Five investment themes for 2019 and beyond
2019 has been an interesting year so far. Global stock markets started January in the doldrums, only...
The school holidays began yesterday for my household. As we sat in the back garden sweltering in the 30 degree-plus heatwave, with just paddling pool to refresh us, I found myself longing for the comfort of the office and its air conditioning.
The good people at Kames Capital are obviously of the same mind. In a recent note they highlighted that, as our world warms up, we must cool down.
According to the International Energy Agency (IEA), 1.6 billion air conditioning units are in use around the world today – a number that has tripled since 1990. This figure is expected to grow:
Bloomberg New Energy Finance predicts that almost 13% of global electricity will be used by aircon units by 2050.
The trouble is, aircon units are energy intensive and, as Kames points out, if this extra demand isn’t met with renewable energy it will only lead to more emissions, more global warming, more demand for cooling, more emissions, more global warming… A vicious circle.
The good news is that renewable energy is really starting to become more of a ‘norm’. As the cost is falling and government policy is more supportive, its use is increasing.
From electricity provider ‘newcomer’ ‘Bulb’ in the UK (which provides 100% renewable electricity from solar, wind and hydro and is ‘gas’ carbon neutral, with 10% of green gas supply produced from renewable sources like food or farm waste) to Oil giant BP (which just this week announced a major expansion into the renewable energy marketplace via a new partnership in the biopower sector), the world is finally waking up to the need for clean energy.
Other countries are also making huge headways: in China, developers of solar projects are guaranteed the same price as coal plants for their energy for at least 20 years. In India, solar is now the cheapest source of new power generation throughout the daytime. The tipping points are here but we have to hope they tip fast enough to keep up with new energy demands.
Andrew Greenup, co-manager of Elite Rated First State Global Listed Infrastructure, told us about a recent trip he made to Florida – the Sunshine State – and the investment opportunities it provides. While per capita consumption of electricity in Florida is close to the national average, residential electricity consumption is well above it, owing to the heavy use of air conditioning.
“The state has been closing coal, oil and nuclear power plants and replacing them with solar and gas-fired power plants, for some time.” Andrew said. “Its electric and gas utility market is dominated by four listed infrastructure companies, including NextEra Energy, our largest holding in the First State Global listed Infrastructure fund*, 35 small municipal-owned utilities and 18 rural cooperatives.”
VT Gravis UK Infrastructure Income is another Elite Rated fund that is heavily invested in renewables. It has 20.4%* invested in solar, and 14.8%* in wind. Top ten holdings* include Renewables Infrastructure Group Ltd (8.5%), Bluefield Solar Income Fund Ltd (5.9%), NextEnergy Solar Fund Ltd (4.9%) and Foresight Solar Fund Ltd (4.7%).
But it’s not all plain sailing. In a recent podcast, Will Argent, investment advisor to the fund, said that energy storage is key – heatwaves and sunshine in the UK are not as long or predictable as they are in other countries.
Another interesting option is newly rated Pictet Global Environmental Opportunities. The fund, which was given a rating at our most recent investment committee review, uses the planetary boundaries framework in its investment process, which identifies nine key environmental areas – including climate change. The framework specifies the respective threshold which humanity must not cross lest it cause irreversible environmental damage. Renewable energy is currently just 4.5%* of the portfolio, but the fund invests in other ‘linked’ areas such as energy efficiency (15.8%*).
Finally, Schroder Oriental Income has a company called Midea Group in its top ten*. The company is a Chinese electrical appliance manufacturer, and a huge global brand in air treatment. In a joint venture with Carrier – a company founded by the inventor of the air conditioner, Willis Carrier – Midea won the tenders for the provision of climate control solutions for the 2014 FIFA World Cup football and for all 12 new sports arenas and auxiliary facilities in both Barra and Deodoro Olympic Parks for the 2016 Rio Olympics.
*Source: fund factsheets, 30 June 2019