UBS says the energy transition needs $160 trillion of investment – and picks new stocks to cash in

Published Mon, Oct 11 202110:43 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

UBS has picked a broad range of stocks set to benefit from the shift to clean energy, with up to $160 trillion of investment on the horizon. "We believe that about US$120-160tn will be required just to de-carbonise the energy system," the analysts, led by Supriya Subramanian, stated in a Sept. 30 research note. "However, energy transition and the path to net zero will have to involve more than just the energy sector. The entire global economy will have to be re-tooled." The electrical equipment sector is "likely to be one of the largest beneficiaries from the ongoing energy transition," the analysts stated. UBS's "most favoured" stock picks in the sector include: Siemens Energy , for its transition to renewable energy; Schneider Electric , which is set to benefit from the building renovation sector; hydro power company Andritz , and Wartsila , "one of the global leaders in industrial scale battery storage." "Electrification of the economy (both in terms of power supply as well as end-use) is likely to be one of the key trends in the coming years. Apart from increased investments towards clean electricity generation, we also expect a meaningful uplift in investments in the expansion and modernisation of electricity networks," the analysts said. In the U.S., electrical equipment and multi-industry (known as EEMI) sector, several companies in the heating, ventilation and air-conditioning business are set to benefit, including Johnson Controls and SPX Corp . Power company Eaton is set to be a "strong beneficiary" of grid and electric vehicle investments, UBS said. It also likes GE , stating that its wind and electricity grid business is likely to get a boost, as well as its hydrogen-fueled gas turbines. "That said, depending on future policies and the role of gas, there could also be a headwind for this business over time," the analysts noted. "We also expect a corresponding increase in investment in the electrification of end-use sectors, with increased spending on EV batteries, heat pumps and electricity-based industrial equipment," they added. All of the UBS picks mentioned are buy-rated by the bank. Net-zero target UBS estimates that electrification and electricity systems will need to make up 59% of fuel used to achieve net-zero carbon emissions by 2050, up from around 40% in 2020, far outweighing other types of fuel such as hydrogen and bioenergy. The UBS note comes at a time when policymakers and businesses are under intense pressure to meet the demands of the climate emergency. The International Energy Agency said in May that achieving an energy sector with net-zero emissions by 2050 would require an "unprecedented transformation of how energy is produced, transported and used globally." It added that current pledges fall well short of what is necessary to reach the net‐zero target. Burning fossil fuels, such as oil and gas, is the chief driver of the climate crisis, and yet despite a growing focus on a transition away from these, the world's fossil fuel dependency is expected to get even worse in the coming decades.

Windmills and worker.

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UBS has picked a broad range of stocks set to benefit from the shift to clean energy, with up to $160 trillion of investment on the horizon.