The UK has set the world’s most ambitious environmental goal recently, showing there’s plenty of scope for more growth in the renewable energy sector. The UK government has to cut greenhouse gas emissions by 68% over the next decade, far above its previous targets. This is a potential boon for renewable energy shares.
The three ways to invest in the industry
There are three main ways I think most private investors can profit from the growth of the renewable energy industry. One is by investing directly in listed companies, of which there are some in the UK. This is arguably the most risky way to do it as the future of the market is uncertain. It’s harder to back an individual winner unless you are really prepared to research the industry.
Another way is to outsource to a professional who runs a fund or a trust. That’ll come with more charges. In a complicated field, though, that might be worthwhile for expertise and diversification.
Thirdly, as an investor, I’d be tempted to look into a tracker fund to follow renewable energy shares. This tends to be cheaper and also provides diversification, so you’re not just backing one horse.
Investing directly in renewable energy company shares
The energy group SSE (LSE: SSE) has been transitioning into a renewables-led utility for some years. It sold its consumer business to Ovo as part of the focus on electricity production. The group is aiming to treble its renewable energy output from 2019 levels to 30TWh by 2030.
It feels like a committed player in this space that has made the move to reducing carbon ahead of the big oil majors. SSE has significant onshore and offshore wind energy already, along with 1,459MW of renewable hydro energy.
In my view, the utility group is very committed to paying dividends for investors and growing its renewables portfolio. For me it’s one of the most obvious big companies to invest in to back an individual company involved in the renewable energy boom.
Funds involved in energy storage
In my opinion, two of the best managed investment funds focusing on renewables seem to be Gresham House Energy Storage Fund and JLEN Environmental Assets Group. The former invests in a portfolio of utility-scale operational energy storage systems, primarily using batteries in Great Britain. This helps keep the lights on even as renewable energy output fluctuates. It’s likely to be very important going forwards.
The latter is a trust investing across 32 assets with a total capacity of 304.7 megawatts. The portfolio includes onshore wind, PV solar, waste and wastewater processing plants, and anaerobic digestion plants, in the UK and France. Like SSE, the shares are good for income, with a yield near 6%.
Lastly, with regards to a tracker, there’s the iShares Global Clean Energy. This is one of the top picks in my opinion although there are other trackers as well.