The rapidly changing energy landscape in reaction to volatile energy prices, uncertain global demand and the tension between conventional and renewable energy sourcing, is likely to lead to surprising investment opportunities, according to energy information provider Entelligent’s inaugural quarterly newsletter, Entelligent.Insights.

“While renewables currently make up only a small portion of the total global energy output, clearly they represent an extremely valuable cash stream for developers and investors alike,”energy storage developer and energy analyst Brandon Shenfield says in the report, which provides insight from industry experts based on Entelligent’s proprietary climate and energy market modeling.

As conventional energy faces a subdued future, the drive for efficiency coupled with growing renewable energy investment will likely smooth out energy price volatility in coming years, energy industry veteran and Entelligent CEO Thomas Stoner Jr. says in his report.

That will allow investors to more accurately measure risk, enabling investing in longer-term energy trends — such as electric utilities that end up functioning like energy banks and an expanded energy grid that demands more electricity but also relies less on traditional fuels, he says.

A fundamental change is afoot in what is driving the price of oil, Robert Hutchinson, an energy industry consultant and senior fellow at the Rocky Mountain Institute think tank, says in his report.

Based on Entelligent’s modeling, Hutchinson argues that oil prices are likely to continue facing downward pressure, and lowered demand will keep prices at less than $100 per barrel at least through 2060.

In a world of maturing economies and oil demand that is decoupling from gross domestic product, China is no longer driving spikes in oil prices, he says. The Asian nation’s declining growth in demand is now a known quantity, and China is moving toward electric- and natural gas-powered vehicles, he says. Technological changes are forcing traditional energy analysts to search beyond energy production or consumption as a harbinger for GDP growth.

Meanwhile renewable energy, improved batteries and expanding efficiency are eating into oil demand, he says.

This scenario leaves room for contrarian investors to potentially make money in companies with management teams that are no longer buying into the argument that large, new oil discoveries or building oil reserves are of paramount importance to value creation, Hutchinson says.

Based on forecasts provided by Entelligent’s modeling, renewable energy is not only chipping away at oil’s dominance.

Shenfield says renewable energy will increasingly provide economical supply for the electric grid in addition to coal and natural gas generation, as part of a much more efficient and competitive energy system. Entelligent’s analysis forecasts a fundamental shift in the net revenues of key asset classes, including coal, oil, gas and renewables to the end of the century. 

He argues there is an investment opportunity in transition technologies like energy storage, as part of the transition to greater adoption of renewable technologies.

Entelligent’s findings come ahead of the United Nation’s climate change summit in Paris, an event Climate Interactive senior modeler Lori Siegel says in her report could offer a wake up call about the business-as-usual scenario.

If nations “fail to implement effective policy actions”and carbon sources are held constant, investors will see a fall in returns in conventional energy companies as fossil fuels eventually become comparatively more expensive because of lower investment returns and higher extraction costs. 

Additionally, unless something changes: “Weak growth of alternative energy sources stalls movement along their natural learning curves, creating a missed opportunity to reduce costs with more use,”she says.

Subscribers can view the inaugural newsletter in its entirety at https://www.entelligent.com/newsletters.

 

Matt Whittaker is a journalist specializing in natural resources coverage. His work has appeared in The Wall Street Journal, Barron’s and other international publications. He has reported from the Americas, Europe and Asia.