Both individual investors and large corporate investment vehicles, such as company pension funds, have been investing in the energy sector for decades.
However, the link between energy use and climate change is viewed by some as undeniable, and the planet’s long-standing relationship with purely carbon-based energy sources is regarded as unsustainable. Fossil fuels are finite and their price volatility adds to market uncertainty and economic instability the world over.
In recent years, a move to ‘net zero’, an initiative that would cut greenhouse gas emissions as close to zero as possible, has become a mantra for governments worldwide.
In response to this, the energy landscape has changed significantly with a move away from coal and oil to natural gas, nuclear power and, more recently, a host of renewable energy sources such as solar, wind turbines, hydro, biomass generation and hydrogen fuel cells. Recent breakthroughs in nuclear fusion research could eventually pave the way for limitless production of clean energy.
By 2050, about half of all global energy production is expected to come from renewable sources, according to the US Energy Information Administration.
This has created a broad sector with a wide-ranging array of potential investee companies, from global mega stocks to start-ups. Different areas of specialisation, companies being at different stages in their corporate life cycle, and contrasting business models mean, however, that businesses often attract vastly different equity valuations.
Across the UK stock market, for example, there are more than 100 energy-related companies ranging from oil and gas multinationals valued in the hundreds of billions of pounds, to tech businesses worth less than £1 million.
In 2023, the definition of an energy-related company is wide-ranging. It is as likely to mean a supplier of renewable energy components such as photovoltaic cells or wind turbine blades as a traditional coal mining or oil drilling stock.
