Three ways to invest in clean energy
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Show us the green.
Published
September 4, 2024
If you’ve just started investing in clean energy it might not be obvious just how much the sector has taken off over the past few years.
Not in terms of share prices, more the whole world’s attitude towards going green.
In the early 2010s there was a sense that investors in alternative energy - wind, solar etc. - were only there for the feel good factor.
A lot of investors still believed you had to sacrifice gains in the sector in exchange for some kind of moral crusade.
In fairness, a lot of the fledgling projects exploring elemental energy swallowed up government subsidies and weren’t obviously efficient at the start.
Governmental policy in developed nations has been broadly supportive of the growth of low-carbon fuel sources and the industries springing up to develop them.
But world leaders have had to tread the line between supporting jobs in existing energy like oil, and facilitating the transition towards a more sustainable future.
For investors, it’s this balancing act that has fogged the outlook for both.
The good thing is the evolution and innovation in clean energy has boomed in recent years, bringing that possible transition much closer.
And, whether they’re jumping on the bandwagon or not, the doubters in the investment industry have softened.
The sector is no longer a fringe interest and if you’re a pension fund in charge of other people’s money, you’re probably under a lot more pressure to go green.
So the conversation really has changed but the transition isn’t over. Existing energy markets still dominate and the likes of photovoltaic (solar power) technology have a long way to go if they are to take over.
And while the rhetoric thus far has been pro-environment in a lot of cases, there still remain politicians and companies who haven’t evolved as quickly.
That’s maybe why the election of Joe Biden in the US has thrown new light on the sector.
Reports that Biden will soon repeal the permit for the controversial North American Keystone XL pipeline is one piece of evidence that supports Biden’s pro-green stance.
For investors keen on the future of green energy, the transition gives an opportunity to explore the theme now, while backward-looking views slowly die out or adapt.
Here are some of the most popular ways Freetrade investors have been tapping into the rise of clean energy as well as a few ideas beyond the top buys.
See some of the renewable energy stocks available on the Freetrade app.
When there’s a wider theme underpinning an industry, like gold or pharmaceuticals, it can be hard to foresee who the individual winners and losers will be.
The clean energy sector is no different.
Even if they are focused on just one industry, thematic ETFs can offer a more diversified approach to the overall sector, and it looks like Freetrade investors like this approach.
The iShares Global Clean Energy ETF has been a popular buy on the platform for a while now.
The fund aims to track the performance of an index composed of 30 of the largest global companies involved in the clean energy sector.
Over 30% of the fund is allocated to US companies. China is the next most common country in the portfolio with just short of 10% of holdings.
The make-up of the fund gives us an idea of the biggest markets for clean energy and where most innovation is emerging.
With big national goals on reducing pollution, don’t be surprised if China’s presence in the sector starts to creep up.
While ETFs can provide a route into the theme for investors not concerned with spotting winners, the recent top trades on Freetrade show there is high conviction among individual companies too.
In fact Plug Power, the top holding in the iShares Global Clean Energy ETF, appears among users’ top trades in its own right.
The US company concentrates on replacing the batteries we’ve grown used to with hydrogen fuel cell systems. So far, its tech has appeared in the likes of Amazon’s warehouse forklifts, with the company also teaming up with car maker Renault on developing their own fuel cell applications.
On that note, the top trades also show investors are interested in the firms applying clean tech to their own product lines. Tesla And China’s Nio are still up there even after a breakout year for shares.
As we’ve said before, there’s a bigger picture beyond cars that Tesla investors tend to highlight.
Electric and autonomous cars are one thing but equipping the world with sustainable and renewable energy sits at the company’s core.
Other popular members of the hydrogen gang are UK-listed ITM Power and Ceres Power.
ITM has just finished constructing its Sheffield ‘Gigafctory’ and already has plans to build another once capacity ramps up.
The firm has a couple of partnerships with industrial gas company Linde and energy group Snam. Adding capacity would allow it to help both with any hydrogen needs in their own projects.
Ceres has a different focus, opting to concentrate on licensing its intellectual property rather than manufacturing.
In line with this strategy, the company predicts it will rake in licensing fees worth over £20m in the next few years, from its relationship with engineering stalwart Bosch.
There weren’t any investment trusts among the week’s top buys but there are three with an environmental focus for investors to be aware of.
Impax Environmental Markets invests in small and medium-sized companies which aim to make at least 50% of their revenues from products or services in the energy efficiency, renewable energy, water, waste, sustainable food and agricultural markets.
Over five years, the strategy has done well against its MSCI All Country benchmark, with a premium of around 5% showing investors are happy to pay a bit more for the companies in the trust’s portfolio.
The Renewables infrastructure Group offers investors the chance to invest in a portfolio of around 70 energy projects, mainly in solar, wind and battery storage technology.
The trust invests in energy assets throughout Europe and, unlike a lot of other strategies, pays a quarterly dividend.
A 15% premium for shares might look expensive but a 5% dividend might suit income hunters attracted to the sector.
And if you’re particularly interested in investing in wind energy there is the Greencoat UK Wind trust.
The UK 250 constituent invests in the UK’s wind farms and currently has a dividend yield above 5% too.
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