Portfolio Manager Equities
As in the case of all other sustainable methods of generating energy, the use of biomass has increased enormously. In 2000, the installed capacity was 36 gigawatts. According to the latest statistics, it had risen to 126 gigawatts by 2018 (source: BloombergNEF). And to think that -based on conservative estimates about the loss of power and efficiency of generation- 1 gigawatts could supply about 300,000 or more households with electricity. Quite a considerable number. The increase from 36 to 126 gigawatts is obviously appreciable, but it pales by comparison with solar and wind energy, for example. Solar energy capacity increased from 2 gigawatts in 2000 to 532 in 2018; as for wind, the increase was 16 in 2000 to 577 in 2018. In addition, capacity for generating electricity using fossil fuels doubled over the same period. This was partly due to economic growth in which electricity plays a key role.
"There have been more attractive investments in sustainable energy production than biomass over the last two decades."
Until now, biomass has represented only a small portion of the energy mix. Although it has risen from 1.17% to 1.89%, it is virtually negligible compared to the growth of other sustainable sources of electricity. The share of solar energy, for example, increased from zero to almost 8% of the entire mix. So, to make a long story short: from my point of view as a portfolio manager, there have been more attractive investments in sustainable energy production than biomass over the last two decades. To my knowledge, these alternatives cause fewer controversies about the inevitable CO2 emissions.
In addition, one can infer from the installed biomass capacity that the relevant market, including shares that enable direct investments in biomass, is quite limited. There is one listed share that provides direct exposure to biomass, and that is in Enviva LP, a company listed in the United States that makes wood pellets for large-scale generation of electricity. This share has performed significantly better than the market as a whole in recent years (27.5% versus 16.26% over the past two years). But it’s impossible to say whether biomass is a good investment based on this one sample.
What is happening though in the market, , is that biomass is being seen as complementary to solar and wind energy. Apart from Enviva, bigger utilities companies will be looking at how biomass can serve as a kind of back-up for when there’s no sun or wind but still a need for electricity. The EU is also making an assessment for the EU Taxonomy, a framework for classifying the sustainability of economic activities, and examining whether to consider investments in biomass as sustainable. Businesses now at the frontline of sustainable energy production that also use biomass also have an interest in getting biomass classified as sustainable. A company such as Orsted, which is seen as a true frontrunner among sustainable utilities companies, is therefore quite open about the fact that it is talking to the EU about including biomass in the EU Taxonomy.
Biomass has represented a limited share of growth in the electricity mix in recent decades. However, if the EU Taxonomy classifies it as sustainable and the government encourages its use, then it could become an interesting investment. But, as far as I’m concerned, this would be as a back-up to solar and wind energy.
Best regards, Caspar