Why investing in the Green Transition will prove far more profitable than investing in crypto
Disclaimer: The following are not investment advice. It is merely the opinion of the writer. Do not risk your money based on something you read online. Do your own research or consult a certified professional!
If something was made clear during the last 12 months is that the world is changing much faster than we have anticipated and the most important perhaps of all the changes is the need of transitioning to a green economy.
This was first highlighted during the COP26, where the importance of accelerating the decarbonization of the economy to avoid climate change was a central topic. To that, the increase of natural gas, oil and electricity prices were added, accompanied by the strategic decision of the developed world to cut ties with the Russian regime, a key supplier of natural gas.
The common long-term response to all those challenges is the adoption of renewable energy resources, which along with some needed innovations, such as energy storage solutions, can help developed countries to become independent of the need for energy imports and reduce both carbon emissions and energy costs.
But, apart from a step towards a better and more sustainable world, the green transition poses a great opportunity for investors to get high returns in the long run, especially in the EU. Here is why:
First of all, green transition companies, especially renewable energy producers in the EU, receive significant state funds to scale up and innovate, as after the Russian invasion EU is in a hurry to replace natural gas with other energy sources. Even before the events in Ukraine, the EU had planned to allocate at least 38% of its NextGenerationEU initiative and multiannual budget of approximately € 2 trillion in supporting the green transition.
Furthermore, electric energy prices in the EU are determined by the “target model”. Under this model, the electricity wholesale price is equal to the marginal cost of producing the last needed MWh; Then MWhs are sold from producers to distributors from the cheapest to produce to the most expensive. This way, the lower the cost is for an energy producer compared to the last MWh sold, the higher the profit, as cheap MWhs are sold at the same price as the expensive ones.
This is done so that efficient energy companies scale up and eventually crowd out inefficient ones. And the most efficient electricity producers are those that generate electricity from renewable energy, which has zero marginal cost (It costs nothing to let your PVs a few more hours under the sun or for wind turbines to spin a few more times). This means that electricity producers from RES enjoy excessive profits and will continue to do so for a long time (EU expects that the green transition to be completed by 2050).
To sum things up, by investing in companies that are related to producing electricity from RES, you are essentially investing in a sector that is strategically important to succeed, has gigantic state support, and participates in its market with extremely favorable advantages compared to its competitors (who use fossil fuel and natural gas to produce electricity), with guaranteed excessive profits for the medium to long term.
Compared to crypto investments, which are highly volatile and lack transparency, investing in green transition seems like a sure bet!
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