Renewable energy has moved from the fringes into mainstream use and is expected to rapidly become a globally dominant energy source. And while the United States, Europe and China currently lead the way, many other countries are starting to take the energy transition seriously. This means that other exciting developments await us on the horizon.
Countries accelerate on renewables
According to the International Energy Agency (IEA), the world‘s renewable energy capacity is set to increase by 107 gigawatts (GW), the largest increase ever, to over 440 GW in 2023. To put this into context , just think that the 2023 expansion is greater than the entire installed electricity capacity of Germany and Spain combined. China’s reopening is making a significant contribution to onshore wind capacity, which is set to increase by 70% this year to an all-time high of 107 GW.
Solar PV, including both large-scale installations and small distributed systems, accounts for two-thirds of the projected global capacity increase for renewables this year. In recent months, many countries, especially those in Europe, have actively sought to disengage from fossil fuels, resulting in this sudden surge in renewable energy.
Europe’s response to the energy crisis
The war in Ukraine has prompted Europe to urgently reduce its dependence on Russian natural gas imports. Renewable energy has turned out to be the way to do it. In light of recent policy actions by European governments, the IEA has corrected its forecasts for 2023 and 2024 related to the increase in energy capacity from renewable sources in Europe, with an increase of 40% compared to before the war.
Policy and regulatory support is at the heart of this effort. According to the IEA, in the last 18 months European countries have made more efforts to facilitate permitting procedures related to renewable energies than they have done in the entire previous decade. And, crucially, the economic aspect is also becoming reasonable. Low-cost wind and solar PV will replace about 230 terawatt hours (TWh) of expensively generated fossil fuels over the period 2021-2023, helping to lower wholesale electricity prices across all countries, according to the IEA. the European markets.
New photovoltaic technology
Today, technological revolutions such as the one brought about by artificial intelligence are enthusiastically welcomed by the masses and it is rarely suspected that there is a hand of the devil. Exciting innovations are also taking place in the renewable energy sector and are very welcome.
One of these is floating photovoltaics. Given the scarce availability of land, floating installations represent an emerging technology that can help sustain high growth rates in solar energy capacity. According to Wood Mackenzie, the compound annual growth rate of floating solar is expected to increase by 15% over the next ten years. 15 countries are projected to exceed 500 megawatts of cumulative floating PV installations by 2031, with China, India and Indonesia leading the way.
New Cash Collects with fixed monthly premiums
An alternative way to invest in the aforementioned securities is to use the Investment Certificates such as the new Cash Collect Callable Fixed Premiums on equity baskets recently issued by BNP Paribas on the SeDeX market of Borsa Italiana. The new products, with a three-year duration (with expiry on 26 May 2026), envisage a fixed monthly premium between 0.70% and 1.45%, regardless of the performance of the underlyings that make up the basket.
The new Certificates therefore combine a guaranteed fixed premium with the possibility of early recall at the option of the Issuer. Therefore, both the fixed monthly premiums and the early repayment option are not linked to the performance of the underlying. Furthermore, investors may consider this issue as an attractive solution to diversify their portfolio by investing in equities from different sectors, such as the luxury sector, banking, insurance, energy, travel or technology.
The Certificate on Renewables
The new range also includes the Certificate on certain American stocks active in the renewable energy sector. This is the product on Sunrun, SolarEdge and Sunnova (ISIN NLBNPIT1Q6O1) which pays a fixed premium of €1.45 of the Notional amount on a monthly basis, regardless of the performance of the underlyings. Starting from the ninth month, the Issuer (BNP Paribas) has the option of exercising the Early Redemption option: in this case the Certificate matures in advance and pays, in addition to the monthly premium, the notional amount (100 euro). Conversely, if the Issuer does not exercise the Early Redemption option, the Certificate pays a premium of 1.45 euro until its natural maturity.
At maturity, if the listing of all the securities making up the basket is greater than or equal to the Barrier Level, the Certificate expires and pays, in addition to the monthly premium, the notional amount (100 euros). If the price of at least one of the underlyings is instead lower than the Barrier Level (40% of the initial value of the underlyings), the Certificate expires and pays a premium of 1.45 euro, plus an amount commensurate with the performance of the worst of the underlyings, with consequent partial or total loss of the Notional Amount.
The novelty of the “Callable” option
An important novelty that characterizes this issue is the possibility for investors to receive an early redemption of the Certificate at 100% of the Notional Amount starting from the ninth month: from 23 February 2024, in fact, on a monthly basis, the Issuer has the right to Early call the Certificate by giving investors at least 3 business days notice.
The investor receives a guaranteed fixed premium at the end of each month, while the possibility of early repayment allows you to benefit from an optimization of the return.
Stocks currently underpriced by analysts
The consensus gathered by Bloomberg on the three titles in the basket, which we report in the table above, is essentially positive. Over 70% of the analysts who follow Sunrun, SolarEdge and Sunnova recommend the purchase (buy) with a small minority suggesting keeping the shares in portfolio (hold) and the almost absence of selling (sell). Furthermore, the 12-month average target price indicates that these stocks currently appear vastly underpriced and from which analysts expect potential upsides within the next 12 months.
This makes the underlyings of the basket suitable for strategies with a Cash Collect Callable Fixed Premium, i.e. for those who have a lateral or moderately bullish view of a given sector (in this case the renewables sector) to obtain an attractive return at the time of natural maturity or early repayment at the discretion of the issuer.
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