as Velocys PLC (LON:VLS), involved with hydrogen as well as renewable jet fuel, and Invinity Energy Systems PLC (LON:IES), which is "exposed to alternative storage technology", as long-term beneficiaries.
Among the utilities, the broker said Good Energy Group Plc (LON:GOOD) was the "best mid-cap play with an important electric mobility angle in the form of Zap-Map".
Supporting the industry during North Sea electrification will be important and lucrative, and Canaccord sees Tekmar Group (LON:TGP) and Windar Photonics (LON:WPHO) as beneficiaries of the surge of activity.
It also points out that oil services groups James Fisher PLC (LON:FSJ), Lamprell PLC (LON:LAM) and John Wood Group PLC (LON:WG) are already larger in renewables than traditional hydrocarbons.
Driving the growth in renewables will be:
- Steadily falling renewable costs on electricity production
- The shift to electric vehicles
- Mass-scale storage
- “Net-zero” as a policy choice on hard-to-shift uses of hydrocarbons
“Whilst the capital markets are factoring in some of these changes, we believe there remains significant opportunity for investors to take advantage of these trends,” Canaccord said.
“Much of the running in the industry is being made by large companies, and notably the utility industry, but we believe several mid-market companies are likely to be major beneficiaries of these trends.”
