Goldman's strategy to play the $3 trillion energy revolution

Published Sun, Mar 26 20237:27 AM EDT

There's a $3 trillion energy revolution coming, and Goldman Sachs has a strategy to play it. While shale oil helped the U.S. become the world's largest oil and gas producer over the past decade, the industry is entering an age of decline, according to the Wall Street firm. Goldman Sachs expects that shale production will peak over the next three to five years. "Shale remains a very valuable asset, but in our view the USA can no longer rely on it to carry this key cost competitive advantage into the next decade: it needs another energy revolution to maintain its energy cost leadership," Michele Della Vigna said to clients in a Wednesday note. Instead, investors should turn to the gold rush that will be unleashed by the Inflation Reduction Act: a total of $1.2 trillion in incentives which, by Goldman's estimates, should unlock $3 trillion in investments across renewable energy, including green hydrogen and carbon capture. "We estimate that renewable technologies can deliver twice the scale of energy produced by shale, unlocking the equivalent of 43 mnboe/d through green electrons (70%, mostly solar and wind) and green molecules (30%, mostly hydrogen and bio-energy) by 2032," the analyst wrote. Given this, here are some ways investors can play the new energy revolution: Solar and wind Overall, the biggest investments will be in renewable energy, according to the note. Goldman Sachs expects that power demand in the U.S. will jump 2.5 times by 2050, compared to 2021. That means the U.S. will need to significantly ramp up its solar, wind and other renewable energy capabilities. In fact, the Wall Street investment bank said it expects a "more aggressive" ramp up of battery and solar manufacturing facilities than what's assumed by the Congressional Budget Office, according to the note. Some buy-rated solar stocks highlighted by Goldman Sachs include solar panel makers First Solar and Maxeon. First Solar shares have outperformed the market this year, up 41%, but could continue to outperform because of the IRA. This month, UBS upgraded the solar stock to buy from neutral , saying the tax credits from the IRA should offset prior concerns tied to start-up costs as First Solar ramps up its domestic manufacturing footprint. FSLR YTD mountain First Solar shares YTD Maxeon Solar Technologies shares are even higher this year, up almost 55%. In January, Raymond James upgraded the stock to outperform from market perform, saying Maxeon's manufacturing business in Mexico, Malaysia and the Philippines is attractively valued. Like First Solar, Maxeon is also ramping up its U.S. manufacturing. Meanwhile, for General Electric , the IRA will directly benefit its portfolio of energy businesses, GE Vernova, including wind energy. The stock is up nearly 40% this year. Elsewhere, Goldman Sachs highlighted buy-rated Baker Hughes , saying it will get a boost from carbon capture and hydrogen projects. The stock is down 8.5% this year. According to Goldman, MasTec will also benefit from tax provisions that lead to "increased capital investments in renewable generation projects."