It seems such an obvious change in direction that investors can hardly ignore it. A few years ago, as Mayor of London, Boris Johnson declared that wind turbines “couldn’t pull the skin off a rice pudding”. This week, as Prime Minister, he has come up with a 10 point plan which he says will help Britain reach zero carbon emissions in 2050, with a huge shift to renewable energy. No rice pudding, it seems, will be safe from being gouged by a nearby wind farm.
So can a portfolio of renewable energy shares go wrong? It certainly hasn’t, so far, for investors in Tesla – which makes battery installations for power networks as well as its better-known electric cars. Its shares have more than quadrupled over the past year. It hasn’t gone too bad, either, for investors in Vestas, the Danish wind farm manufacturer whose shares have nearly doubled this year.
Closer to home, ITM Power – which specialises in hydrogen – is up 350 percent in 12 months and Ceres Power, which works in fuel cell technology, is up 250 percent. Hydrogen is an area which has been singled out by the government in recent months, even though it is only an energy medium, not a source – there being no freely-occurring source of hydrogen on Earth.
It is not all fantastic gains, however. All has not gone well for those who trusted their savings to the Foresight Solar Fund, which, as its name suggests, invests in a portfolio of UK wind farms. It has a cracking yield of 6.5 percent, yet that hasn’t stopped its shares sliding by 13 percent over the past 12 months. Several other investment trusts invested in solar and wind farm have performed similarly, a reminder that energy is a capricious business, and that falling demand in a recession doesn’t just hurt oil and gas companies. Renewable energy investment trusts have also suffered partly because they were very highly-valued to start with: even now, the Foresight Solar Fund is trading at a premium, relative to its net asset value, of 10 percent.
Green energy is still a bit of a wild west. There are a vast number of ideas, but we don’t really know yet which are going to succeed. Like any start-up, investments in Greentech mean trusting your money to a company which is unlikely to make money for years – and may never do so if its technology turns out not to work well or is usurped by something better.
But there are two things which should raise investors’ eyebrows. Firstly, is the election of Joe Biden, which will mean a return of the US to the Paris Climate Change Agreement and, presumably, a step-up in investment in green energy in the world’s largest economy. Secondly, there is the pandemic effect. Anyone who doubted that government, ultimately, would be prepared to spend whatever it takes to achieve zero carbon emissions has now witnessed an incredible spending spree unleashed by Covid19. If the government is prepared to tear up all sense of fiscal propriety to spend £12 billion on track and trace and possibly £100 billion on Operation Moonshot, which aims to test everyone in Britain once a week, might it not be prepared do the same for climate change?
If the government were minded to spend so freely on cutting carbon emissions, it could mean billions of pounds of public money sloshing around the green energy sector – to be sucked up by companies offering indifferent as well as good ideas (to judge by Covid, no technology is too lousy not to be described as ‘world-beating’ by this government).
The alternative view, though, is that the UK government will be so broke after all this that it will be forced to cut back on spending and will be so desperate to boost the economy in whatever way it can that investment in renewables will go by the wayside. That does, however, ignore the structure of many green subsidies in Britain, which are paid by levies hidden in the bills of energy consumers rather than paid by the government directly. Thus they don’t appear as public expenditure at all.
It is hard not to come to the conclusion that there will be great fortunes to be made in green energy in coming years – though, inevitably, not by everyone.