Have you ever searched frantically for your keys only to discover you were holding them in your hand?
The same thing happens in investing: we fail to see opportunities that are right in front of us. Sometimes investors miss lucrative opportunities because they harbor false beliefs about a particular field or sector.
That’s happening right now in the energy sector. Many investors misunderstand the direction of the industry, and their confusion is creating a rare opportunity for others to invest in a large, undervalued market that’s positioned for growth.
Venture capitalists (VCs) love a product that
- solves a painful problem
- in a huge global market
- that is ripe for technological disruption
- and has high growth potential and undervalued companies.
The energy sector satisfies all of these conditions.
Energy companies need to solve a painful problem. Energy producers need to lower greenhouse gas emissions while keeping energy affordable. Governments, companies, and financial institutions are committing trillions of dollars to reduce climate risk, and corporations face stricter government regulations and pressure from investors to curb emissions.
In addition, the need for energy continues to rise. Energy is an enabling technology; it empowers people to get the other things they want–in fact, almost every other thing they want. Try going a day without your phone, hot water, lights, refrigerator, or car. Modern civilization grinds to a halt without access to affordable and reliable energy.
Energy is the largest market in the world. Nearly $2 trillion is spent on energy every year[1]—more than enterprise software,[2] fintech,[3] and consumer electronics[4] combined.
The energy sector is ripe for technological disruption. Over 60% of energy is wasted because of inefficiency in the current system.[5] Energy companies are desperate for new technology that drives down emissions and helps find, generate, move, and use energy efficiently, which is the key to making it more affordable.
The energy sector has high growth potential and undervalued companies. Global demand for energy is increasing now, and it will continue to increase in the future. Energy consumption more than doubled between 1971 and 2020,[6] and it’s projected to grow 50% by 2050.[7] Energy fuels all the benefits of modern life: healthcare, education, transportation, communication, and economic growth. Developed countries don’t want to give up those benefits, and developing countries want more of them. In addition, new technologies such as artificial intelligence and robotics require even more energy. As a result, the demand for energy will continue to increase in the future.
Finally, companies in the energy sector are some of the most undervalued. Fear of missing out is currently driving investors toward trending categories like the metaverse, artificial intelligence, and crypto. As a result, sectors like energy tech are undervalued.
Many investors assume solar, wind, and batteries are the most promising ways of achieving low-emission energy and implementing the preferred environmental, social, and governance framework (ESG). ESG is a legitimate concern: we want cleaner air and water, lower greenhouse gas emissions, and increased quality of life for people around the world.
However, solar and wind are not the best ways to implement ESG. They’re unreliable; they raise electricity rates and over-consume minerals and land.[8] In general, solar and wind don’t have the power density to fuel modern life. Even after $2.7 trillion has been invested in solar and wind over the last decade, they still produce only 3% of global energy.[9] So when solar and wind fail (and they will), people will be forced to turn to more cost-effective and reliable sources of power.
Contrary to what many energy investors think, the biggest winner in the energy sector in the next 10 years will be natural gas–especially technologies that enable the efficient production, transport, and use of natural gas.
Natural gas provides the most cost-effective near-term solution for affordable, reliable, low-emission energy. Shifts from coal to natural gas have produced the biggest emissions reductions over the past 15 years. Natural gas produces only 10% of the air pollutants and 50% of the CO2 that coal does.[10] Natural gas also has many uses beyond providing power; fertilizers, computers, medical equipment, steel, plastic, mobile phones, cars, and most consumer products are currently made from natural gas and oil. In fact, even solar and wind require natural gas as a backup because they don’t operate most of the time.
Energy Capital Ventures (ECV) is one of the few VCs that sees the potential of natural gas. Instead of chasing popular trends, ECV correctly sees the path to achieving low-emission energy will come through investments in scaleable energy technology such as advanced leak detection and methane capture, process automation and controls, renewable natural gas, and synthetic microbes that absorb greenhouse emissions.
Energy tech is similar to fintech 15 years ago. Just as fintech took off, energy tech will soon soar just as high. It’s rare to be positioned so well to capitalize on future growth. The keys are in your hand. Don’t miss out!
[1] International Energy Agency (IEA),“World Energy Investment 2021,” page 6, https://iea.blob.core.windows.net/assets/5e6b3821-bb8f-4df4-a88b-e891cd8251e3/WorldEnergyInvestment2021.pdf
[2] Statista, “Enterprise Software: Worldwide Statista Market Forecast,” August 2021, https://www.statista.com/outlook/tmo/software/enterprise-software/worldwide#:~:text=Revenue%20in%20the%20Enterprise%20Software,US%24348.00bn%20by%202026
[3] Statista, “FinTech: Worldwide Statista Market Forecast,” March 2022, https://www.statista.com/outlook/dmo/fintech/worldwide
[4] Statista, “Consumer Electronics: Worldwide Statista Market Forecast,” 2022, https://www.statista.com/markets/418/topic/485/consumer-electronics/#overview
[5] US Energy Information Administration (EIA), “Monthly Energy Review,” July 2020, https://www.eia.gov/todayinenergy/detail.php?id=44436
[6] The International Energy Agency (IEA), “World total final consumption by source, 1971-2019,” IEA, Paris https://www.iea.org/data-and-statistics/charts/world-total-final-consumption-by-source-1971-2019
[7] U.S. Energy Information Administration (EIA), “International Energy Outlook 2019,” Reference case https://www.eia.gov/todayinenergy/detail.php?id=41433#
[8] Briangitt.com, “Solar’s dirty secrets: How solar power hurts people and the planet,” 2021, https://briangitt.com/solars-dirty-secrets-how-solar-power-hurts-people-and-the-planet/
[9] United Nations Environment Programme with Frankfurt School & Bloomberg NEF, “Global Trends in Renewable Energy Investment 2020: Key Findings,” 2020, https://www.fs-unep-centre.org/wp-content/uploads/2020/06/GTR_2020.pdf
[10] Glenn McGrath, “Electric power sector CO2 emissions drop as generation mix shifts from coal to natural gas,” U.S. Energy Information Administration (EIA), June 2021 https://www.eia.gov/todayinenergy/detail.php?id=48296