Should investors follow Mukesh Ambani’s push for green energy stocks?

Asia’s richest man, billionaire Mukesh Ambani, is spearheading over $10bn investment in green energy stocks and clean energy projects over the next three years, through his Indian multinational and Fortune Global 500 conglomerate, Reliance Industries [RELIANCE].

The petrochemicals, oil, gas and telecommunications giant has completed deals with four green energy stocks in a week. It currently generates more than half of its revenue from refining and petrochemicals, but is now clearly pushing a clean energy agenda.

Reliance has also set up the Dhirubhai Ambani Green Energy Giga Complex on 5,000 acres in Jamnagar, which comprises giga factories for integrated solar PV modules, electrolyzers, fuel cells and energy storage, reports Mint. Mukesh Ambani also plans for Reliance to set up 100GW of solar energy by 2030.

With energy shortages shaking economies globally, and the International Energy Agency’s (IEA) warning that clean energy spending has to triple to meet targets, are green energy stocks a must-watch for investors?

“A surge in spending on clean energy transitions provides the way forward” - IEA's annual Energy Outlook Report

 

 

Mukesh Ambani’s Reliance buys green energy stocks

Chairman, managing director and Reliance’s biggest shareholder, Mukesh Ambani, has made swift, yet carefully plotted inroads into its green energy stock investments.

The purchase of REC Solar for $771m allows Reliance to leverage its abilities in solar panels and polysilicon, and gain instant access to a global customer base, reports Mint. Its $29m purchase of the German-based maker of photovoltaic solar wafers, NexWafe [NexWafe], means it can use its technology to deliver competitively-priced PV panels. And to install these panels, Reliance can now benefit from its acquisition of a 40% stake in India’s Sterling and Wilson Solar [SWSOLAR], whose share price had surged 45.00% in six months, as at Friday 15 October’s close, in anticipation of the deal.

Goldman Sachs were positive about the moves to clean energy, stating: “the REC acquisition would provide Reliance with a global footprint to benefit from rising global module demand, which we expect to double by 2025”, adding that it expects “solar installation to grow from the current run rate of 5.5GW to 31.5GW by 2030.”

The company has also obtained technology for hydrogen electrolyzers – which produce green hydrogen – through its partnership with privately-owned Stiesdal. The Danish firm’s technology should facilitate significant cost reductions.

And Mukesh Ambani is not the only one investing heavily in renewable energy, with Gautam Adani’s Adani Group [ADANIENT] planning to put $20bn over 10 years into the renewables sector, reports Bloomberg.

 

Should investors now be pivoting to green energy stocks?

As well as increasing global investment in green energy, exemplified by Mukesh Ambani’s Reliance acquisitions, do factors like global energy shortages and the IEA’s warning that green energy spending must triple make clean energy a must-watch sector for investors?

In recent weeks, oil and natural gas prices have reached multi-year highs, as demand increases and a supply shortage drives prices up. Asia has been hit by widespread energy shortages, while fossil fuel demand accelerates. With less than a month until the United Nations COP26 climate change conference in Glasgow, the IEA’s annual energy outlook report stated last week that the economic recovery from the pandemic is "unsustainable", with too much focus on fossil fuels.

The report says that "a surge in spending on clean energy transitions provides the way forward, but this needs to happen quickly or global energy markets will face a bumpy road ahead.” The IEA says renewable energy investment must triple by 2030 to effectively fight climate change and control volatile energy markets.

 

It adds that "the world is not investing enough to meet its future energy needs” and “remains far short of what is required to meet the rising demand for energy services in a sustainable way." And looking ahead to November’s key climate summit, added that “clear signals and direction from policymakers are essential.”

Solar, wind, hydropower and bioenergy need to form a far bigger share of future energy investment, according to the IEA, in the battle to cap the rise in temperatures to 1.5C as set out in the 2015 Paris Agreement. In 2020, renewables made up just 12% of the world’s energy supply, with coal, natural gas and oil making up nearly 80%, report Reuters.

Clearly, there’s still a long way to go yet, but also huge unrealised potential in the clean energy space. Last week, our performance scanner showed that the Solar (+7.07%) and Clean Energy (+7.05%) ETFs were the second and third-best performers of 34 tracked themes, represented by the Invesco Solar ETF [TAN] and iShares Global Clean Energy ETF [ICLN]. Enphase Energy [ENPH], with the second-biggest weighting among the green energy stocks in both ETFs, has jumped 17.67% over the last month, as of Monday 18 October’s close.