Column: Grid specialist firms on investors' radars after IEA report: Maguire

Myr

18/10/2023 13:00

(Repeats story that ran earlier in the day, with no change to
text)
    By Gavin Maguire
       LITTLETON, Colorado, Oct 18 (Reuters) - A detailed
report on the state of the world's electric grids has revealed
that investment in the critical transmission networks has lagged
the growth in renewable energy generation, and poses a severe
bottleneck risk for the global energy transition. 
    The International Energy Agency (IEA) report published this
week revealed that a growing volume of renewable energy
generation is being stalled as developers wait for projects to
be connected to national electricity grids. 
    Since the report's release on Monday, share prices of
companies engaged in building electric grids, or with products
and services tied to grid modernisation, have outperformed firms
that are focused on renewable energy generation. 
    This suggests that some investors anticipate waves of broad
interest in electric grids may emerge following the IEA report,
and that companies with specific expertise or product lines that
can help alleviate the building connectivity bottlenecks could
benefit from that growing investor attention.
    
    GROWTH MISMATCH
    A key problem highlighted by the IEA is that the power from
new solar and wind farms is becoming available at a faster pace
than can be channelled by utilities onto current grid networks,
which often require significant upgrades and new equipment to
handle large loads of electricity generated by renewable power. 
    Roughly 80 million kilometres (49.7 million miles) of global
electric grids need to be added or refurbished by 2040 in order
to integrate the planned increases in electricity generation
from renewable sources, and allow for the phase out of fossil
fuels, according to the report.
    "At least 3,000 gigawatts (GW) of renewable power projects,
of which 1,500 GW are in advanced stages, are waiting in grid
connection queues – equivalent to five times the amount of solar
PV and wind capacity added in 2022," the IEA says.
        Of course, the grid congestion issues highlighted by the
IEA report have been known by industry trackers for some time,
so the existence of struggles within such a critical conduit of
global power markets is not new.
    However, the IEA's estimate of the scale of the connectivity
backlogs is new, and offers fresh evidence of the urgent task
facing power producers in every market.
    What's more, given the high levels of government and
corporate engagement in the energy transition, it is likely that
the IEA's new findings will gain attention among influential
decision makers who are tasked with aiding energy transition
efforts.
    
    FOCUS ON EXPERTISE
    That such a large backlog of new clean power must wait to be
connected to consumers has cast fresh focus on the critical role
that electric grids will play in enabling the global energy
transition.
    More specifically, the grid congestion issue has highlighted
the potential opportunities available for companies that can
help solve some of the current backlog issues, and help grid
operators scale up the volumes of renewable power that will be
integrated into existing grids over the coming years. 
    The share prices of certain firms that hold these particular
skill or product sets have seen signs of heightened buying
interest this week since the IEA report was published,
indicating that some investors may be already placing bets that
grid specialist firms may be primed for growth going forward. 
    Among the stocks that have gained this week are MYR Group
 MYRG.O , a U.S.-based holding company specializing in
electrical construction services, and Mastec Inc  MTZ.N , which
has a dedicated division offering energy transition solutions. 
    Both U.S.-listed stocks gained roughly 6% over the first two
trading sessions this week, LSEG data shows.
    Quanta Services  PWR.N , which upgrades and repairs
transmission networks, and Fluor Corp  FLR.N , a construction
services firm with a power and infrastructure division, also
rallied on U.S markets.
    Further afield, Ireland-based power management company Eaton
Corporation  ETN.N  has also gained ground in recent sessions,
and year-to-date is up more than 34%. Germany's E.ON  EONGn.DE ,
which has a major energy networks division, is up roughly 17%
this year, LSEG data shows.
    All these companies, alongside several others around the
world which are building out divisions dedicated to maintaining
or upgrading electrical grid networks, should benefit from
increased interest from utilities and grid operating firms as
they undertake the necessary grid expansions in the years ahead.
    Firms that develop smart meters and other grid management
tools are also expected to see growth in demand for their
services by power companies.  
    In turn, higher engagement from businesses and local
governments should result in higher revenues and potentially
improving operating margins for these companies, which will
benefit stockholders and other investors.
    Exactly how decision makers may act on this new focus on
grid congestion remains to be seen. But judging by the stock
price action in recent days, there are a growing number of
investors who expect key companies to play an important role.
     


    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Electric grid stocks vs ICLN renewable energy ETF    https://tmsnrt.rs/45uO7H6
Grid specialist stocks perk up after IEA report reveals growing
renewables connection backlog    https://tmsnrt.rs/3S3LzN3
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting By Gavin Maguire; Editing by Muralikumar
Anantharaman)
 ((gavin.maguire@thomsonreuters.com; +720 295 6101;))