A $3 Trillion Boom Is Coming. And You Might Want To Get In On It

A $3 Trillion Boom Is Coming. And You Might Want To Get In On It
Theodora Lee Joseph, CFA

8 months ago5 mins

  • The upcoming renewable revolution in the US is expected to unlock $3 trillion in infrastructure investment over the coming decade.

  • The boom could create opportunities across seven focus areas: hydrogen; electric vehicles; carbon capture, utilization, and storage technologies; biofuels and renewable gas; environmental services; clean energy; and building decarbonization.

  • Where you invest in the cycle might depend on your investment time horizon.

The upcoming renewable revolution in the US is expected to unlock $3 trillion in infrastructure investment over the coming decade.

The boom could create opportunities across seven focus areas: hydrogen; electric vehicles; carbon capture, utilization, and storage technologies; biofuels and renewable gas; environmental services; clean energy; and building decarbonization.

Where you invest in the cycle might depend on your investment time horizon.

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If you thought the shale oil revolution was colossal, it might soon be time to adjust your sense of scale. The US is about to see the biggest, most comprehensive clean tech initiative anywhere, brought by the Inflation Reduction Act (IRA). And the resulting renewable boom is expected to deliver more than twice the energy put out by the shale revolution and unlock an estimated $3 trillion in infrastructure investment in the coming decade.

For investors, this means potential opportunities that are, well, powerful, to say the least. So let’s take a look at the seven big trends at the heart of it all, and how you might invest in each one.

First, how big is this revolution expected to be?

In a word: massive. The US has seen energy revolutions before, but not like this one.

US energy production by type, measured in “kboed”, or thousand barrels of oil equivalent per day, over time. Sources: EIA (historical) and Goldman Sachs Global Investment Research.
US energy production by type, measured in “kboed”, or thousand barrels of oil equivalent per day, over time. Sources: EIA (historical) and Goldman Sachs Global Investment Research.

This next chart shows the total investment planned through 2032 (green bar, at right), along with a breakdown of how much investment is planned for each focus area.

Cumulative estimated investment opportunities across sectors for the re-invention of the US energy system by 2032, in trillions of dollars. Source: Goldman Sachs.
Cumulative estimated investment opportunities across sectors for the re-invention of the US energy system by 2032, in trillions of dollars. Source: Goldman Sachs.

What are the seven focus areas and how can you invest in them?

1. Hydrogen

It’s like the Swiss army knife of renewable energy: hydrogen stores energy, powers clean cars, and helps industries cut down on emissions. No wonder it’s seen as such a game-changer for a sustainable and low-carbon future. Goldman Sachs estimates that investments in electrolysis capacity (the process of using electricity to split water into hydrogen and oxygen) will make up the largest share of investments, with up to $500 billion in cumulative US investments by 2050.

Estimated cumulative investments in the domestic US clean hydrogen value chain by 2050. Source: Goldman Sachs.
Estimated cumulative investments in the domestic US clean hydrogen value chain by 2050. Source: Goldman Sachs.

Some stock plays you could consider:

Electrolyzer and electrode manufacturers: Industrie De Nora (DNR.MI), NEL Hydrogen Electrolyser (NEL.OL).

Integrated clean hydrogen supply chain players: Air Liquide (AIRP.PA), Air Products (APD), Linde (LIN), CF Industries (CF), Nutrien (NTR.TO).

2. Electric vehicles (EVs)

You knew this was coming. Really, it’s no surprise that the transport sector – the key emitting sector in the US – is the one most impacted by the IRA. EV adoption is only in its infancy stage now, but the International Energy Agency believes the switch is crucial in the journey toward global net-zero targets.

For it to happen, charging and refueling infrastructure will be essential, and Goldman Sachs estimates that in the US, this will mean an $800 billion infrastructure investment opportunity. Korean battery makers that are rapidly expanding capacities in the US should see a positive impact here: their market share in the US is forecasted to grow from 11% to 55% in 2025.

Some stock plays you could consider:

EV manufacturers: Tesla (TSLA.O), General Motors (GM), Ford (F), Volvo (VOLVb.ST), and Dominion Energy (D).

Battery manufacturers: LG Energy Solution (373220.KS), LG Chem (051910.KS), Freyr Battery (FREY.K), and Samsung SDI (006400.KS).

3. Carbon capture, utilization, and storage (CCUS)

CCUS technologies are designed to mitigate greenhouse gas emissions, particularly carbon dioxide (CO2), from industrial processes and power generation sources. These technologies involve capturing CO2 emissions at the source – either directly from power plants or industrial facilities, or by removing CO2 from the atmosphere – and then storing or utilizing it in various ways. Over the past decade, investment in the development of CCUS have been lacking, despite their significant potential.

However, the emergence of clean hydrogen as an alternative energy source offers a chance to push these technologies further. Goldman Sachs expects the industry size to quadruple by the end of this decade.

Cumulative investments in the US CCUS technologies to 2050, in billions of dollars. Source: Goldman Sachs.
Cumulative investments in the US CCUS technologies to 2050, in billions of dollars. Source: Goldman Sachs.

4. Biofuels and renewable gas

Biofuels and renewable gas provide an alternative to fossil fuels in transportation, reducing carbon emissions. These renewable energy sources also store and use carbon captured from biomass, aiding in the transition to cleaner energy. And biofuels and renewable gas enable negative emissions when combined with carbon capture technologies, helping offset hard-to-abate sectors.

Goldman estimates that a not-too-shabby $15 billion in IRA incentives will go to biofuels by 2027 with most of the spending (about $13 billion) directed toward renewable/biodiesel, and the rest directed toward sustainable aviation fuel.

Some stock plays you could consider:

Agri-processors: Darling Ingredients (DAR), Archer Daniels Midland (ADM), Bunge (BG), and Green Plains (GPRE.O).

Oil majors and refiners: Calumet Specialty Products Partners (CLMT.O), HF Sinclair (DINO.L), Phillips 66 (PSX), and Valero Energy (VLO).

5. Environmental services

Landfill gas is the lesser-known and less-invested-in path to decarbonization. These gases are generated as organic waste in landfills decomposes, and primarily consist of methane and carbon dioxide. They have many uses, including being captured and used as a renewable energy source. The IRA introduced investment tax credits and production tax credits for landfill-gas-to-electricity projects, but even before that happened, these projects were seen as a high-returns investment opportunity.

Some stock plays you could consider: Waste Connections (WCN.TO), Waste Management (WM), GFL (GFL.TO), and RSG (RSG).

6. Clean energy

Clean power generation is essential for the energy transition. Power generation accounts for a lot of CO2 emissions in the US, so it’ll have to transition from coal and gas to renewable sources like solar, wind, and nuclear power. This shift presents tons of opportunities for businesses, including constructing renewable energy plants, developing transmission lines to connect them to demand centers, and modernizing the distribution grid to accommodate intermittent renewable resources.

Some stock plays you could consider:

Solar panels manufacturers and components and equipment companies: First Solar (FSLR), Maxeon (MAXN), Array Technologies (ARRY), and Sunrun (RUN).

Inverter and battery storage suppliers. Enphase Energy (ENPH), and SolarEdge (SEDG).

Wind energy supply chain: Vestas Wind Systems A/S (VWS.CO), General Electric (GE), and Siemens Energy (ENR1n.DE).

Electrical transmission and distribution networks: MasTec (MTZ).

7. Building efficiency and heat pumps

Buildings, both residential and commercial, account for about 40% of final energy consumption in the US, and it’s headed for a significant swing on the cost curve. The chart below shows the decrease in the carbon abatement price of various technologies used to decarbonize the buildings sector, associated with the implementation of the IRA. This is primarily driven by residential clean energy tax credits, energy-efficient home improvement credits, and energy-efficient commercial building credits, mainly benefiting the purchase price of heat pumps and hydrogen boilers.

The US buildings sector’s cost curve of decarbonization, before the IRA (light blue) and after (dark blue). Source: Goldman Sachs.
The US buildings sector’s cost curve of decarbonization, before the IRA (light blue) and after (dark blue). Source: Goldman Sachs.

Some stock plays you could consider: Johnson Controls International (JCI), and Lennox International (LII).

Overall, which part of the value chain you choose to invest in might depend on your investment time horizon. Some opportunities like hydrogen will take years to develop because of the infrastructure needed, whereas EVs will see much speedier growth.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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