UBS analysts highlighted that the global shift from fossil fuels to renewable energy is well underway, with new energy systems expected to emerge in the coming years driven by increased capital investment.
Currently, fossil fuels dominate the global energy landscape, accounting for over 80% of electricity generation. However, this trend is set to change significantly in the coming decades. According to the International Energy Agency (IEA), renewable and clean energy sources are projected to contribute 60%-65% of energy generation by 2050.
While fossil fuels may still be required for sectors that are challenging to decarbonize, renewables are anticipated to power the majority of the economy. Annual investments in the energy sector are expected to rise from the current $2-$3 trillion to $4-$5 trillion within the next decade.
Electrification is poised to be a key driver of this transformation, with a focus on cleaner and more efficient electricity generation methods.
UBS Strategy: Investing in Electrification and Decarbonization
UBS has identified 37 stocks in the Europe, Middle East, and Africa (EMEA) region that are well-positioned to benefit from the energy transition. These stocks span various sectors, including utilities, capital goods, mining, chemicals, building and construction, energy, and automobiles.
The capital goods sector accounts for 43% of UBS’s selected portfolio, as it is expected to gain the most from the energy transition. Utilities rank as the second-largest sector, with chemicals and mining forming the smallest portions of the selection.
Among its top picks in the capital goods sector are Vestas Wind Systems A/S (CSE:VWS), Schneider Electric SE (EPA:SCHN), Atlas Copco AB (ST:ATCOa), and Siemens AG (ETR:SIEGn). Vestas specializes in wind turbine manufacturing, while Schneider Electric and Siemens are major players in electricity grid solutions.UBS analysts identified electrical equipment manufacturers as some of the earliest beneficiaries of the energy transition. They anticipate accelerated investment in renewable energy generation and the supporting infrastructure, driving growth in this sector.
Utilities are also expected to gain from the shift to renewable energy. European utilities, in particular, have been actively working on replacing thermal power generation with renewable sources. However, progress has been mixed due to disruptions in energy markets caused by the Russia-Ukraine war. UBS highlighted EDP Energias de Portugal SA (ELI:EDP), Oersted AS (CSE:ORSTED), and E.ON SE (ETR:EONGn) among its top utilities picks.
Energy companies stand to benefit as well, leveraging their expertise in commercial energy markets and strong financial positions. UBS’s preferred choices in this sector include BP PLC ADR (NYSE:BP), Neste Oyj (HE:NESTE), and TotalEnergies SE (EPA:TTEF).
