With a new allowance available in 2022, I’m thinking about which sectors I should buy for my Stocks & Shares ISA. I’ve never invested in renewable energy shares before. But the events of the past year, and the latest oil price shocks, are making me think again.
There has to be a solid long-term future for the alternative energy sector. So here are three shares I’m looking at with a view to buying in 2022.
Renewable energy from wind
Why take risks on companies in new technology that are not yet profitable when Greencoat UK Wind is around?
Greencoat has been generating profits, albeit a little erratically, for years. That’s been enough for the company to pay a progressive dividend, which reached a yield of 5% for 2021.
I am a little concerned about earnings volatility, which led to the 2020 dividend not being covered. But cover in 2021 reached a healthy 2.5 times.
On the valuation front, we’re looking at a trailing 2021 P/E of below eight. I’m cautious that short-term high energy prices might make this valuation look better than it is. But Greencoat is on my shortlist of renewable energy shares.
Infrastructure
Wouldn’t it be great if there were proven companies working equally well in the old fossil fuel business and with new renewable energy producers? Oh, and companies that are already profitable and paying good dividends.
Well, there are, and National Grid is one of them. The downside is that National Grid’s gas distribution network is largely stuck in the hydrocarbon days. So there’s risk on that front.
But for electricity distribution it doesn’t matter whether it comes from oil, wind, or wherever. And, to me, that qualifies National Grid as a valid entrant in the renewable energy shares stakes.
With dividend yields exceeding 5%, National Grid easily makes my list of potential buys.
High-flying tech
Despite my earlier words, I have to include one tech stock among my renewable energy shares. I’m looking at ITM Power, though I am wary of the common early booms in tech growth stocks.
Still, I reckon the best time to buy is often when the initial excitement has subsided. And ITM shares are now back around 340p, having soared to 724p in January 2021.
ITM develops technology for extracting hydrogen from water by electrolysis without greenhouse gas emissions. You still need energy to get the hydrogen out, but it is increasingly looking like a vital energy storage medium. It’s the essential ingredient of hydrogen fuel cells, for example.
The big risk is that ITM is not yet profitable. I need to research further.
Renewable energy risks
I’m reminded of what Warren Buffett said about the early days of the motor car. He suggested investors would have done better shorting the horse trade, because the early motor pioneers were not the ones that made it big.
But I see a lot more support for pioneering energy companies today than the car makers ever had. And as long as I’m careful about valuation, I will almost certainly add some renewable energy shares to my 2022 ISA.