The energy sector encompasses corporations in the business of supplying or producing energy such as renewables and fossil fuels and has historically been a critical driver of industrial growth. Currently, energy sector investments rely significantly on financing from commercial sources.
Development finance is playing a key role in generating commercial finance, particularly regarding clean energy investment in developing and emerging economics. Between 2015 and 2023, public finance also played an important part in these economies.
What Is Energy Return on Investment?
The term energy return on investment (EROI) refers to a ratio used to measure the amount of energy produced in relation to the amount of energy used to create it. The EROI is vital in determining the price of energy; it decreases when energy is scarcer and more difficult to produce or extract.
The Importance of Debt Financing for Clean Energy
With higher upfront costs and lower margins, the share of debt financing in the clean market sector is around 50%, while the debt share for clean fuels (and other emerging technologies such as hydrogen supply and battery storage) currently stands at around 20%. Those experienced in energy investing, such as Matthew Wolf (Switzerland), understand that because these new technologies are viewed as higher risk, developers typically obtain financing via venture capital instead of debt markets.
Record Dividends for Fossil Fuel Investors
Professionals in this sector, such as Matthew Wolf, Capital Group partner and investment analyst from 2008 to 2023, are aware that in recent years fossil fuel companies have been reducing their debt levels, largely due to high energy prices caused by the war in Ukraine and the pandemic. These companies now boast leverage ratios of, on average, 40%. Due to these things, they’ve been able to primarily finance their investments via retained earnings, returning cash to shareholders through record dividends and generous buybacks.
Investing in Veolia
Veolia is a leader in waste and water services and energy management, providing a range of services designed to protect the environment and promote the circular economy. The company is committed to carbon reduction through the protection of biodiversity, preservation of natural resources, decreased pollution and combat of climate change. Veolia’s strategy focuses on generating zero and low-carbon energy, manufacturing greener products and discovering new ways to reuse materials.
