Gresham House Energy Storage - Portfolio Addition

For the past year I have been building my climate-friendly 'green' portfolio. This includes a mix of renewable energy infrastructure trusts such as TRIG and Bluefield Solar and more recently, several individual companies such as Orsted and AFC Energy. The UK is moving quickly to replace its dependence on fossil fuels and embrace clean energy alternatives such as solar and wind.

However, the national grid system needs to match supply with demand. This is easier to do with coal and gas but with intermittent solar and wind, it becomes more unpredictable and it's therefore important to introduce forms of storage to smooth supply throughout the national grid system. The greater the proportion of wind/solar renewable energy, the greater the need for storage to balance the grid.

We are now at the stage where generation from renewables is matching fossil fuel so I expect the demand for storage solutions to increase from here. Coal is due to be phased out completely by 2025 and there is increasing pressure on policy makers to reduce our generation from gas due to climate change emissions. Our government have legislated for net zero emissions by 2050 which means that gas needs to be replaced by clean energy over the coming 30 years - maybe sooner. We need utility-scale storage back-up to make this a reality.

In the past year planning applications for battery storage have increased by 50% from 6,900MW to 10,500MW today according to a report from RenewableUK. This has prompted me to take another look at investing into this fast-growing sector of the clean energy revolution.

Gresham House Energy Storage (GRID)

This investment trust came to the market in 2018 and it has been on a back burner as a possibility for my portfolio since reading an excellent article last year by IT Investor. It currently owns seven utility-scale energy storage systems around the UK with a combined capacity of 124MW. The most recent addition was the largest - a 49MW project at Red Scar near Preston which should be operational later this month.

The company released half year results in August (link via Investegate) which suggested a strong share price performance to end June - up 5.4% and confirmed dividend of 4.5p for 2019.

Commenting on the Fund's results, John Leggate CBE, Chairman of Gresham House Energy Storage Fund PLC said:

"The UK needs more grid-scale batteries. The growth in renewables demands this and recent events including the recent National Grid outage on 9 August provide confirmatory evidence that batteries can make a difference. The Fund is very well-positioned to build on its initial premise and to grow to significant scale and materiality. The Board and the Gresham House Team have the bench strength, capabilities and experience to create an impactful portfolio of high-performing assets in this sector which is becoming of critical national importance."

Shortly after these results, GRID completed a further placing of new shares raising an additional £42m which brings the total raised since launch to £200m which makes it the leading player in the UK grid-level energy storage field. The company have three further projects totalling 105MW which are due to be completed by March 2020 which will increase capacity to 229MW.

National Grid Control Room

Conclusion

In October, the government (BEIS) announced a consultation on relaxation of planning regulations for utility scale storage which should be a significant boost for this sector as it will mean larger projects over 50MW will be cheaper to progress. The consultation period ends on 10th December so it will be interesting to see what they decide.

The company is due to go XD for a quarterly dividend payment of 1.0p later this week and has a target pay-out of 7.0p for the coming year.

We are due to host the UN climate change COP26 next year and the government will be keen to demonstrate its climate credentials to the world so I am hoping this will give a boost to all things related to renewable clean energy including storage.

This acquisition is not without a degree of risk. The energy market is complex with many players and subject to government policy changes as well as competition from some of the larger energy companies likely to be looking at the increasing attractiveness of this sector. However, the company appears to have established itself over the past year so, as I like to maintain a diverse portfolio, hence the reason for adding this trust to my 'green' collection. My initial purchase was 105p in my ISA.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Octopus Renewables IPO

The Octopus Group is one of Europe's largest owners of solar power and globally manages over £3bn of assets in renewable energy. It operates a venture capital arm and also a household energy supply business with over 1 million UK customers.

With increasing concern about climate change in recent times from public, pension funds and other institutional fund managers, there is a growing demand for climate-friendly investment options and the renewables infrastructure sector has seen over £1bn of new capital invested in the first half of 2019 with several new trusts being launched as well as expansion of existing trusts. Most of these trusts trade at a significant premium to net assets - average around 12% to 14%.

So, tapping into this market is a natural step for Octopus Renewables (ORIT) who hope to raise an initial £250 million from mainly institutional investors however the IPO is also available for retail investors via most of the popular brokers. I have applied for some shares in my ISA with AJ Bell Youinvest.

The proceeds from the launch will be invested in mainly onshore wind and solar renewables throughout the UK and Europe and also Australia. The dividend will be paid quarterly and is expected to be 3% for the first year and 5% when fully invested with a target for total return of 7 to 8% p.a. Here's the link from AJ Bell for further details.

One of the advantage of acquiring shares via an IPO is there are no dealing charges or stamp duty, therefore a saving of around 1%. The offer closes on 5th December and the new shares should start trading shortly after this date. The launch costs will be capped at 2% and therefore the shares initial net asset value will be 98p.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Air Liquide - Portfolio Addition

Over the past few months I have gradually removed oil and gas holdings from my portfolio and replaced them with more climate-friendly alternatives. This has involved the selling of my globally diverse index funds such as Vanguard Lifestrategy and HSBC Global Strategy which had previously formed the mainstay of my portfolio. Unfortunately, there are few if any ready-made index funds which do not hold either fossil fuel companies or the large banks which fund their operations. 

Therefore I have been increasingly looking at individual holdings and gradually building my own tailor-made fossil-free fund which includes the likes of Orsted, Vestas Wind, ITM Power and AFC Energy - I must adopt a name for this fund...thinking the "DIY's Fossil-Free Fund" doesn't quite hit the mark but any suggestions for a better name for the fund in the comments below!! 

Obviously the new strategy of replacing a global index fund such as VLS which has over 10,000 holdings of equities and bonds, will carry much more risk than a portfolio with a handful of individual shares and so, whilst it may not be for many small investors, I am prepared to run the higher risks involved to ensure my investments are more fully aligned with my values and lifestyle.

Who Are They?

So, on to my latest acquisition. Air Liquide (AL) is a large company listed on the Paris stock exchange - CAC 40 and included in the Euro Stoxx 50 index and also FTSE4Good Indexes. It operates in 80 countries and employs around 66,000 people. It is a global leader in gases technology - mainly oxygen, nitrogen and hydrogen.

The main attraction for me is its commitment to developing hydrogen as a clean source of energy. It has extensive expertise in this field spanning 50 years and across the entire chain from production to end use. In particular, development of low carbon production including green hydrogen produced from electrolysis using renewable energy.

The Hydrogen Economy

AL is currently investing heavily in hydrogen infrastructure across Europe, North America and Asia and wants to see H2 powering a large proportion of the global economy over the coming decade as we transition away from fossil fuels. If its vision of a global hydrogen-based economy can be delivered, it could spark a transformation across multiple global industries. This is because H2 has a wide range of potential applications and uses in many different sectors.

Hydrogen filling station - France

There is an urgent need to find zero-emission solutions to replace fossil fuels for transport - road, rail, sea, air - as well as heavy industrial sectors such as steel and concrete which together account for around 16% of global CO2 emissions.

It is estimated this total hydrogen economy could be worth $2.5tr per year in revenues so if AL could take just 1% of this it would double the company's current revenues.

AL currently produces around 14 billion cubic metres of hydrogen - enough to fuel 10 million hydrogen fuel-cell cars. It is currently expanding its facility in Canada by 50% to meet demand for carbon-free hydrogen in North America. At 20MW, the electrolyser will be the largest in the world. It is also building a $150m liquid hydrogen plant in California for the hydrogen energy markets.

Obviously Air Liquide cannot generate a global H2 economy all on its own. More government and policy support is required across the chain, however, the opportunities and versatility offered by hydrogen is starting to be recognised by policy makers and the only question mark seems to be how quickly will they move.

The company will release full year results next February however at the half-year mark, revenues were up 5% at just under 11bn EUR with net profits up 12%. Dividends  are around 2% paid in May and have grown at an average of 8% per year over the past decade.

3 Yr Share Price (click to enlarge)

The shares were purchased in my ISA at the price of EUR 121.00. The purchase was funded from the proceeds of the sale of Impax Environmental which I no longer wish to support as it seems to be part owned by French bank BNP Paribas which continues to finance fossil fuel companies.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation. Holding individual shares always carries more risk than collective investments - always DYOR!

AFC Energy - Update

It's just over two months since I decided to add this small AIM-listed hydrogen fuel play to my portfolio.

In the past couple of weeks there have been some significant developments.

First, at the start of this month, the company announced four new brands as it seeks to push forward its hydrogen-powered technology. It will launch HydroX Cell (L) which is a highly efficient alkaline fuel cell for use in heavy-duty industrial applications. It will also launch the HydroX Cell (S) for use in mobile and stationary applications.

The third brand is H Power which is a group of power systems which includes an off-grid electric vehicle (EV) charger and the fourth is AlkaMem, a range of exchange polymer membranes inside the fuel cell which have a wide range of applications including energy storage and fuel synthesis.

AFC have been working closely on development in collaboration with Industie de Nora - a world-leading electrolyser manufacturer - in Italy over the past three years and have now received welcome news that the membrane exceeded internal expectations. AFC say this development offers opportunities in new market segments that it has previously been unable to penetrate and that revenues in this sector amount to over $1bn per year.

The market has welcomed these developments and the share price has soared from 5p to close at 17.5p at the end of this week - a rise of 250%!

AFC 12m share price (click to enlarge)

AFC Chairman John Rennocks purchased 114,000 shares this week for a total of £11,600. The company have just launched their new website.

Obviously, after such a surge in the share price over such a brief period it is tempting to take profits however my feeling is there is much more to come from zero-emissions, low cost hydrogen fuel cell technology. An abundant gas produced from low-cost fuel cell technology which produces no greenhouse gas emissions and has many applications...could be a game changer in the fight against climate change. So I will keep my fingers crossed and hang in for the long haul and see where we get to.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!