Raymond James [RJF] Expert Sees Alternative Energy Adoption Acceleration: Demand for Wind, Solar and Hydrogen Power

July 24, 2022

Pavel Molchanov is the Managing Director of Renewable Energy and Clean Technology for Raymond James & Associates [ticker:RJF].

Pavel Molchanov, Managing Director, Renewable Energy and Clean Technology, Raymond James & Associates [ticker:RJF].

Pavel Molchanov is the Managing Director of Renewable Energy and Clean Technology for Raymond James & Associates [ticker:RJF].

He joined the firm in 2003 and has been part of the energy research team ever since.

He became an analyst in 2006, the year he initiated coverage on the renewable energy/clean technology sector. In this role, he covers all aspects of sustainability-themed technologies, including solar, wind, biofuels, electric vehicles, hydrogen, power storage, grid modernization, water technology, and more.

Within the energy research team, he also writes about the broader topics of geopolitical and regulatory issues, climate change, and ESG investing.

He has been recognized in the StarMine Top Analyst survey, the Forbes Blue Chip Analyst survey, and The Wall Street Journal Best on the Street survey.

He graduated cum laude from Duke University in 2003 with a bachelor of science degree in economics, with high distinction.

In the broader community, he is a member of the Board of Visitors at the University of North Carolina’s Institute for the Environment; a member of the Advisory Board at Cool Effect, an environmental project funding charity; and the founder of the Molchanov Sustainability Internship Program at the Royal Institute of International Affairs in London.

The Raymond James analyst develops a strong case for the acceleration in the adoption of alternative energy:

“To state the obvious, the most important news story on the planet right now is Russia’s war in Ukraine.

This war carries countless consequences, of which one of the most important is escalation in energy prices: oil, natural gas and coal, and as a result electricity as well.

We are seeing Europe, for obvious geographic reasons, as the most directly affected by the war in the sense of energy price increases. But the effects have a global footprint, and nobody is entirely immune.

In the oil market, prices are at the highest level in eight years, and not far from all-time highs.

This encourages, among other things, more adoption of electric vehicles, because that is the most direct way for consumers and businesses to avoid paying $120 a barrel.

Oil is a global market.

As a result, the boost to electric vehicle economics is manifesting itself around the world.

On the other hand, natural gas has a series of regional markets. It is in Europe where record-high natural gas prices are the most noticeable.

Europeans are paying more for natural gas than they have ever before. And in fact, several countries — Poland, Bulgaria, Finland, the Netherlands — have been cut off from Russian gas supply for explicitly political reasons.

The effect that record natural gas prices in Europe are having on energy transition is to accelerate the path towards renewable power.

The economics of wind and solar were pretty good before the dramatic spike in natural gas prices from the war.

Now those economics are even more favorable towards wind and solar, not to mention the geopolitical urgency of energy security. When the Russian government can simply shut off supply of natural gas to nearby countries as a kind of blackmail, that is a lesson for the rest of Europe to disentangle their economies from Russian energy as rapidly as possible.

Sanctions are also encouraging — and in fact mandating — the disentanglement of European economies from Russian energy.

But even if there were no sanctions, the fact that Russia has proven itself to be an unreliable supplier of energy is pushing European consumers and businesses to pivot their energy mix away from Russia.

In some cases, the current focus is on finding other sources of fossil fuels, but renewable and low carbon energy is very much part of the story too.”

The Raymond James [ticker:  RJF] analyst sees an opportunity as the bear market in the tech stoce k sector affects the prices of cleantech stocks.

“In the case of tech stocks, including cleantech, they are in a bear market.

We have seen, for the last six months, investors rotating out of growth-oriented, speculative stocks and towards more defensive, more established equities.

There is a range of macroeconomic reasons for this sector rotation. Some of it is simply the fact that growth stocks had outperformed for much of the previous decade and eventually it was only a matter of time before value outperforms.

There are also rising interest rates, which is pushing investors towards value and dividends.

There are supply-chain problems across a wide range of industries, including many of the cleantech manufacturing businesses.

This is not about any one industry; rather, this is a broader shift in equity market conditions with growth stocks for the time being out of favor.

Growth stocks, including cleantech, were extremely popular in 2020 during the initial crisis period of COVID.

In 2020, the average cleantech stock was up 200%, which is by far the best year ever.

Last year, the average cleantech stock was down 30%, and this year, down about 25% since the beginning of the year.

There is a disconnect where the fundamentals of many of these industries — electric vehicles, solar, green hydrogen — I would argue have never been better.

But share prices have been underperforming because of macroeconomic conditions and changes in investor preferences.

The result is that valuations have come down, and multiple compression has occurred. In many cases, this presents attractive opportunities for investors with a longer-term perspective.

Companies that used to trade at 30 times EBITDA might now be trading at 15 times EBITDA.”

The Raymond James [ticker: RJF] stock picker has some interesting portfolio recommendations:

“A company that is uniquely well positioned in the context of Europe’s energy security urgency is ADS-TEC Energy (NASDAQ:ADSE).

This is a German company, and 72% of its revenue came from Germany last year, but it is listed on the NASDAQ. ADS-TEC Energy provides ultra-fast charging equipment.

This is the leading edge of electric vehicle charging technology.

For Europe to become less dependent on Russian oil without buying even more from the Middle East, the solution needs to be electric mobility.

As it stands, almost 25% of the new vehicles sold in Europe are electric.

Within three years, that will probably be close to 50%. So that means Europe needs more and more charging infrastructure.

ADS-TEC Energy is one of the few public companies that is directly tied to that infrastructure buildout. This is a small-cap, very-high-growth company.

For people that are looking for something a little bit larger, I would point to Bloom Energy (NYSE:BE).

It is the world’s largest provider of stationary fuel cells, which are used in data centers, hospitals, and office buildings to generate clean electricity on site.

The electricity can be from natural gas or from hydrogen, in which case, there is zero CO2 emissions.

Also, Bloom will soon be launching its electrolyzer product. The electrolyzer is literally the inverse of a fuel cell.

Instead of using hydrogen to generate electricity, an electrolyzer takes electricity and water and makes hydrogen.

This is very relevant in the context of disentangling Europe from Russian energy, because a portion of the Russian natural gas is used to make hydrogen.

An electrolyzer enables the production of hydrogen without natural gas. Green hydrogen is a nascent, fast-growing market, and Bloom is about to enter it.”

Raymond James [ticker: RJF] is not the only investment bank developing a case for building an alternative energy portfolio.

Michael Webber, CFA, co-founded Webber Research & Advisory and Armistead Street Capital Partners

Michael Webber, CFA, co-founder Webber Research & Advisory and Armistead Street Capital Partners

Michael Webber, CFA, co-founded Webber Research & Advisory and Armistead Street Capital Partners in 2019, and has spent the past 15 years in energy infrastructure, renewables and transportation finance.

Mr. Webber was previously a Managing Director & Head of LNG, Shipping & Equipment Leasing Research at Wells Fargo, prior to which he was a senior member of the Transportation Equity Research team at Deutsche Bank.

Mr. Webber was named to Institutional Investor’s (I.I.) All-America Research Team for six consecutive years, finishing as the #1-ranked Shipping & LNG analyst in 2019, 2018, 2017, 2016 and 2015, and part of the #1-ranked Natural Gas team in 2019.

In 2020, Webber Research & Advisory finished as runner up, and was the only new research platform to receive ranked I.I. recognition across any of the survey’s 60+ sectors.

Mr. Webber was named the sector’s best stock picker by the FT in 2013, #2 in 2012, named in Business Insider’s Rising Stars of Equity Research Under 35 in 2017, and is a NAMEPA award winner for his work in ESG.

He graduated from the University of Virginia in 2004.

Greg Wasikowski, CFA, is a Senior Analyst, Associate Partner and Co-Founder of Webber Research & Advisory, with a focus on renewables, infrastructure and alternative fuels

Greg Wasikowski, CFA, is a Senior Analyst, Associate Partner and Co-Founder of Webber Research & Advisory

Greg Wasikowski, CFA, is a Senior Analyst, Associate Partner and Co-Founder of Webber Research & Advisory, with a focus on renewables, infrastructure and alternative fuels.

Mr. Wasikowski helped lead Webber Research to a runner-up finish in Institutional Investor’s (I.I.) 2020 All-America Research Team, becoming the only new platform to receive ranked I.I. recognition across any of the survey’s 60+ sectors.

Prior to co-founding Webber Research & Advisory, Mr. Wasikowski was a senior member of the #1 I.I.-ranked Wells Fargo LNG, Shipping & Equipment Leasing team in 2019, 2018, and 2017, with a focus on energy infrastructure and shipping.

Mr. Wasikowski began his career as an accounting consultant for RSM, a global leader in audit, tax and consulting services, where he focused on middle-market, growth-focused organizations in the U.S.

Mr. Wasikowski was a student athlete at Bucknell University, where he majored in Accounting and Financial Management while also captaining Bucknell’s Division 1 baseball team.

Mr. Wasikowski is also a CFA Charterholder.

“I think there are going to be several winners over the longer term in terms of forms of energy and/or power that take more significant market share from incumbent sources.

So we certainly think that there is going to be a place for hydrogen in different verticals, but it’s not going to compete extremely well with BEVs — battery electric vehicles — on the retail side of the business.

Yet for large pieces of infrastructure, micro grids, stationary power, off-grid charging, there are a number of different interesting applications on the hydrogen side.

And then, wind and solar will take a part of the mix. And we don’t know that there’s a consensus around what the right mix level ultimately is. We think it’s going to be significantly wider than we’re at today.

But transitioning to a grid based entirely on renewables doesn’t make sense either. And I actually think we’ll see a higher mix of nuclear within that mix on a long-term basis than what people have expected today.

But we certainly focus a significant amount on alternative fuels.

So we have a background in energy and industrials and alternative fuels.

We like to say we focus on the aspects of renewable energy that are energy transition, that are grounded in industrial reality.

So it’s not the pie-in-the-sky, super sexy hydrogen truck parked in every driveway.

We’re talking about fuel distribution, backup power for telecom, dual fuel charging — so using methanol to generate hydrogen and electricity at the same time, which means you’re able to fuel multiple forms of vehicles or industrial equipment at once.

And then, we’re starting to look at alternative fuels for primary propulsion both on the marine side, on the airfreight side, and on the land-based transportation side. So we think what is ultimately going to drive maybe a tighter slope on that adoption is going to be that you’re seeing energy majors and others are going to really be plowing considerable resources into alternative fuels to meet customer demands.

And that’s going to help drive adoption a lot more quickly than entities being originated from scratch, so kind of scrappy upstarts.

We need those for sure, but we also need those large swaths of capital to come in to drive the pace of adoption.

And it’s also worth noting that the biggest headwind over the near term for that pace of adoption is going to be what’s happening within traditional energy and traditional fossil fuels.

We’re looking at tight supply curves for natural gas and LNG for crude and refined product. And so you’re going to have a pull, from a capex perspective, and to some of those more traditional lanes, just to be able to get those cost curves back in check.

So maybe there’s a bit more competition for that capital expenditure than there might have been a year or two ago. But there’s ultimately going to be a natural balance there.

And then typically, generally speaking, the dollars that are spent on alternative fuels and renewables, as significant as they may be, are generally dwarfed in scale by what’s typically needed to bring new projects online from a large-scale energy perspective. So not that significant investment within those two lanes are mutually exclusive.

And we think you’ll see continued investment, actually more investment in natural gas in the United States than people expect.

It’s sorely needed both in terms of export and in terms of domestic consumption.

And at the same time, you’re going to see people continuing to invest in an energy mix still 20 or 30 years away in terms of alternative fuels and renewables…”

Webber Research and Advisory sees some specific stocks on the upside as well but not as well known as the Raymond James [ticker:  RJF] analyst:

“…Names like Fusion Fuel (NASDAQ:HTOO), which is a green hydrogen producer in Europe, primarily in Portugal, but expanding into Spain and elsewhere — they’re blending hydrogen with natural gas. So you’re literally producing it and dumping it into the grid on a 30-year basis, which isn’t particularly sexy, but it is effective.

Fusion Fuel is actually a very good answer for that, because they are a public company; they already went through the de-stacking process, and they’re traded on a U.S. exchange.

But at the same time, they don’t get the same sort of attention, the same sort of headlines, and certainly not the same sort of valuation premium that some of its peers get, like a like a Plug (NASDAQ:PLUG) or a Ballard (NASDAQ:BLDP) or a Bloom (NYSE:BE) or a FuelCell Energy (NASDAQ:FCEL).

They’re a bit more understated.

And the reason being is that they’re very much earlier in their process, still on the pathway to profitability, but at the same time, demonstrating their concept, demonstrating their technology, which could end up being game-changing for green hydrogen, especially in certain geographies.

And there’s a new technology, a new promising method coming out seemingly every day and some even get some funding here and there, and get some attention.

But there’s so much out there that it’s hard to pluck one out that is going to be dominant in the mix of clean energy in the future. But Fusion Fuel is probably the closest thing to that.”

Get these complete interviews and more, exclusively in the Wall Street Transcript.

Pavel Molchanov, Managing Director, Renewable Energy and Clean Technology, Raymond James & Associates [RJF]

email: pavel.molchanov@raymondjames.com

Michael Webber, CFA, Greg Wasikowski, CFA, Webber Research & Advisory

email: info@webberresearch.com