Inflation: will it stay, or will it go?
Inflation is the buzzword in markets at the moment. Prices have risen 5% year-on-year in the US and...
Just before Christmas, Denmark announced it would end all its offshore gas and oil activities by 2050, declaring it was “putting an end to the fossil era”. Instead, it is focusing on wind power and other renewable energy sources.
The country is not alone in its move away from fossil fuels. More and more countries are signing up to achieve net zero carbon emissions. The UK, Japan and European Union have all committed to the 2050 target are building for a ‘greener recovery’ out of the pandemic. The UK has also banned the sale of new petrol cars by 2030.
China has also pledged to be net-zero by 2060, which is hugely significant because China produces about a quarter of the world’s emissions. President Xi also hinted at an acceleration in shorter-term action with a pledge that emissions would peak before 2030.
And, despite Trump’s support of the conventional power generation industries, renewable energy has still done well in the US in recent years, with municipalities and corporates taking on the responsibility themselves.
Wind and solar have powered ahead and, as NextEra CEO has been quoted as saying “we’ve just had the best four years in our company’s history – just think what we can do with a President who likes clean energy.” With Biden set to become President later this month, it’s hoped there is potential for the US to re-join the Paris Climate Change Agreement.
Will Argent, Investment Advisor to the VT Gravis UK Infrastructure Income fund, commented: “The renewable energy sector in the US is actually one of the fastest growing areas of employment in the country. By the end of 2019, over 3.3m Americans were working in the clean energy sector – three times more than in fossil fuel jobs. So there’s the reality of what is happing in the US and the ‘Trump-based’ perception. The US could, of course, do more. But it’s not like it’s a huge untapped potential. It’s already quite a considerable industry that will just have a better environment under Biden’s leadership.”
So there is now some real momentum behind clean energy and the investment opportunities are opening up nicely.
“Power generation is the area most people focus on, and it is an important part, but the UK has already made a good start here on the transition and building out our capacity,” Will continued. “Another important area is energy efficiency and targeting older buildings – improving the way we heat our homes and businesses. There are good opportunities to invest in energy efficiency projects and it’s a growing investible universe.
“And then there’s the electrification of transport. We need the infrastructure in place to support that. EVs are still expensive for most people and maybe policy support here will be required to assist the transition.
“Carbon capture is another area. Some of this can be done at the point of power generation and some through reforestation – planting trees to absorb it. But a seedling is not the same as 400 year old oak, so although this may grab the headlines, there is a limit to its impact.
Mark Rogers, co-manager of Montanaro Better World fund, is another finding opportunities in renewables.
After the massive earthquake and nuclear accident in 2011, the Japanese government was persuaded to back a very ambitious push into renewable energy with set targets to reach 24% of energy from renewables by 2030. To do this, it set up a reliable feed-in-tariff scheme, which guarantees electricity off take at a fixed price for 20 years. This environment makes Japan one of the most exciting countries for renewable infrastructure investing – large and stable.
Speaking late last year, Mark said: “Renova is one of the rare ways to plat this theme. It is a small and exciting Japanese company whose corporate mission is “to create green and sustainable energy systems for a better world”. They are committed to reduce 10 million tons of CO2 by 2030. A perfect candidate for our Better World Fund!
“The company is Japan’s only publicly traded, pure play developer and independent power producer exclusively focussed on renewable energy. It has over 600MW of assets in operation mainly from solar and this is expected to increase by over 50% during the next few years as it invests heavily in a series of five 75MW biomass plants. The long term goal is to reach over 3,000MW.”
First Sentier Global Listed Infrastructure has also maintained a large absolute exposure to multi/electric utilities in recent months. “The resilience and predictability of regulated utility earnings – showcased over the past year – does not appear to be fully appreciated by the market,” the managers said. “Further, we expect that the ongoing repair and replacement of old equipment and technology, along with the accelerating build-out of renewables, will represent a source of steady earnings growth over long time frames, particularly for larger utilities with substantial economies of scale.”
Other Elite Rated funds that invest for carbon reduction include Liontrust Sustainable Future Global Growth, Ninety One Global Environment, Pictet Global Environmental Opportunities and Rathbone Global Sustainability.