The UK government has pledged to decarbonise the country’s electricity grid by 2035, a target it must hit in order to reach net zero by 2050.
However, according to research by the House of Commons, the UK currently lags behind other nations when it comes to investing in the energy transition.
This suggests policymakers will have to ramp up spending if they want to bring the country up to par with its neighbours over the coming decade. And renewable energy companies could benefit from this spending boom as investment flows into the sector.
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The path to net zero is not a straightforward one and while fossil fuels will be necessary to power the transition to cleaner energy wind and solar energy generation are going to be a fundamentally important part of the transition.
With that in mind, here are three renewable energy stocks investors could buy today to benefit from the industry’s upcoming, and pretty much inevitable, boom.
Greencoat UK Wind
Greencoat UK Wind invests in and operates wind farms across the UK and Ireland.
In the first three months of this year wind turbines generated more electricity than gas for the first time in the UK, according to the National Grid.
The UK is a global leader in wind power generation, only recently having been overtaken by China as having the most wind farms in development.
Greencoat is one of the best ways to invest in this growth.
Management is aiming to grow the company’s dividend by RPI inflation every year, which makes the stock especially attractive today. Its dividend target for the current year is 8.76p per share and the shares currently yield 6.1%.
In 2022 it paid out £178m in dividends, up from £140m the year before. Its dividend per share increased to 7.72p from 7.18p.
That should come in handy in the face of any further market volatility. Its share price is currently 149p, up from 140p in 2021 and slightly lower than the 152 at the end of its 2022 financial year, which could provide investors the opportunity to buy in and secure longer term income.
Good Energy was recently slapped with a hefty fine due to delayed repayments of customers’ final bills.
But despite this error, the company has some attractive qualities as an investment. It supplies 100% renewable electricity and carbon-neutral gas to customers and helps customers instal solar panels, heat pumps, and batteries to store extra energy.
The company also pays customers for any additional energy they make and send back into the grid.
Its 2022 final-year results were positive. Revenue increased by 70%, and profit before tax also jumped from £2.6m to £9.3m. It’s also nearing its target of acquiring one million customers – currently, it serves 795k.
As more and more people become aware of the benefits of using renewable energy, Good Energy could see a jump in the number of customers it serves.
Going forward it's focusing on acquisitions to expand its capacity. Even though the UK energy supply market is a bit of a mess, Good Energy does have a lot going for it and wholesale energy prices are falling. As the market stabilises, the firm may benefit from its reputation as a “clean” energy company.
Hydrogen will play a key role in the energy transition. It is a cleaner alternative to natural gas, as its only byproduct is water. Meanwhile, methane, which is the traditional gas used to power homes, releases carbon dioxide.
Even though the market is still in its early stages, it could be a multi-trillion-dollar industry, and ITM is one of the businesses making waves in the sector.
Still, there’s no denying the firm is in its early stages of growth.
The company raised significant capital to expand last year, although some strategic missteps have hindered the growth plan. In order to rectify this, ITM recently appointed a new CEO who developed a 12-month plan to turn the company around.
The errors hit sales. Revenue halved from £4.2m in the first half of 2022 to £2m in the six months to 31 October.
Going forward, it plans to focus on its foundations before expanding – and there is plenty of room for expansion. It recently tripled the power supply to its main site and plans to expand it, as well as production volumes.
Its hydrogen technology, coupled with its new strategy gives ITM positive long-term prospects, but perhaps for investors willing to take on some risk.
Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.
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