'Massive untapped demand': The $3 trillion opportunity ASX 200 energy shares could be missing

Deakin estimates that Islamic finance is almost a $3 trillion global industry.

| More on:
Group of children dressed in green hold up a globe relating to climate change.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX 200 energy shares are committed to significant emissions reductions
  • Major renewable energy infrastructure projects don't come cheap
  • Sharia-compliant Islamic bonds would likely see strong demand to support green energy projects in Australia

S&P/ASX 200 Index (ASX: XJO) energy shares look to be missing out on some potentially game-changing funding.

ASX 200 energy shares, including AGL Energy Limited (ASX: AGL) and Origin Energy Ltd (ASX: ORG), alongside smaller energy shares outside the ASX 200 like Genex Power Ltd (ASX: GNX), are all working to transition toward cleaner and eventually wholly renewable energy sources.

Net zero by 2050 comes with a hefty price tag

According to Sohel Azad, an Islamic finance expert at Deakin Business School:

Public pressure to develop large-scale, high-cost, renewable energy infrastructure is huge. Australia has a bold plan to transform its energy market. Prime Minister Anthony Albanese plans to legislate ambitious carbon reduction targets, including net-zero by 2050, and the need to strengthen energy generation capabilities has only been exacerbated by the current gas crisis.

But the costs of developing renewable energy infrastructure on a national level can be prohibitive. Which is why Azad points to the as yet untapped potential of additional international funding sources to help Australia go green.

ASX 200 energy shares missing out on 'massive untapped demand'

According to Azad, sharia-compliant Islamic bonds would likely see strong demand to support green energy projects in Australia, like large-scale battery grid storage.

The bonds, called sukuk, don't pay interest to their holders. Instead, they're classified as securities, backed by tangible assets which enable investors to garner a share of the profits (or losses) when the assets are sold or traded.

Azad says that selling sukuk on the ASX could offer investment certainty for the energy transition.

Sukuk can only be used on ethical investments, "a natural fit for funding green energy projects".

"Sukuk has already been introduced in many international markets and Australia must be quick to take advantage of the opportunities," he said.

And the opportunity appears vast, with Deakin estimating Islamic finance is almost a $3 trillion global industry.

Which could open the door to some hefty funding for ASX 200 energy shares' green projects.

"We simply don't have the public or private funds in Australia to deliver some of these ambitious projects," Azad said. "By selling sukuk on the ASX, and cross listing in other exchanges overseas, the government and corporates can attract more foreign investment in renewable energy projects."

Azad added:

There is a massive untapped demand from Islamic investors for sustainable investment opportunities like this that are sharia compliant, and Islamic finance firms are particularly interested in investing in projects that address the United Nation's Sustainable Development Goals.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Energy Shares

Why is the Beach Energy share price racing higher on Thursday?

This energy producer delivered some big news this afternoon.

Read more »

A person is weighed down by a huge stack of coins, they have received a big dividend payout.
Energy Shares

Own Ampol shares? Get ready for your monster dividend payment

Ampol investors are about to enjoy their largest-ever dividend.

Read more »

A man sees some good news on his phone and gives a little cheer.
Energy Shares

Buy Woodside shares for a 20% gain and 4.5% dividend yield

Morgans thinks investors could get big returns from this energy giant.

Read more »

Woman holding $50 notes and smiling.
Dividend Investing

A 36% yield from this ASX dividend share? Here's how these forward-looking investors made it happen

Some savvy passive income investors are earning a 36% yield from this ASX dividend star.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

Happy coal miner.
Energy Shares

How these ASX 200 energy shares could unexpectedly burn brighter

ASX 200 energy shares are facing rising global demand for their products.

Read more »

Worker inspecting oil and gas pipeline.
Energy Shares

ASX energy shares losing charge amid fresh warnings of gas supply shortfalls

Many energy commodity prices fell overnight and this is hitting ASX energy shares today.

Read more »

A miner stands in front oh an excavator at a mine site
Energy Shares

'We have reached a bottom': 5 ASX uranium shares leaping higher this week

ASX uranium stocks have enjoyed explosive share price growth over the past year.

Read more »