Fixed income in 2024: what investors should expect
It has been a tough few years in fixed income markets. Rather than the ‘safe’ part of an investor...
Globally, 56%* of power generated is wasted. In the UK alone, 16%* of domestic household electricity bills are for appliances on standby and only 5%* of the power drawn by a phone charger is used to actually charge the phone – the other 95% is wasted when it is left plugged in.
So when it comes to cleaning up our energy, we need to think about becoming more efficient with its use, as well as moving away from fossil fuels to renewables.
We talked to some professional investors about the issue.
“If you believe the numbers of the International Energy Agency, world energy demand needs to be 40% more efficient by 2050 than it is today,” said Jonathan Waghorn, energy specialist at Guinness Asset Management. “So saving barrels is just as important as generating the new kilowatts or kilowatt hours of renewable electricity.
Will Argent, investment advisor to the VT Gravis UK Infrastructure Income fund added: “There needs to be investment in the [power] grid to be able to harness the renewable energy supply, which is very intermittent in its nature. Of course, we focus on electricity generation, but we also need to talk about how we go about electrifying things. A big element of that might be battery storage and other storage capabilities, to be able to smooth the supply of power, over the course of time – to essentially absorb that power during periods of high production and deploy it when it’s needed.”
Why is this? Well, when you think about it, wind and solar power can be unpredictable – take the weather in the UK as an example. And solar peaks in the middle of the day, when actually our electricity demand is probably at its lowest, while offshore wind is generally stronger at nighttime and is at a different time to onshore wind. So we need to think about ways of making sure that the system can balance.
James Mahon, co-manager of Church House Tenax Absolute Return Strategies fund, is another investor who believes the grid is inefficient. James has a holding in SDCL Energy Efficiency, which offers a service to companies whereby they can get more efficient and cleaner energy.
“SDCL has been going around the country refitting the lighting in NCP car parks,” James said. “As a result, energy usage has gone down by 65%. It is doing a similar thing with lighting for Tesco, but more importantly, it’s also now rolling out solar power on the roofs of various Tesco stores, which means they have a local power source and don’t have to rely on the grid.
“St Barts Hospital is another fine example. It needs a lot of power for refrigeration and for heating and all the rest of it. And on a large scale like that, the grid can be very inefficient. So what SDCL can do is effectively put a mini power station at the hospital itself. SDCL is claiming it can get wasted energy down to 15%, which would be a huge win.”
Abigail Dean, head of sustainability, Janus Henderson UK Property fund, continued: “Obviously, different buildings lend themselves to different strategies. So in office buildings we look at things such as efficient heating, ventilation and cooling systems – and technology to monitor when energy is being used. On industrial and retail estates, there will be a greater emphasis on things such as solar PV.
Then there’s water waste. “We’ve been identifying opportunities to reduce it by installing water efficient technologies, such as low-flow taps and low flush toilets, and looking at water harvesting wherever we can,” Abigail said.
Change is also afoot when it comes to our homes. Stuart Springham, deputy manager of TM home investor fund, told us: “I was at a consultation for a big development in central London recently. They’re building 500 flats across five different cores and they’re only putting in air source and ground source heat pumps. There’s no gas boilers, and this is all in line with what the government is saying is going to happen over the next few years, whereby they’ll phase out gas boilers. And these are the ways that we’re going to power our homes in the future.”
But how to pay for it all? Obviously there are opportunities for companies, but what about governments?
Bryn Jones, manager of Rathbone Ethical Bond fund, concluded: “Green bonds have already been issued by some countries – the Dutch, Fiji, France, Poland, to name a few. The UK hasn’t issued any green debt yet, but it’s coming. I think we’re going to see a green government bond in the next 12 months. Of course, if it’s structured the right way and the money’s going to be used for the right things we’re going to be all over that.”
To hear more about sustainable energy investments, watch our video interview series.
*Source: Gravis Capital