Demand for renewable energy stocks is growing at a staggering pace. UK share investors are piling in as the fight against climate change intensifies and investment opportunities improve.
A survey by investment manager Downing LLP reveals how sharply interest in renewable energy assets is rocketing from pension funds, wealth managers and other institutional investors.
Of 100 professional investors it questioned, a whopping 80% said they have increased their allocation to renewables during the past 12 months.
Investor interest set to surge!
We’re not just talking about a modest increase, either. More than half (54%) of those questioned said they had made a “slight” increase in their holdings. But 26% said they had made a “dramatic” increase over the past year.
What’s more, almost all (97%) of those Downing LLP questioned say they will “increase their allocation to renewable energy in the next year” too.
Explaining the reasons for boosting their exposure:
- 74% cited the strong performance of renewable energy assets in recent times.
- 69% outlined the asset class’s de-risking potential during market volatility.
- 67% cited the diversification potential of renewable energy stocks.
- 67% mentioned the improved regulatory environment for renewable energy.
- 62% specified “a growing focus on decarbonisation from pension funds and wealth managers.”
- 60% mentioned the improved liquidity of renewable energy assets.
- 55% cited their qualities as “a good hedge against inflation.”
- 46% named a greater pressure to invest in renewables.
All renewable sectors to remain popular
Finally, Downing’s research found that “all renewable energy sectors are expected to attract more investment” over the next 12 months.
It shows that 85% of respondents look set to increase their holdings in hydropower assets over the next year, putting it in first place.
Biomass assets come second on the list with 84%. Though 7% of those surveyed also said they plan to decrease their allocations in this sub-asset class, putting it top of this particular tree.
| Increase dramatically | Increase slightly | Stay the same | Decrease | |
| Wind | 39% | 40% | 21% | 0% |
| Solar | 38% | 18% | 41% | 3% |
| Hydro | 41% | 44% | 13% | 2% |
| Biomass | 38% | 46% | 9% | 7% |
| Tidal and wave | 29% | 47% | 23% | 1% |
3 renewable energy stocks I’d buy
I can certainly see the appeal of investing in renewable energy stocks. And I intend to bulk up my exposure to the asset class in the years ahead.
Greencoat Renewables is one such stock I’m thinking of buying. Wind turbines can be expensive to maintain in a blow to profits. But soaring demand for wind power as the world diverges from fossil fuels offers great investment potential.
I’m also considering buying Gore Street Energy Storage Fund. Competition is fierce in the battery storage sector. But the size of the market opportunity here is colossal (batteries are used to store and deploy excess energy to keep a constant flow of energy going during periods of unfavourable weather).
I’d also snap up ITM Power, a business that manufactures electrolysers that help produce green hydrogen. This is despite the extreme share price volatility that it continues to endure.