The drive to achieve net-zero carbon is providing us with plenty of new ways to invest. Many companies in the green energy revolution are American, like Tesla spearheading the electric vehicle market. But the UK stock market is home to a number of interesting environmental and clean energy companies too.
AFC Energy is one of them, producing alkaline fuel cells for use with hydrogen. In a number of areas that’s a better alternative to batteries, and AFC has built up a number of partners installing its systems around the globe. AFC is not profitable yet, so there’s definitely some ‘jam tomorrow’ risk there.
Ceres Power is in the same field, researching and developing fuel cell technology. It’s another I have on my radar, though, again, profits are in the future.
How I’d invest with lower risk
I’d approach the inevitable risk through diversification. And I might look to Drax Group. Drax previously operated coal-based power stations, but in recent years has turned to biomass. As well as fuelling its power stations that way, Drax also has an international biomass supply operation.
The Drax share price has been flying since early September, and is now up almost 80% over the past 12 months. Drax is profitable too, which helps. The shares do trade at a growth premium, mind, on a price-to-earnings multiple, based on last year’s earnings, of almost 23. It’s definitely one I’ll be watching.
One way to achieve effective diversification is by investing in green investment trusts or exchange-traded funds (ETFs). I’ve already examined a few, and I’ll highlight one of those here. Impax Environmental Markets invests mostly in the US, with a big weighting towards water supply and waste water treatment companies.
I think that provides a bridge between current environmental practices, and the expansion that’s inevitably set to come. It gives investors some international exposure too, which is something I like.
Energy storage is key
I also like the look of Gore Street Energy Storage Fund. Renewable energy generation might be at the sharp edge of alternative energy research. But it’s no good without storage. That is, after all, one of the key strengths of oil — you can store a substantial amount of energy using nothing more than a barrel, or a tank.
The Gore Street fund invests in battery-based energy storage assets in the UK and internationally. Its UK sites use batteries from a variety of suppliers, including Tesla and NEC. Lithium ion technology is the current hot thing, but the company says that “there are a number of technologies which are being researched which if successfully commercialised, could prove over time more favourable.“
I haven’t mentioned solar energy yet. So in comes Bluefield Solar Income Fund. Bluefield acquires and manages solar energy farms. It’s a capital intensive business, but analysts have suggested the solar energy business could growth to be worth $200bn in five years.
My investing strategy
Some of these investments will be covered by energy generation regulation, so there’s a risk there. And perhaps the biggest risk is that we really have no idea which emerging technologies and companies will win out. That’s why I’d invest in the sector mainly through investment trusts and funds.