Orsted - New Addition

This energy company based in Denmark is a global leader in offshore wind with around 30% of global capacity and operations in Denmark, UK, Germany and Holland. It also operates several wind farms outside of Europe in the US and also Taiwan.

Renewable energy is very much in the ascendancy due to concerns about climate change. It is estimated the global wind energy sector will attract investment of $1 trillion over the next 10 years as the world makes the transition to low-carbon energy.

The company has made a remarkable transformation of its business model over the past decade. It was formerly known as DONG - Danish Oil & Natural Gas - and, as its former name suggests, was involved in energy production from North Sea oil and gas and also coal-fired power.

In 2008, the company decided to change its business model from black (fossil fuels) to green (renewable wind energy). At that time the company was 90% oil/coal and 10 years later, it has moved to 75% green and aims for 100% by 2025.

In 2016, the company floated on the market in the second-largest IPO in the world that year. The following year it sold off its North sea oil and gas business to focus on renewable offshore wind and also changed its name. The float price was 235 DKK and just under three years later it has risen to 500 DKK.

UK Operations

Their offshore UK operations have the capacity to supply over 3 million homes with green electricity. This will increase to 5.5 million homes when current additions at Hornsea 1 & 2 come online in 2020. This development will be the largest offshore wind farm in the world. There are two further phases at Hornsea in the planning stage and a further wind farm proposed off the Isle of Man.

Hornsea 1 - The worlds largest offshore wind farm

Matthew Wright, UK Managing Director at Ørsted, said:

“Hornsea 1 is the first of a new generation of offshore power plants that now rival the capacity of traditional fossil fuel power stations. The ability to generate clean electricity offshore at this scale is a globally significant milestone, at a time when urgent action needs to be taken to tackle climate change.

“Ten years ago, the thought of a project of this size was just a dream, but thanks to continued innovation, a determined effort from both the industry and supply chain to drive down costs, and the natural geographical benefits that surround us, the UK has positioned itself as a world-leader in offshore wind". 

Last December, the company installed a 20MW battery storage facility at Liverpool. Variable wind generation (and solar) leads to grid supply volatility. While natural gas is still providing 50% of our energy requirements this is not a problem but as the proportion of renewable capacity grows (currently 30%), there will be an increasing need for storage of wind/solar to smooth out energy distribution via the network.

20 MW Carnegie Rd Storage System, Liverpool

Results

Full year results (pdf via company website) for 2018 were announced earlier this year. Net profits increased by 46% to DKK 19.5bn (2017 13.3bn). The share price increased by 28% over the year to DKK 436 having risen as high as 474 in November. The company currently has net cash of DKK 2.2bn. Return on capital is running at 32% (2017 25%).

The shares yield around 2.0% based on the current price of DKK 495.

Future Plans

The company has ambitions to increase its current wind portfolio from 5GW capacity to 15GW by 2025 and then double to 30GW by 2030. The firm expects a 20% annual increase in profits and will be investing DKK 200bn ($30bn) in renewable projects over the next 5 years. It has identified next stage development potential in Poland, India, South Korea and Japan as well as looking into the feasibility of floating wind technology.

The company's vision is to see a world run entirely on renewable energy. In the latest annual report, the CEO says he expects the market in renewables to triple over the next decade and expects Orsted to take part in this global build-out.

To help combat climate change, the world needs to transition quickly from fossil fuels to renewables. Orsted aims to be part of this change and wants to be part of the solution. It targets enough clean energy to power 50 million homes by 2030.

I would prefer to hold this as part of a collective investment trust or ETF but, so far, have not seen it listed so I have decided to add it as a stand alone share holding. All this looks reasonably positive so I have added this to my 'green' portfolio. The purchase price was DKK 490 or UK £57.00 per share.

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!

Footnote:
I very much appreciated the BBC's  'Climate Change - The Facts' Thusday 18th April presented by Sir David Attenborough. Definitely worth watching on iPlayer if you missed it.

Impax Env. Markets Trust - Results

I added this investment trust to my ISA portfolio last October in response to my growing concerns relating to climate change following the IPCC report (COP 24) and the possible implications for the economy and investments landscape.

Impax (IEM) is an investment trust with a market cap. of around £550 million and its objective is to help investors benefit from growth in markets for cleaner and more efficient energy, water and waste services. 

The trust was launched in 2002 and is run by Jon Forster and Bruce Jenkin-Jones who have a long term record of experience and expertise in this market. They see a strong momentum in these areas and wish to appeal both to those who require growth from their investments as well as those who are more concerned about the environmental impact of climate change.

IEM is focussed on global growth and the portfolio has around 60 holdings - predominantly smaller and medium sized - mainly in USA (41%), Europe (34%) and Asia/Japan (18%). 

The main sector focus is Energy Efficiency (33%), Water (20%), Food/Agriculture (14%), Pollution Control (10%) and Renewables (9%).

Results

The trust has this week released results for the full year to end December 2018. (link via company website)

Whilst returns for NAV fell by 10%, the discount narrowed considerably over the year due to strong demand from retail investors. The share price total return was -0.4%.

Dividend

Net revenue for the year increased to £5.7m (2017 £5.1m) which equates to 3.2p per share. The company pays out most of the income and they have declared a 20% increase in the final dividend from 2.5p last year to 3.0p which is payable end May. This gives a yield of just over 1.0% based on the current share price of 292p.

Performance

The trust has turned in a decent performance over the past 5 years with a total return of 97%. This compares favourably with some of my other holdings - Finsbury Growth & Income 79% and Mid Wynd 98%. Vanguard Lifestrategy 100 has returned 67% over the past 5 years.

 

5 Yr Comparison v VLS 100 (red line)
(click to enlarge)

My purchase price last October was 265p and currently around 292p so going in the right direction after a sharp sell-off at the end of last year. The return since the start of 2019 is 16%.

Commenting on Climate change

"2018 started with a severe drought in Cape Town and ended with Californian wildfires, highlighting the need for innovation and investment in environmental markets. Evidence linking extreme weather events and climate change appears to grow stronger every year. Morgan Stanley recently estimated that global damage caused by climate-related disasters for the last three years alone stood at around $650 billion. In October, the latest Intergovernmental Panel on Climate Change (IPCC) report suggested that if annual global emissions were maintained at current levels, then damage costs by 2040 could reach $54 trillion. It is hard to digest the size of such figures, nevertheless the implications are clear".

"Opportunities for businesses to deliver emission reductions, for example via energy efficiency and renewable energy solutions, and to adapt to changing climate, for example via grid resilience and water infrastructure, are growing.

The global drivers for companies providing environmental solutions remains very compelling, especially in China and the rest of Asia. The behaviour and preferences of consumers, and policy developments, are supportive and evidence of this is already visible in companies' order books. And we are seeing an increasing number of disruptive events, such as electric vehicles and the war on plastic, that point to an accelerating growth trend".

Conclusion

In the past week we have a report from Blackrock assessing the climate-related risks to the US economy with a focus on municipal bonds, mortgage-backed securities and electricity utilities. Clearly this is an important issue and the 'big boys' of the investing world are starting to take it very seriously.

IEM was the first 'green' fund to join my portfolio last year at the point when I decided to make some changes to align my investments with my beliefs and lifestyle. Since this time I have made several more changes to divest away from fossil fuels such as big oil/gas - Shell and BP for example - which have been responsible for greenhouse gas emissions and climate change. I really do not want to invest my money in and profit from these companies.

As more people become aware of the implications of climate change, and the enormous threats posed to our way of life if not addressed, I hope the businesses such as the ones supported by Impax Environmental will benefit and grow stronger.

In the words of economist Prof. Nicholas Stern in a report for the World Economic Forum (worth a read)

"The global economy will probably double in the next 20 years and that helps us understand how fast we have to move and what we have to do. Because at the same time as that global economy doubles, we're going to have to cut our overall emissions absolutely by 30 - 40% or more. That means that we have to be doing things differently within the next 20 years, which means that we have to be investing in a very different way, starting from now".

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!

TRIG Share Offer Completed - Update

Just a brief update to my post relating to this clean energy addition to my portfolio last month following the release of full year results.

The trust has raised £302 million in a heavily over-subscribed share offer. They issued an additional 265m new shares at 114p, with half allocated to existing shareholders. This is a 3% discount to the current share price of 118p and of course there are no dealing charges or stamp duty. Unfortunately, due to the heavy demand for the shares, my application was scaled back and I received around 60% of the additional shares I applied for.

This will now make TRIG the largest trust in the sector with a market value of £1.8bn compared to Greencoat UK Wind at £1.7bn.

The bulk of this money - £247m, will be used to repay credit for the two recent acquisitions in Sweden.

Helen Mahy CBE, Chairwoman of TRIG, said: 

"The Board would like to thank TRIG's existing shareholders and new investors for their support in the Company's fundraising. Such significant oversubscription for this initial issue under the share issuance programme is testament not only to TRIG's demonstrable track record in delivering long-term, sustainable income but also to TRIG's commitment to de-carbonisation. This equity issue enables us to capitalise on our exciting near-term investment pipeline and continue to deliver sustainable value to our shareholders."

The trust pays a quarterly dividend and has a full year target for 2019 of 6.64p which represents a yield of 5.8% of the new issue price.

Last Friday, the company also announced a deal to acquire a new 40MW onshore wind project in Burgundy, France and which should be operational by early 2020.

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!

iShares Global Clean Energy - New Addition

I was reminded of this ETF in a comment to my article last month My Global Index Funds Under the Spotlight. I placed it on my list for further research. I think I may have looked at it some time back as the ticker INRG is familiar but must have dismissed it as the performance would have looked below par until recently.

As the name indicates, this is a fund which has a focus on sustainable energy such as wind, hydro and solar. The ETF tracks the S&P Clean Energy Index.

It has just 30 holdings which include some of the big players in renewable energy from around the world.

The Case for Renewables

In just the past few years, the landscape for renewable energy has changed quite dramatically. The big driver behind these changes is the growing threat posed by climate change and the realisation that we need to dramatically reduce global CO2 emissions. One of the most important steps we can take to minimise the effects of climate change is to find reliable, affordable sources of power that can be used by everyone around the world without generating greenhouse gases. This means clean electricity and we need to continue to find better ways to store and transmit this form of energy.

It's not too difficult to imagine a world in the not too distant future when just about everything is run on renewable electricity. Here's an interesting research article produced for Bill Gates' Breakthrough Energy.

In Germany, many homeowners are installing a combination of roof-top solar with battery storage. Around 50% of all new orders for solar PV also include storage. This makes a lot of sense because it's very inefficient to feed this energy into the national network. (article link).

Here in the UK we have seen a big increase in wind and solar. Just last week I noticed from MyGridGB site that wind power was generating over 40% of our energy one windy day.

Many of the companies involved in the transition to a more sustainable world energy transition are featured in this global ETF and this provides an opportunity for me to tap into this sector whilst at the same time being broadly diversified and therefore not too exposed to any single company.

Holdings

Here are some of the larger holdings in the fund:

CEMIG - based in Brazil and engaged in electricity production from hydro-electric and wind farms and responsible for generating around 12% of the country's distribution.

Vestas Wind - A global leader in wind, responsible for the design, manufacture, installation and servicing of wind turbines in 80 countries worldwide. They are responsible for installing more wind power than any other company.

Siemens Gamesa - based in Spain and involved in the manufacture of both onshore and offshore wind turbines. Their mission is to become a global leader in the renewable energy industry driving the transition to a sustainable world.

Pattern Energy - the largest wind power generator in Canada and currently building the largest wind farm in USA

First Solar - a global provider of PV solar energy solutions. They provide the latest technology solutions which are an increasingly economically attractive alternative to fossil fuels electricity generation.

Verbund - Austria's largest electricity supplier, some 90% of which comes from hydropower. It also operates several wind farms in Austria, Romania and Germany.

Performance

The fund was launched in 2007 and was hit hard by the crash of 2008/09 losing 50% of its value within the first 18 months. Progress since then has been slow and total return for the past 5 years is just about break-even. However, there has been some signs of life in the past few months and the shares are ticking up 18% since the start of this year.

INRG Shares past 3 years (click to enlarge)

I am hoping this will continue over the coming months and years as we see the inevitable transition from fossil fuels such as coal, oil and gas towards clean energy and a more sustainable global energy system.

Ongoing charges are 0.65% and the yield is around 2.5% depending upon exchange rates. My purchase price was 433p and the ETF is held in my SIPP portfolio.

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!