Clean-energy funds and related equities have taken a hammering this year. The Global Clean Energy ETF (exchange-traded fund) with $3.5bn in assets is the biggest, most liquid green-energy ETF. It has fallen by 26% since 1 January 2023.
UK-focused investors will have noticed an echo of this pain in the investment trust sector. The battery storage industry has been especially badly hit. The three listed funds in this area have suffered huge falls in their share prices:
- Harmony Energy Income Trust (LSE: HEIT) is down by 40% to 75p
- The Gore Street Energy Storage Fund (LSE: GSF) has fallen by 40% to 68p
- The Gresham House Energy Storage Fund (LSE: GRID) has declined by nearly 50% to 88p. (I am a nonexecutive director at GRID.)
This sector had been a market darling as the market for short-duration battery energy storage system (BESS) projects boomed in the UK. According to industry news site Energy Storage News, in recent years the UK market had “ become the largest in Europe with over 3.5GW now online, with projects benefiting from high ancillary service market prices, particularly in 2022”.
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That growth resulted in market saturation, which also coincided with falling revenues, partly because the operator of the electricity grid, National Grid, hasn’t opened up as many opportunities as expected in a segment of the market called the balancing mechanism (designed to maintain the stability of power supply). While efforts are being made to give battery storage a more prominent role in the balancing mechanism, investors haven’t stuck around.
Other emerging parts of the clean-energy spectrum are having a better 2023, notably nuclear energy, and especially uranium prices. Over the last few weeks uranium prices have breached the important $60 and $70 a pound barriers. So far this year spot prices have risen by 46% (they are up by 400% since 2019). Unsurprisingly, share prices for uranium miners (and to a lesser degree the small handful of uranium processors) have shot up.
Alternative assets advisory house Ocean Wall runs an index for the small number of stocks in this sector and it has gained 52% in 2023. The market value of global uranium equities is $50bn, made up of just 84 stocks.
Options for UK retail investors
UK investors have two main options to play the uranium rally.
The biggest listed play is Aim-listed Yellowcake (Aim: YCA), which owns a physical reserve – in Canada – of uranium oxide. Its market capitalisation is $1.2bn and with uranium prices above $70/lb, the investment company is trading at a 12% discount to its net asset value (NAV).
Another popular choice is uranium equities fund Geiger Counter (LSE: GCL), which has a NAV of 60p against its current share price of 49.6p, representing an 18% discount. The fund is overweight in US-sourced uranium and owns no Kazatomprom shares. The Kazakh producer is the biggest player globally but is largely state-owned and an integral part of the Russia/ China economic axis. Geiger Counter’s single biggest holding is NexGen Energy, which boasts one of the largest reserves of cheap uranium in a Western jurisdiction. The fund also owns big stakes in America’s Uranium Energy Corporation (7.6%) and Canada’s Fission Uranium Corp. (6.4%).
Over in the ETF sector, one of the most popular ways of buying into the nuclear story is through the HANetf Sprott Uranium Miners UCITS ETF (LSE: URNM). According to HANetf’s Tom Bailey, there’s a decent chance that uranium prices could go even higher from current levels. The uranium spot price “is now only at a comparable level to the spot price right before Fukushima in 2011. In fact, if you were to increase the pre-Fukushima price by inflation, it would be in the high 90s today”. Furthermore, he says, “We are nowhere near the all-time high, which was near $140/lb”.
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