Decades of innovation and supply chain investment have reduced renewables costs dramatically to the point where solar and wind resources are now often the most competitive when measured by levelized cost of energy. This improvement in unit economics has removed one of the fundamental barriers that has prevented wholesale transition away from carbon-intensive power sources. Over the past several years, the role of policy to adopt renewable energy has shifted from one of “enabling” to that of “accelerating.” Self-preservation is a powerful motivator, and one that (most) politicians are well versed.
However, beneath these large and noble figures is a reality that policy making is a messy process. Often times, it creates a myopic focus on singular goals while ignoring, or discounting, consequences elsewhere. These consequences typically manifest when the pesky limits of our physical world get in the way of an ambitious plan.
As public policy works to accelerate the pace of decarbonization, biophysical limitations are likely to create frictions in the process. The impacts will be wide reaching and felt in mature industries like mining as well as cutting-edge industries like batteries. We believe these frictions will create new business models and innovative solutions that will offer attractive investment opportunities as capital and human ingenuity work to solve the most important challenge of our lifetime.
Andrew Leger, senior portfolio manager on the Mellon global equity team, Todd Wakefield, senior portfolio manager on the Mellon Smid Mid Cap team, and William Eckel, research analyst at Mellon.
Doc ID: 639807