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Fossil Fuel, Solar, Wind: Biggest Trends to Watch In the Resource Transition

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"I think fossil fuels comprise 60% of the electricity demand in the U.S. We're expected to see upwards of 30% growth in terms of overall electricity demand if we do have the projections that we expect to hit on the EV side," says Veronica Zhang, Deputy Portfolio Manager, and Analyst focused on renewable energy, VanEck

So what will be the impact for investors as we transition from fossil fuels dependency to natural resources? That was one of the many topics discussed during TheStreet's Investor Playbook: The Resource Transition, hosted by Susan McGinnis, which includes an all-star team of portfolio managers and analysts.

  • Shawn Reynolds, Portfolio Manager for VanEck’s Global Resource Fund GHAAX and Environmental Sustainability Fund ENVAX, VanEck
  • Ammar James, Deputy Portfolio Manager, and Analyst focused on agriculture, paper, and forest, VanEck
  • Veronica Zhang, Deputy Portfolio Manager, and Analyst focused on renewable energy, VanEck
  • Charl Malan, the Senior Analyst, focused on minerals and metals, VanEck

WATCH: Investor Playbook: How to Play the Resource Transition - FREE Webinar

Editor’s note. The webinar was recorded on December 22, 2021.

Video Transcript Below

Veronica Zhang: You're just going to have a much more electrified economy overall. But with that said, I think right now it stands at 60 (percent). I think, you know, consensus for natural gas, for example, is supposed to grow only a couple of percentages over the next 10 years. So the pace of growth is slower for fossil fuels. I would expect it to maybe be flattened down for ones like coal. And then you have the pace of growth for nuclear, solar, wind to be a little bit on the higher side, mostly because you do need a little bit more of a renewables mix. 

Quote by Veronica Zhang, Deputy Portfolio Manager, and Analyst, focused on renewable energy, VanEck, on the fossil fuel transition.

Quote by Veronica Zhang, Deputy Portfolio Manager, and Analyst, focused on renewable energy, VanEck, on the fossil fuel transition.

So I mean, there's a debate around dependence. Yes, because it's 60 percent, we are dependent on them. But it's a very, very gradual shift. You can't expect this to all happen overnight. In order to get 30% more electricity from a pre-taxed grid right now, there has to be a slow add-on, slow adoption, slow transition to different types of resources. So it'll take time. But I think near-term, at least over the next three to five years, whatever you want to consider near-term, solar should be growing pretty substantially. It's less than 5% of the U.S. right now. Wind should be growing substantially. And then, yeah, maybe nat gas grows, but it'll definitely be at a lesser clip.

So we look for pockets of opportunities, right? Overall, the trends are in our favor. Solar and wind, you're going to see growth. We have some policy kinks that are most likely going to be worked out because overall, the national expectation, the federal expectation, is that we're going to have more renewables growth and policies very supportive of it. But we look for dislocations in the stock where people are maybe too, too bearish on something super, super near term. We take a longer-term view. 

Quote by Veronica Zhang, Deputy Portfolio Manager, and Analyst, focused on renewable energy, VanEck, on the fossil fuel transition.

Quote by Veronica Zhang, Deputy Portfolio Manager, and Analyst, focused on renewable energy, VanEck, on the fossil fuel transition.

So there's that element, and the other part of it is the battery. The technologies that are in play are very, very interesting. It's not one chemistry solves all. There is the whole entire behemoth of lithium-ion that's being worked on, that's a global sort of process. Costs are ratcheting down continuously, and we're going to make this adaptable to the consumer. But then you also see a proliferation of older technologies, ones that are deemed less attractive or less energy-efficient but are much, much cheaper to implement in the near term, such that you do see industrial and industrial and utility level consumers adopting them. 

Because we need batteries for the grid, we need batteries to be able to sustain renewable resources and to hedge some of our costs with a very volatile spot market. So you're seeing both of those trends come through. And I think there's a lot of opportunities that we're kind of that we've been implementing to play those themes. 

Video Highlights | Investor Playbook: The Resource Transition

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