Renewable energy is not new and yet it could be one of the key industries of this new decade. Politicians and the public are being told that time is running out to save the planet, injecting urgency into the need to decarbonise economies across the world. The UK has an ambition to reach net zero emissions by 2050 and regardless of your views on climate change, renewable energy is likely to be a hot sector in the coming years. Here’s how I’d profit from the developing trend.
Creating energy from renewables
SSE (LSE: SSE) has sold its consumer arm to Ovo Energy. The deal allows SSE to focus on renewable energy. An area in which it is investing significant money.
Around £1.4bn of capital expenditure is expected for the full year. The majority of its spending goes on the regulated electricity networks, but more and more is being ploughed into renewable energy projects such as that of Dogger Bank offshore wind farm.
Adjusted operating profit from the group’s renewable assets almost doubled to £150m in the first half of the 2020 financial year. By increasing capacity by 8%, total renewable generation rose by nearly a quarter to 4,045 gigawatt hours and the group is aiming to treble its annual output of renewable electricity to 30 terrawatt hours by 2030.
SSE looks to me to be one of the leading big companies at the forefront of the renewable energy transition and because of this, I think that even with some of the challenges the group faces – such as high net debt of near £10bn and low dividend cover – over the long term it should prosper and reward shareholders. That’s especially so given its 7% dividend yield.
Renewables focused investor
The purpose of Renewables Infrastructure Group (LSE: TRIG) is to generate sustainable returns from a diversified portfolio of renewables infrastructure contributing towards a zero-carbon future. It’s ideally suited to an ethical investor but also for those seeking income and growth.
TRIG’s portfolio comprises over 70 assets in the UK, France, Ireland, Sweden and Germany and includes wind farms, solar projects and one battery storage asset. Wind is by far the biggest part of the group’s assets.
The trust is run by InfraRed, a London-based international investment manager with around $13bn of equity under management, and RES, a leading global developer and operator of renewable infrastructure projects.
The group pays a dividend of 5% although I’d be tempted to wait until the premium comes down before buying. Although the trust has nearly always attracted a premium – meaning the shares are worth more than the net asset value (NAV) – at around 20%, it has jumped too high for my liking in recent months. It is worth revisiting though if it comes down to a more normal average level of premium, which would be nearer to 5%.
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Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020