Investment opportunities in clean energy

The renewable energy drive has formed a large part of the UK government’s “Build Back Better” plans over the last year, and the transition from fossil fuels to cleaner fuels is a key goal for many countries around the world. Why? Because we need to cut energy-related greenhouse gas emissions by around 7% every year to meet the Paris Agreement goals. Improving energy efficiency alongside the increase of renewable energy is key to achieving this target.

“The future is green energy, sustainability, renewable energy.” — Arnold Schwarzenegger, actor and former governor of California

The UN’s Sustainable Development Goal #7

The aim of UN’s SDG #7 is to ensure access to affordable, reliable, sustainable and modern energy for all. Targets include areas of improved energy efficiency, the share of renewable energy globally, and global expansion of infrastructure and technology.

Spotlight on safe and affordable energy

While the acceleration towards cleaner energy solutions is important, this goal is also about ensuring access to affordable and safe energy systems.

At the current pace of electricity access, 660 million people will still be without electricity in 2030*. The vast majority (555 million) will be in sub-Saharan Africa*. In addition to a lack of electricity, 85%* of the population in sub-Saharan Africa is reliant on inefficient and dangerous and polluting cooking systems such as wood and charcoal. According to the UN, unless rapid action is taken, one third of the global population will still be without clean cooking fuels and technologies in 2030, resulting in both ill health and environmental degradation.

In Africa and Asia, basic electricity services are now unaffordable for more than 25 million people* who had previously gained access, due to population growth and increasingly levels of poverty. An additional 85 million people* – mainly in developing counties in Asia – may be forced to scale back to basic electricity access because of the inability to pay for increased services.

Closer to home in the UK, energy bills are also making headlines as more households are expected to struggle because of the cost of living crisis. Schroders reported that gas prices have risen to eight times what they were a year ago, with the government largely having to watch on as the now regulated cost of an average household energy bill has risen by £500 a year, with further increases to come in the autumn**.

How can investors help?

Although wind and solar are the first cleaner energy alternatives to come to mind, there are many different ways to invest in the sustainable energy transition including hydropower, wave and tidal power and biomass. There are also opportunities in energy storage and emerging green hydrogen infrastructure.

The VT Gravis Clean Energy fund has exposure to a range of these renewable energy projects including bio-energy, geothermal, heat pumps and the smart grid. Fund adviser Will Argent, recently joined us on the Investing on the go podcast to discuss the significance of renewable energy and energy-efficiency related projects in achieving new zero.

A number of funds also offer indirect exposure to the energy transition through themes like battery storage and infrastructure. Or, as Niall Gallagher, manager of GAM Star Continental European Equity fund, highlighted recently, companies like Kingspan who are helping buildings reduce energy consumption are a play on both energy efficiently and sustainable buildings.

Sustainable energy, like most utilities, comes down to supply and demand. To meet the demand for this energy, it’s not only more energy – we need to meet the use of it more efficiency.

James Mahon, manager of SVS Church House Tenax Absolute Return Strategies has been a long-term holder of SDCL Energy Efficiency, which offers a service to companies whereby they can get more efficient and cleaner energy.

Israel based company, SolarEdge Technologies, a holding in the LF Montanaro Better World fund, is a solar inverter and power optimiser company designed to make sustainable energy solutions with inverter technology.

Interconnected goals

Progress in ensuring energy access has been uneven across regions, leaving the most vulnerable even further behind. Ensuring access to affordable, reliable, sustainable and modern energy for all will open a new world of opportunities for billions of people through new economic opportunities and jobs (SDG 8), empowered women, children and youths (SDG 5 and SDG 10), better education and health (SDG 4 and SDG 3). The addition of new infrastructure (SDG 9) ultimately leads to more sustainable, equitable and inclusive communities (SDG 11), and greater protections from, and resilience to, climate change (SDG 13).

*Source: UN Sustainable Development Goals, 2021 Report
**Source: Schroders, What the UK’s Energy Security Strategy got right – and where politics hampered policy, 22 April 2022