Victory Hill Capital Group chief executive officer Anthony Catachanas has warned that the sustainable market in developed countries is saturated.
While there is “some structural demand”, he told Money Marketing that emerging markets do not see the same level of capital inflows.
He said: “The majority of the funds that we find in the world are oriented towards either OECD markets or developed markets outright. A lot of flow of capital goes in that direction.
“There’s not as much capital flowing into emerging markets, but that is where structural demand is going to come from in the future for energy in general.
“That is where the biggest impact in energy can be had from both an environmental and social standpoint.”
According to the International Energy Agency, the world population is set to rise from 7.7bn today to over 9.6bn in 2050.
Catachanas added: “The majority, if not all of that growth comes from emerging markets.
“The issue in energy is that the energy market is not the same thing as an economic or financial market. The energy market in a country can be extremely developed, while the economy is less so.
“The return opportunity is unquestionably there, but people are more often than not scared about what they do not know.
“Our biggest fault is that we want to drive more capital into resolving the problems, but we often shy away from having the courage to drive capitals in the right direction.”
Ten largest CO2 emitters
| Country | CO2 emissions (in tons) |
| China | 10,432,751,400 |
| USA | 5,011,686,600 |
| India | 2,533,638,100 |
| Russia | 1,661,899,300 |
| Japan | 1,239,592,060 |
| Germany | 775,752,190 |
| Canada | 675,918,610 |
| Iran | 642,560,030 |
| South Korea | 604,043,830 |
| Indonesia | 530,035,650 |
Source: Worldometer
He mentioned Mexico as an example of emerging country with opportunities in sustainable investment, especially in biofuels.
Catachanas said: “The majority of the economy in Mexico relies on long haul transportation, but their grid system is not developed enough to be able to facilitate the electrification of the transportation system.
“The only alternative in the case of Mexico is to create a big pool that promotes biofuels first, before electrification is even entertained.”
He also named Brazil as an emerging market with a significant potential in sustainable investment.
Catachanas added: “Brazil is more ready for the 21st century in the energy transition than we are here in developed markets.
“The energy mix in Brazil has over 120 gigawatts of hydropower generation, it has the largest hydropower market on Earth.
“It is more ready to receive that renewable power and the intermittency that comes with it than other markets around the world. It is because they have developed their energy mix later and through hydropower in particular.
“The storage properties and the grid balancing properties of hydro are second to none. They are more advanced than we are and people do not realise this.”
In addition, Catachanas explained that power generation is bound to change in Europe.
He said: “Europe is saturated with renewable power. The system and the grid cannot cope with the amount of renewable power generation.
“We are experiencing more grid imbalance on the grids in European contexts than ever before.
“If you do not have a technology that balances the intermittency as renewable power generation is becoming a big contributor to your grid, you create more dependence on hydrocarbons and also more volatility and power prices.
“That is what is happening in continental Europe at the moment. Power prices are going through the roof, because the volatility in pricing is now more than ever linked to the issue of too much renewables on the grids, but not enough balancing mechanisms that complement them.”
Wind and solar have a nasty little disaster hidden inside them. When the energy grid is saturated the market price of electricity is set by the price at which the last supplier is willing to join the bidding (ie zero at times of saturation). With huge over-capacity at all times except when there is a static high pressure system over the country (ie quite often), the national grid will not be able to maintain payments to switch suppliers off because consumers and government can ill-afford a whole heap more costs for absolutely nothing. This leaves the assumed economics in tatters.
So beware recent launched and imminently launching green infrastructure/energy funds. Asset prices are absolutely crazy across Europe and the possibility of any meaningful return is extremely limited. Some of these funds will engage in the usual self-valued write up or marking to a market price that is far from deep and liquid, but shallow and marginal – for a while and then crash like crazy when this market blows out.
On those metrics, it looks like a classic scam. But for a few obviously rogue operators who won’t invest a penny of their subscriptions (as normal), these won’t be rip offs per se. Instead they will just be a case of buying at the top of the market. Advisers recommending this stuff, or even doping the old “insistent client” routine will cop a sack of compensation claims because they will have no explained quite how volatile these “steady as she goes” funds can be and DIY investors are going to lose a bunch of cash with almost zero grounds for complaint providing the fund prospectus has been written properly. If they haven’t (I’ve seen a couple), or the manager has a conflicts of interest by shovelling assets into their fund that they have aggregated and warehoused themselves and they will be toast. If I were the FCA I’d be sniffing around this sector right now.
But, I’m not. So it won’t happen until its all too late again.