The transition to renewable energy from fossil fuels is gaining momentum, with new energy systems expected to emerge in the upcoming years due to increased capital spending, according to UBS analysts.
Currently, fossil fuels dominate the global electricity generation landscape, accounting for at least 80% of the total. However, this is projected to change significantly by 2050, with renewable/clean sources expected to make up 60%-65% of energy generation, as per the International Energy Agency.
While some sectors will still rely on fossil fuels, renewables are anticipated to drive a significant portion of the economy. Investments in the energy sector are forecasted to rise to $4-$5 trillion in the next decade, up from the current levels of $2-$3 trillion.
The shift towards electrification will play a key role in this transformation, with a focus on cleaner and more efficient forms of electricity generation.
UBS’s Stance on Electrification and Decarbonization
UBS has identified a selection of 37 stocks in the Europe, Middle East, and Africa region that are poised to benefit from decarbonization. These stocks span various sectors such as utilities, capital goods, mining, chemicals, building and construction, energy, and automobiles.
The capital goods sector is expected to be the primary beneficiary of the energy transition, comprising 43% of the selected stocks. Utilities follow as the second-largest sector, while chemicals and mining have a smaller representation.
In the capital goods sector, UBS’s top picks include Vestas Wind Systems A/S, Schneider Electric SE, Atlas Copco AB, and Siemens AG – all heavily involved in electricity grids. Vestas specializes in wind turbines, while Schneider and Siemens are prominent electricity grid companies.
UBS analysts anticipate electrical equipment manufacturers to be among the early beneficiaries of the transition, given the expected growth in renewable generation investments and related infrastructure.
Furthermore, UBS foresees utilities benefiting from the energy transition, particularly European utilities engaged in projects to replace thermal power generation. However, disruptions in energy markets due to geopolitical conflicts like the Russia-Ukraine war have impacted these efforts.
Among UBS’s utility picks are EDP Energias de Portugal SA, Oersted AS, and E.ON SE. Energy companies are also poised to gain from the transition, leveraging their market expertise and strong financial positions. UBS’s favored companies in this sector include BP PLC ADR, Neste Oyj, and TotalEnergies SE.