The past couple of years have been very difficult for investors in renewable energy companies. The sector has suffered from poor sentiment due to the upswing in interest rates, which has hurt valuations. However, the underlying attractions of renewable energy are, I believe, better than ever.
Growth in renewable energy looks set to continue its rapid upward trajectory as governments around the world get serious about their obligations to reduce carbon emissions and tackle climate change. Major buyers of power, such as the multinational global technology companies, also have an important role to play. Many of these firms no longer see it as acceptable to power their growth with electricity generated by fossil fuels. Crucially, these are creditworthy counterparties with deep pockets.
Demand for electricity in developed markets, which has been falling for several years as we have become more efficient, now looks set to increase, a consequence of new uses for electricity, such as transportation and potentially large-scale hydrogen production. New sources of demand, such as artificial intelligence and data centres, could provide a further boost. The combination of a recent poor performance and an improving fundamental outlook has given rise to many attractive investment opportunities, particularly for those investors willing to look beyond the traditional leaders in the sector.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Renewable energy funds that are profiting from growth
RWE (Frankfurt: RWE) is a company that many people still consider to be a traditional utility, but while it does continue to operate some legacy coal assets, a timetable for closure for these has been agreed with the German government. RWE now firmly sees itself as being a renewable and low-carbon energy company. Its US renewables business should be one of the key beneficiaries of the growth in demand for power from data centres in North America, and it recently signed 15-year power sales agreements with Microsoft for two new Texas wind farms that are currently under construction. Furthermore, it is one of the major players in the fast-growing global offshore wind market, having managed to avoid some of the difficulties that have dogged other participants in that sector.
Another company profiting from the growth of the technology sector’s demand for power is Greencoat Renewables (LSE: GRP), which has signed a 10-year sales contract to supply power to a data centre in Ireland. This company is less well known than its stablemate, Greencoat UK Wind, but it benefits from the fact that many of its assets come with fixed contracts, in contrast to its more market-exposed big brother. Irish wind farms comprise 60% of the portfolio, with the remainder located in Germany, France, Spain and the Nordics. Like many other renewable energy investment companies, it trades at a meaningful discount to its published net asset value (NAV).
A fund that services the green revolution
Many investors advocate “pick and shovel” investing: buying the companies that supply a service to a sector rather than the sector itself. Cadeler (Oslo: CADLR), which owns and operates wind turbine installation vessels, is a good example. Cadeler is benefiting from a shortage of the very large vessels capable of installing the new generation of offshore wind turbines. With four vessels already on the water and another seven to be delivered over the next four years, Cadeler is the established market leader.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Four AI ETFs to buyIs now a good time to buy AI ETFs? We examine four AI ETFs that investors might want to add to their portfolio
-
Chase boosts easy-access interest rate - savers could earn 4.75%Chase is offering a boosted interest rate which is fixed for six months, on top of the standard variable rate
-
Three solar stocks to invest inTips This week, professional investor Nicholas Mersch of the HANetfS&P Global Clean Energy Select HANzero UCITS ETF tells us three solar stocks to invest in.
-
We need to invest in renewables – but we need to invest in oil and gas, tooEditor's letter We need heavy investment in renewable energy, says Merryn Somerset Webb. But we also need continued investment in fossil fuels, to keep prices low and limit hardship on the way to net zero.
-
Power your portfolio with renewable-energy stocksTips The COP26 conference showed that fossil fuels are on their way out. This is a big opportunity for companies developing the equipment and technology that will make green energy viable, says Matthew Partridge
-
Four energy efficiency and storage funds to buy nowTips Energy efficiency and energy storage funds offer another way to invest in renewable power and profit from the green boom.
-
Where to find sustainable growth in renewable energyTips The renewable energy sector has come a long way, but there is still plenty of momentum in funds and utility stocks.
-
Political hot air lifts hydrogen stocks: here's how to profitFeatures Boris Johnson is committed to a green revolution. Hydrogen, long touted as the obvious answer to our energy woes, will have to be at least a part of that vision. Stuart Watkins reports.
-
Jeremy Grantham: US should focus on “green” infrastructure spendingOpinion Jeremy Grantham, co-founder of asset manager GMO, says the US must set out on a new “green” Marshall Plan to tackle climate change.
-
Britain’s green revolution: can we become carbon neutral by 2050?Briefings The prime minister is laying out plans that will see carbon emissions reduced to net zero by 2050. Do they make sense?
