While electric vehicles, batteries, solar panels and windmills dominate headlines around the energy transition, they are only a fraction of the whole project. Boring bits of the system may do just as much to propel the transition forward and the companies that provide them may be much more attractive investments.

Looking at the Orbis SICAV Global Balanced Fund, 17% is invested in the stocks and bonds of companies which play at least some role in the energy transition. To sketch out how the parts of the value chain and how some of our investee companies within it fit together, let’s start with a typical offshore wind project, the Galloper wind farm off the eastern coast of England.

The core of the project is 56 windmills built and maintained by Siemens Gamesa, a unit of Siemens Energy. Helix, which operates a fleet of undersea robots and support ships, conducted the undersea trenching and burial work for the 56 cables connecting those turbines to an offshore substation, and Prysmian, a power and telecommunication cable manufacturer, provided some of the high-voltage cables to connect the project to adjacent windfarms and then 45 kilometres back to shore.

As the world adopts broadly dispersed power farms located far away from cities, our energy system will become much more cable intensive. Cables can represent a quarter of the cost for an offshore wind project, and to support wind farms and international interconnectors, the world will need to roll out about 5 000 kilometres of subsea cables every year (outside of China, which uses its own suppliers). That is good news for Prysmian, which is the largest of only three major Western firms with the specialised factories to make those cables and the specialised ships to lay them.

All that underwater work also augurs well for Helix. It turns out that the skills (and robots) that are useful for servicing offshore oil wells transfer quite well to servicing offshore wind farms. Wind farms are not the only source of growing cable demand. Existing grids need cables too, in part because the world’s electric grids are ageing. On average, grid equipment in the US and Europe is old and being operated beyond its designed lifespan.

In some places, people are charging Teslas using cables installed before World War II. The US Department of Energy reckons grid infrastructure will need to be expanded by 60% by 2030. Globally, that translates into US$650 billion of estimated grid investment every year, double the level of recent years. A system juggling intermittent power sources, batteries, home solar panels, powerhungry artificial intelligence data centres, and electrified cars and factories will be both more burdened and more complex than the grid is today.

More electricity needs to travel longer distances in more directions to more locations, and Siemens Energy and Mitsubishi Heavy Industries (MHI), which both make electricity transmission and distribution equipment, are well placed to provide the increasingly sophisticated transformers, switchgear, converters and substations the new grid will require. Intermittency (power sources that are not always on) poses challenges beyond just grid infrastructure.

As systems become more reliant on wind and solar power, they need to keep the lights on when the wind isn’t blowing and the sun isn’t shining. Drax, a UK power generator, provides reliable baseload electricity, as it can run its biomass plant 24/7. Drax also plays a role in energy storage with its elegantly simple pumped hydro facility in Scotland. When power is plentiful and cheap, Drax uses electrical pumps to move water uphill into a reservoir, then later lets it flow back downhill through turbines when power is scarce and better priced.

The move to a cleaner energy system is bigger than just the electric grid; it also involves industry and buildings. Siemens Energy offers a suite of products to help companies electrify their operations, while MHI focuses on helping companies switch their heat source from coal to gas, cutting carbon emissions by about 40% in the process. Beyond industry, buildings of all kinds can be much more energy-efficient than they are today. In Europe, where buildings account for 40% of total energy consumption, Signify brings a simple solution: just replace the lights.

Lighting accounts for nearly half of cities’ total electricity use, and replacing inefficient lights with Signify’s excellent LED systems can cut the related carbon emissions by 75% or more. The preceding sketch barely scratches the surface of the major energy transition themes, but in our view, it is an encouraging story. There are challenges and trade-offs, but these companies are applying their skills in innovative ways to move both their own businesses and the broader transition forward.

That alone wouldn’t earn their stocks and bonds a place in the Fund, however. As investors, the key for us is the relationship between the companies’ fundamental prospects and the prices of their shares and bonds. In each of these cases, we think their prospects are underappreciated by the market. This has allowed us to build positions in these companies at attractive prices.

Drax trades for less than five times earnings. Helix and Signify trade for less than 10 times free cash flow. Siemens Energy is struggling to work through quality control issues at its wind turbine unit, but in our view the long-term value of its businesses is substantially higher than its current market capitalisation. MHI has begun to attract attention for its defence business, but still trades at a lower valuation than the typical global stock as does Prysmian, where consensus earnings estimates are just starting to reflect the growth potential we have long seen. The energy transition features no shortage of complexity and controversy.

Put those together, and it also features plenty of investment opportunity. We reduced the Fund’s exposure to US Treasury Inflation Protected Securities (TIPS) to reallocate some of the capital to Norwegian and Icelandic government bonds. In addition, we trimmed the Fund’s position in Corpay (formerly Fleetcor Technologies) and increased the Fund’s exposure to gold-related securities, as we continue to believe gold provides attractive diversification benefits to the Fund.