Invest in wind and hydrogen to help battle energy crisis

War in Ukraine has sparked a debate on energy security in which investors should engage. 

Fossil fuels still supply 85 per cent of the world’s needs and BP believes that oil demand may not peak for another decade. 

But the company is throwing even more of its might behind the development of renewable energies. 

All this suggests that these green sources of power – wind, solar, hydrogen and hydroelectric – should have a place in your portfolio. Alarm over Europe’s dependence on Russian oil and gas is set to keep energy security at the top of the political agenda, adding impetus to the net zero targets. 

Boris Johnson calls renewables ‘the quickest and cheapest route to greater energy independence’. as the Prime Minister irrefutably argues, Vladimir Putin cannot stop the North Sea wind. 

Christian Lindner, the German finance minister, is another enthusiast, describing renewables as ‘the energy of freedom’. 

Geopolitics may have inspired this rhetoric, but these politicians also hope to lower consumers’ bills. The cost of producing wind and solar is falling at a time when oil and gas prices are soaring. 

This may be one reason why octopus Energy has recently received requests from 1,500 local communities for wind turbines to be built in their areas. Such projects used to arouse ire. 

Sceptics will contend that wind and solar do not provide reliable supply. But William Argent of the Gravis Clean Energy fund says: ‘There are challenges in harnessing the intermittent nature of renewable power generation such as smoothing the imbalances between supply and demand. But a country can start to address this by developing more localised capacity, alongside the appropriate storage solutions.’ 

Gravis Clean Energy puts money into hydroelectric plants, solar parks and wind farms which receive long-term income from supply contracts. 

Until tackling the energy crisis took on a new urgency, investing in renewables was regarded primarily as the eco-conscious choice. But now they are also seen as critical infrastructure. 

Josh McCathie, manager of the new Downing Listed Infrastructure fund, says: ‘Last year the estimate was that an annual $5-$7 trilion would need to be spent worldwide to meet sustainable targets. Now renewables’ generation is being seen as an essential service to the economy and society.’ 

On this basis, global expenditure could top $7trillion a year. 

The fund will allocate some cash to investment trusts like renewable infrastructure Group whose holdings include battery storage projects and solar parks. the share price of this trust is at a 16 per cent premium to the value of its net assets, reflecting the appeal of this type of trust to those who prioritise ESG (environmental, social and governance) and like an income.

Dividend yields in the trusts range from 4 per cent to 6 per cent. Gresham House Storage, which focuses on Bess (battery energy storage systems), is at a 17 per cent premium, while Greencoat UK Wind and SDCL Energy Efficiency are at premiums of 18 per cent and 15 per cent respectively. as a holder of these last two trusts, I am gratified by their performance but unwilling to add to my stakes at the current share prices. 

But anyone minded to invest at the current level should be aware of the risks, as Jason Hollands of Best invest explains: ‘The Bank of England and other central banks are raising interest rates and winding down stimulus programmes. This means yields on bonds are rising which could make investors seeking an income reluctant to pay the high premiums on these trusts. This could leave the trusts vulnerable to a de-rating.’

Some investors may prefer to watch and wait for some weakness in these trusts’ prices, or for new trust launches. Meanwhile, it may be worthwhile to take a bet on some green power stocks whose recent fortunes have been mixed. 

Shares in Ceres Power, the Aim-listed hydrogen fuel cell company, have fallen by a third over the past year. this is puzzling given its long-term prospects. 

ITM Power, another aim name, will be building a second hydrogen gigafactory in Sheffield. Yet its shares have also been hit by the same aversion to eco-conscious businesses, despite their key role in building energy security. Citi, however, considers both shares to be a buy. 

If you would like to benefit from wind power’s potential, your options include Nordex SE, Vestas Wind Systems and Siemens Gamesa renewable Energy. 

The payback from the renewables is not guaranteed and may take time to arrive. 

But when building a portfolio, it is wise to take account of a changing world order.