Friday, 30 September 2022

Bluefield Solar - Full Yr Results

Bluefield Solar (BSIF) was added to my SIPP portfolio in March 2019. Its initial focus was purely on solar power in the UK but in 2020 the Company resolved to broaden its focus to include up to 25% in other forms of renewables such as wind and also energy storage and also expand overseas. They have recognised that storage of renewable energy will become a vital part of the transformation towards net zero emissions over the coming years and I certainly think this is a smart move.

In June, the company announced a deal to acquire 109 small-scale onshore wind turbines for £63 million located throughout the UK. 90% have government subsidies and the remainder will be exposed to fluctuating power prices.

Approximately 60% of solar assets are covered by the old subsidy scheme which provides a guaranteed return for 20 years from the date of connection to the grid. The other 40% have rolling power purchase agreements which generally last for 2 or 3 years and are then renewed.

Results

The company has today issued full year results to end June 2022 (link via Investegate). Underlying earnings per share increased by 4.1% to 9.54p and the share price total return including dividends rose by 14.5% due to a boost in the share price from 121p at the start of the period. Total returns over the past decade since launch have been 92%.

The company pays quarterly dividends and will pay out a total of 8.2p for the year which gives a yield of 6.1% based on the current share price of 133p. They have a target of 8.4p for the coming year however, it is worth noting that the board have now de-linked dividend increases from RPI.

BSIF 12m share price/NAV (click to enlarge)

Chairman 
John Rennocks said: 

"It is highly pleasing to report another set of excellent results for Bluefield Solar. With maiden investments into onshore wind and storage, as well as further acquisitions of solar, supported by two successful capital raises, the financial standing of the Company has never been stronger as it enters the FTSE 250. Furthermore, the growth of the Company's development pipeline to over 1.1GW, provides Bluefield Solar with a wonderful opportunity to play an increasing role in the transformation of the UK's energy map.

Over the past year inflation has surged, reflecting higher commodity and energy prices following a recovery in demand from pandemic lows. Since March 2022, Russia's invasion of Ukraine and the continuing conflict there have helped push inflation to levels not seen since the 1980s. The result is current UK inflation, on an RPI basis, close to 12% (CPI 9.4%).

Prevailing opinion among economic forecasters remains that inflation will abate during 2023, but it is possible that price pressures will endure. Since our income grows with inflation, resulting from the indexation provisions in our regulated revenues, increases in RPI boost both our earnings and the valuation of our assets.''


Storage

The ability to store excess renewable energy will be the key to a full transition on the UKs path towards net zero by 2050. The government have recently relaxed the rules to encourage far more storage capacity which should be good for the likes of Bluefield. They have excess capacity and spare land which could lead to productive partnerships with storage providers subject to planning considerations.

Over the past year, good progress has been made on the Company's strategy of investing in the future build out of the UK's renewable mix through receipt of planning consent on two ready to build PV plants totalling 80MW and investments into ready to build co-located solar and storage (45MW and 25MW, respectively), as well as standalone battery storage of over 100MW.

Energy Pricing

Increasing electricity demand, as the world emerged from the Covid 19 pandemic, had seen power prices rising steadily but Russia's invasion of Ukraine sent shockwaves through European energy markets, with concerns around the supply of Russian gas to Europe driving a 45.5% increase in gas prices and sending UK day-ahead power prices surging from c.£78/MWh to highs of c.£593/MWh in August 2022.

Navigating such turbulent times requires care, and the Company's PPA strategy of fixing power for between one and three years has allowed it to fix power contracts throughout the period of rising prices. This not only insulates the portfolio from market volatility, as successfully demonstrated during the Covid pandemic, but also enables it to create pricing certainty at increasing levels for up to three years ahead. Evidence of this is seen in the average fixed price achieved for fixed contracts from January 2022 onwards. As at June 2022 the average weighted price for these contracts were £190.1/MWh, £303/MWh for January 2023 and £230/MWh for June 2023. This provides the expectation of over 2 x dividend cover (post and ex-carried forward earnings) in the financial years ending June 2023 and June 2024.

Conclusion

The energy crisis has resulted in power prices reaching unsustainably high levels, putting pressure on every section of the economy. The government is engaging with renewable energy generators to see how the industry can be part of the solution, recognising that the renewable energy sector is well placed to play a major role in creating a long term solution to this crisis. Solar and wind are today the lowest cost generators in the market, their technologies are relatively quick to deploy and they provide indigenous, clean and secure supplies of energy.

In contrast to many of my other holdings... including government bonds, it's been a good year for this fund and the renewables sector generally due to rising energy prices and the knock-on effect of increased inflation. The share price has increased by 10% over the past year from 121p to currently 133p which reflects a discount to the net asset value of 140p. Hopefully it can move to a premium again when the current market volatility settles.

Earlier in the year I added this fund to my ISA and the combined holdings now account for around 6% of my green portfolio.

I believe the longer term prospects remain bright however we have to contend with the uncertainties around new Truss government over the short term. The markets have been in turmoil since the hapless mini-budget last week and I suspect this new regime will not be around for much longer. After 12 years of an increasingly dysfunctional Tory government, the country is ready for a change. Longer term, the renewable energy sector would benefit from a Labour government which has recently pledged to decarbonise our electricity grid by 2030...very ambitious.

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!

Thursday, 15 September 2022

ITM Power - Full Yr Results...Disappointing!

ITM Power (ITM.L) designs and manufactures electrolysers which split water to generate clean hydrogen based on Proton Exchange Membrane technology. Last year it opened its new Gigafactory in Sheffield with the prospect of producing 1GW of clean hydrogen each year. It is estimated that the new factory will cut the costs of electrolysers by 40% due to increased automation and economies of scale.

ITM was one of the first additions to my green portfolio back in August 2019.


Results

It has this week announced results for the year to end April 2022 (link via Investegate).

The share price tumbled by 20% on the unexpected announcement that long-standing CEO Graham Cooley was to step down as soon as a replacement could be found. It looks like the rapid growth over the past couple of years has brought a number of challenges that the CEO feels is now beyond his abilities.

Pre tax losses almost doubled to £46.7m (£27.6m 2021) with revenues of just £5.6m following delays to delivery of its new technology to the Linde Leuna factory. Revenues from this project could not be included for the current year and will therefore roll forward to 2023.

Last October the company raised £250m to build two further factories - one in the UK with a capacity of 1.5GW and the other in Germany with a larger capacity of 2.5GW. However, these plans are currently under review and the likely course will be scrap the 2nd UK factory and to expand the exisiting factory from 1GW to 1.5GW.

The company had net cash of £365m at the end of April and is pushing ahead with expansion plans with an anticipated cash-burn of around £120m over the coming year.

Graham Cooley, outgoing CEO, commented :  "There is only one net zero energy gas that can replace methane to help the world address climate change. Green hydrogen can also help to deliver energy security and contribute to food security through the production of green ammonia for fertilisers. 

These abilities have become very powerful drivers for our business as governments seek to accelerate the share of intermittent renewables in their countries' energy mix to address dependence on weaponised gas supply from Russia. Over the last nine months, as the prices of methane and fertiliser have increased, green hydrogen has achieved first parity and then become cheaper in many cases than producing these commodities from gas feedstocks".

"In and since our last financial year, ITM Power has completed a transformational fund raise, won our first project for green ammonia, further developed our technology and production systems and set out a path that will enable us to remain a world leader in electrolyser manufacture. I believe the next twelve months will see the benefits of our position becoming even clearer as governments urgently address their dependence on methane."

“We are on the verge of a major energy and industrial step-change. I describe it as the fourth industrial revolution, one of interconnectivity and automation, powered by Net Zero, and ITM Power is playing a key role in supporting this revolution.

It has been a privilege to lead ITM Power through its transition from an R&D business to a world leading electrolyser manufacturing company. No CEO can remain in place indefinitely and now, as we seek to become a global manufacturing powerhouse, is a good time for me to step aside and hand over to someone with more experience in this area”.

Following the invasion of Ukraine and the reduction in the supply of gas which is being used as a weapon by Putin, the European Commission announced its EU Hydrogen Strategy and its Energy Systems Integration Strategy. The announcement prioritised the development of renewable hydrogen, produced using mainly wind and solar energy. From 2020 to 2024, they will support the installation of at least 6GW of renewable hydrogen electrolysers in the EU, and they have now doubled earlier longer term plans and aim for 160GW of green hydrogen capacity by 2030. ITM with its partners Linde and Snam should be well positioned to benefit from these opportunities.

Conclusion

Hydrogen is the most commonly occurring element in nature and is set to play a defining role in the 'green' industrial revolution as the world moves to replace fossil fuels. It can be stored and used to power long-distant transport such as cars, lorries, trains and ships. It can be used to generate electricity. It can be stored and transported for use at a later date. Green hydrogen made from renewable energy such as wind and solar is a clean source of energy and when used the only emissions are water and heat.

The potential for green hydrogen worldwide is huge but for investors in the individual companies, it remains risky as nobody really knows who will come out on top. The company still has plenty of cash to maintain operations for the next couple of years but needs to find a new CEO to steady the ship and get plans back on track. The share price reached a high point of over £7 in January 2021 but since then has been in steady decline to currently 117p.

ITM 3 Yr Share Price  (click to enlarge)

If the new management can get to grips with the underlying issues of contract delays and strategy planning then we could see a turn around but for now the shares are no more than a weak hold...fingers crossed for a recovery.

In the past few months I have started to take some of the profits from my green equity investments as I move to a more defensive position.

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 individual companies listed on AIM can be rewarding but is higher risk compared to collective investments - always DYOR!

Monday, 5 September 2022

Thrive Renewables - New Portfolio Addition

In 2018 I started to transition to a more climate-friendly portfolio to bring my investments more closely into line with my values and lifestyle. I was becoming increasingly uncomfortable making profits from companies which continue to make the climate crisis worse. I decided I needed to avoid the fossil fuel companies such as Shell, BP and Exxon and also the big banks which fund their activities.

So, for the past few years I have dropped the global index funds such as Vanguard Lifestrategy and have moved my portfolio over to greener investments such as iShares Global Clean Energy, a range of renewable infrastructure trusts and various smaller companies with a focus on green hydrogen such as Ceres Power.

In addition to these listed investments, I have taken a stake in a new co-operatively owned wind farm via Ripple Energy which is due to be completed later next year and will then provide a significant reduction in my bills from Octopus. Given the developments in Ukraine over recent months with Putin using the withdrawal of gas supplies as a weapon and the crazy increase in our energy bills I think this will turn out to be a very good investment!

So, staying with the ‘alternative’ green energy investment theme, I have recently taken up a small stake in a new share offer from Thrive Renewables (previously Triodos Renewables).

About

Thrive has been going since 1994 and is all about connecting ordinary people with sustainable renewable energy opportunities. They now have around 6,000 investors - individuals, businesses and organisations - and have established 31 projects throughout the UK including solar PV, battery storage, geothermal, hydro and wind. The combined capacity has generated over 2 million MWh of clean electricity over the past 25 years.

Thrive is cerified B Corporation from 2020 with a score of 110.8 - the highest scoring renewable energy company in the UK. They currently rank in the top 5% of all global B Corps.(link)


New Offer

The company are now raising £5m to fund the next new phase of renewable energy projects via the Triodos Bank crowdfunding platform. The shares are offered at £2.35 - min. 40 shares for £94 and offer a target return of 5-8% p.a. via dividends and share price appreciation. This an unlisted company so the shares in Thrive are not as easily traded as shares listed on the stock exchange with a low cost broker such as AJ Bell Youinvest for example. Instead, once purchased, any subsequent share sales are facilitated via a monthly share auction.

Here’s a link to the Triodos Crowdfunding site for those who are interested in further info about this share offer. It looks like the initial target of £5m is very close and they are now extending this to £7m with a further month to apply.

Conclusion

Each year we see more and more evidence of the devastating impacts from the climate crisis all around the world. This year we witnessed flooding in Pakistan covering a third of the country and affecting 30 million people. Closer to home we have seen the heatwaves affecting large parts of Europe resulting in wildfires and droughts. Climate scientists have revealed that the Arctic is warming at 4x faster than the global average.

As we move towards the end of 2022, many millions of people will be affected by the energy crisis - we may well see the lights go off here in the UK this winter. Average bills were due to rise to £3,549 from October and maybe as high as £5,000 in the new year but in the past week the government have confirmed that the increase will be capped level of £2,500 from October for a period of two years. Even this will be more than double the average of just a year ago...the energy market is clearly no longer fit for purpose and in urgent need of reform.

Unprecedented flooding in Pakistan

The climate scientists have been warning of the consequences if we fail to reduce carbon emissions and now we are seeing the effects of this failure to take decisive action. We need to start to treat this like the emergency it has become and commit to end our reliance on fossil fuels and transition quickly to a more sustainable system based on a range of renewable energy solutions combined with measures to insulate our homes and factories to conserve energy.

Obviously an investment in Thrive Renewables will only have a small impact on the climate crisis. However, the more people that invest in these sustainable solutions, the quicker we can transition to a less threatening world. Business as usual and continuing to rely on fossil fuels is no longer an option. Never before has it been so important to accelerate home-grown renewables and reduce our dependence on expensive, climate destroying fossil fuels.

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!

Tuesday, 9 August 2022

Big News on Climate in the US

The US Senate have now approved the Inflation Reduction Act - a landmark piece of legislation which includes $369bn of tax credits and support, the largest in American history, for a range of measures which will reduce carbon emissions by up to 44% by 2030 and keep the US on track to achieve its goal of net zero emissions by 2050. This is less than the 50 - 52% reduction promised by Joe Biden last year but it has been a difficult 12 months trying to get everyone in his own party on board. 

However, there is no doubt this is a big deal for the climate as the US is responsible for around 15% of global CO2 emissions...second only to China with 28%.

The bill will transform how Americans generate and use their energy and should shape their climate change and industrial policy for decades into the future when formally passed by the House in the next few days.


The legislation will provide billions of dollars for the expansion of solar and wind power production adding an additional 550GW which will more than tripple clean energy production to power over 100m homes. Here’s a summary of the main provisions (pdf).

Of course, investment from the federal government on such a massive scale will give more confidence to attract much more investment from individual states and the private sector in green energy. Some commentators are suggesting this could be as much as $2 trillion.

INRG 3m Share Price

Obviously this will be a welcome boost for the renewable energy industry. The likes of iShares Global Clean Energy (March update) holds many of the US based companies - Plug Power, Enphase, Solaredge - that should benefit from this legislation over the coming years so that’s one I will be holding long term.