Thursday, 2 July 2020

Powercell - Portfolio Addition

This is another company added to my portfolio last week operating in the fast-growing clean hydrogen fuel-cell market and with HQ in Sweden. It was formed in 2008 and is a spin-off from Volvo Motors who were researching fuel cell technology in the 1990s. It has a current market cap. of 15bn SEK (equivalent to £1.4bn).

What They Do

Powercell develops and supplies fuel cells, systems and support services that reduce the environmental impact of energy generation. Their mission is to create a fossil-free society.

For over a decade the company has developed and refined fuel cell technology which provides clean power for transport and other stationary applications. Their systems can be used in many forms of road transport including shipping.

Many readers will have heard of Wuhan, China as it was the location of the first coronavirus cases back in January however what few if any will know is that it is also home to the Wuhan Tiger Fuel Cell Company which has been a customer of Powercell since 2017.
Wuhan Tiger Hydrogen Bus

The company is developing fuel cell-powered vehicles for the Chinese market and using a system based on the Powercell S2 stacks. A bus equiped with this system recently clocked up over 40,000 km - equivalent to one lap around the world. Despite daily intensive use in tough conditions, the stacks have proved very robust and reliable and given no problems. These buses with the hydrogen fuel cell stacks are demonstrating a very practical alternative to fossil fuels. The fuel cell bus was given the green light for production in 2018 by the authorites and Wuhan Tiger have now purchased 54 buses but the potential is absolutely huge.

The company have since established a subsiduary - Powercell Fuel Cell (Shanghai) Ltd headed by Yibo Zhao who has been with Powercell since 2017. China has now introduced big subsidies to encourage fuel cell powered transport to address pollution levels in major cities and climate concerns. Obviously there are big opportunities presented by China with a population of 1.4 billion.

In 2019, the company signed a deal with Bosch in relation to their S3 Powercell fuel stack and last week they received an order from Bosch worth €2.5m for delivery throughout the rest of this year.

In April they signed an agreement worth €6.9m with a leading European shipyard for the supply of a megawatt marine fuel cell system. Heavy diesel used in most large ships is very carbon intensive and the International Maritime Organisation are looking ways to decarbonise global shipping by 2030.

past 12 months

As a result of this progress and the various contract announcements, the share price has taken off in the past few months. Sales have grown rapidly from just 12.2m SEK in 2016 to 66.9m last year and are forecast to exceed 100m this year with 26.7m already in the bag for Q1. Of course, there will be the uncertainty of Covid to take into account and Q2 results should give a clearer picture.

I am hoping there will be much more to come - especially as the EU have decided to give green hydrogen a central role in their plans for post-Covid recovery and the transition to net zero emissions by 2050. Having said that, the shares have had a good run and are currently close to their all-time high point so there could be some profit taking and volatility in relation to Covid-19.

The shares were added to my green portfolio last week at the price of 297 SEK with proceeds from the sale of my holding in Proton Power.

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 in a niche sector can be rewarding but is higher risk - always DYOR!

Wednesday, 1 July 2020

NextEnergy Solar - Full Year Results

NextEnergy Solar (NESF.L) is a large renewable energy infrastructure trust and a member of the FTSE 250. It was added to my green portfolio last September.

Launched in 2014, the trust operates a portfolio of 90 solar farms located mainly across the South of England however in 2017 they acquired the Solis portfolio in Italy which accounts for around 15% of total operations.


The company have this week released results for the full year to end March 2020 (link via Investegate). The UK portfolio performed well with energy generated being 4.6% above budget due to more sun than average. In Italy performance was 6.4% above expectations.
Share price NESF v Bluefield past 6 months
(click to enlarge)

However, mainly due to the fall in energy prices, total return for the year including dividends of 6.87p was -7.8%. Net assets value per share fell from 110.9p to 99.0p. Over the 5 years since launch, the average annualised return is 6.3% p.a. (which is below the target of 7% to 9%).

Over the past year capacity has increased by 9% from 691MW to 755MW which avoids emissions of over 300,000 tonnes of CO2 each year.

Around 60% of the existing portfolio benefits from the usual government ROC subsidies which endure for an average of a further 16 years however these have now been withdrawn for new developments. The rest of the portfolio revenues are derived from purchase power agreements with utility companies. The company has completed the new subsidy-free 5.5MW solar unit at Hall Farm in Leicestershire and second 50MW project in Bedfordshire which is the largest in the whole portfolio. Like Bluefield Solar, they are working on a strategy to extend the life of existing assets and negotiate lease extensions and planning approvals which should help to increase net assets.

More solar energy hits the Earth in a single hour than the energy being used by the entire human population in a year

Future Sales

For the coming year NESF anticipates that 61% of revenues will be covered by regulated revenues such as ROCs with the balance derived from short and medium-term contracts. Agreements are already in place for 95% of summer 2020 and 50% for winter generation.

In Italy, 83% of revenues are covered by government feed-in-tariffs and the rest is totally covered by agreements to the end of 2020.

This raises uncertainty in relation to revenues into 2021 and beyond.

Energy Pricing

According to forecasts from Bloomberg New Energy Finance, UK electricity prices are forecast to decline by 4% per year to around £19/MWh by 2040 from its current price of £40. These lower energy prices are having an impact on the company's net asset value. Obviously this has no impact on those assets which are covered by the long term ROCs and feed-in tariffs backed by the government but it will affect the subsidy-free assets.

As was explained in this article by Finumus, most renewable energy companies have been working on inflated expectations of future power prices - double what is forecast by Bloomberg NEF - so it will be interesting to see how it actually pans out over time.

The Company's current UK long-term power price forecast implies an average growth rate of approximately 1% in real terms over the 20-year period and an average price of approximately £45.1/MWh in today's terms. This represents a decrease of 23.4% compared to those used at the end of the previous financial year (and 49% below the assumptions employed at IPO).

The reality is that nobody can accurately forecast these prices so far into the future. There will be a huge focus on reducing carbon emissions and an emphasis on achieving net zero emissions by 2050. This may involve government incentives to ensure these targets are met.

It will be interesting to see if this subsidy-free strategy can generate comparable returns. There is the falling costs and increased efficiency of the PV technology but also the uncertainty of future energy pricing. One area which could benefit these companies is storage - battery or otherwise - because it will be a big advantage to store energy when abundant and sell it when there is higher demand. I am guessing these companies will already be looking into this area but see no reference in the annual report.


The company pays quarterly dividends and the target for the coming year is 7.05p - an increase of 2.6% on last year. I purchased the shares at 120p in my Halifax ISA so the fwd yield is 5.8% but I have a capital loss of 10%. At the current price of 108p the fwd yield is a tempting 6.5%

As can be seen from the chart above, the share price has taken a hit over recent months and I will be happy with any modest increase in addition to the dividends. However, it is looking like the company may abandon it's policy of payouts in line with inflation due to the fall in future power prices.


There is a lot of focus on storage of surplus renewable energy whether in the form of battery, green hydrogen, pumped hydro or air battery. The ability to store this energy will mark a fundamental shift for solar renewable generators as well as wind and wave. One advantage is that operators can become more profitable by holding back energy via storage when there is excess and correspondingly lower wholesale prices and then releasing it when demand and prices are higher.

The Covid pandemic has had an adverse impact on power prices as demand has been much reduced due to lack of economic activity. The short term effect has been to reduce NAV by around 10% and I would expect this weaker demand to continue well into 2021.

I think it would make sense to explore storage solutions and submit planning applications for storage at the various locations.

Ongoing charges are 1.1% which seems on a par with my other solar funds. There are a number of large institutional shareholders including Artemis, M&G, Investec, Baillie Gifford and Legal & General

Sum Up

A recent analysis from carbon Brief suggested almost 50% of our electricity will come from renewables by 2025. This includes wind, biomass and hydro/wave as well as solar but it means that capacity for solar should expand from currently 5% to approx. 10% over the coming few years.

The UK is to host the IPCC COP 26 gathering in Glasgow next year and I expect to see further government policies to increase renewables which will demonstrate leadership on climate and back up the decision taken last year to move to net zero emissions by 2050.

Of course as with most investments, the sector is not without risks. I suspect the main one would be a continuing decline in the wholesale energy prices NESF could secure and the need to revise its long term assumptions which would have a further negative effect on NAV.

However, broker Stifel turned positive on UK renewables at the end of March

“Following the savage de-rating, the sector looks attractive in terms of valuations and robust in terms of dividends compared to many equity sectors. The wind will blow and the sun will continue to shine.”

I hope they are correct but I am now a little more circumspect than I was last year so I am unlikely to be topping up my holding in NextEnergy for the time being.

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!

Sunday, 21 June 2020

SIPP Drawdown - Year 8 Update

It's June, another 12 months has rolled by so it must be time to review my SIPP drawdown portfolio at the end of its eighth anniversary. Here’s a link to the previous update of June 2019.

The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income which I calculated should be sustainable over the longer term without depleting the capital. This would bridge the 10 year gap between early retirement at age 55 yrs and state pension.

In 2018 my state pension kicked in - currently £9,000 p.a. - I also have tax-free income from my ISA if required and so I am no longer reliant on income from my SIPP which means I have more flexibility on investment choices.

Portfolio Changes

My efforts to move towards a more climate-friendly portfolio are well documented over the past 18 months and this naturally includes my drawdown portfolio so there have been a quite few changes. 

My main focus over the past year has been to move to fossil-free investments - and therefore the sale of the global multi-asset index funds which all hold significant percentages of the oil majors such as Exxon, Shell and BP as well as the big banks which finance their operations. I want my investments to support more sustainable solutions such as renewable energy and other environmentally friendly funds which are more aligned with my values.

It looks like the penny is starting to drop for the big oil companies. BP have scrapped their $75/barrel 30 year projection and will now work on $55, which I suspect is still overly optimistic. They have acknowledged that the pandemic will probably accelerate the pace of transition to a lower carbon economy. This excellent YouTube video by Carbon Tracker "You Can't Burn It All - A Tale of Two Investors" is well worth watching and a reminder of the growing risks of investing in fossil fuels.

Last year I introduced Bluefield Solar, TRIG, iShares Clean Energy ETF and this 'green' sector has expanded significanly over the past 12 months to include more renewable infrastructure trusts as well as a couple of stand alone company shares.

(click to enlarge)

The best (and luckiest) addition was ITM Power last August - the share price has really taken off in the past couple of months and is now worth 7x what I bought them for and this has given a significant boost to the portfolio value.

However, the sharp downturn in March reminded me to pay more attention to asset allocation and I have added some government bond ETFs to partly replace the bond element contained in the multi-asset Lifestrategy/HSBC holdings.


The big story dominating the news these past few months has been the coronavirus pandemic which started in China in January and quickly engulfed the whole world bringing it to a near shut-down. The markets took a sharp downturn in March but have recovered much of the lost ground over the past couple of months. I am expecting more volatility when the effects of the lockdown are fully realised and I think this may take some years to unravel and is likely to have far more impact on the global economy than I originally thought at the start.

Over the past 12 months, the FTSE 100 has seen a significant decline of 15.5% from 7,443 last June to currently 6,292. Following the sale of significant holdings in my global multi-asset funds last Autumn I was sitting on large cash proceeds for a while however my SIPP portfolio is now more fully invested and it is pleasing to see a gain of 33% over the year. Much of this is down to just a couple of individual shares - ITMPower adding £19,000 and Orsted adding £6,000.

I probably need to scale back my holding in ITM and diversify some of the gains into the wider 'green' market. One option would be Baillie Gifford Positive Change which I hold in my ISA and which will compliment the Trojan Ethical Fund. I probably should also increase the proportion of my government bond funds which currently account for just over 20% of the portfolio.

Here is the current portfolio
19th June 2020  (click to enlarge)


In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 6,292 - a gain of just 14.4%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 45%

In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £199 - a gain of 89% or annualised average of 8.3% p.a.

Taking account of the income withdrawn over the past 8 years of £19,400, the total return including income is 135% which is very satisfactory and works out at an average annualised return of 11.3% p.a.

State Pension

For most of the past decade I have relied upon income from my SIPP to supplement my ISA income and bridge the 10 year gap between early retirement at age 55 yrs and state pension. This part of the journey became 'mission accomplished' in 2018.

My state pension has now been in payment for just over two year which is long enough for me to know that I do not need to continue with drawdown from my SIPP. As it is a flexi-drawdown arrangement, I can always dip in at any time for a lump sum withdrawal if required. I will therefore be less reliant on the income from my SIPP for essential living costs and it will become more for discretionary spending or more likely remain invested.

Unlike an annuity which, once purchased means the capital lump sum is lost forever, any residue in my SIPP will pass on to my children and free if I go before the age of 75 yrs and thereafter possibly 20% or tax free depending on circumstances. For those interested here's a link on the AJ Bell site.

Obviously I am really happy with my first few years of self-managing a flexi-drawdown sipp portfolio. For the first few years, the dividend income predictably rolled in much as planned and importantly, increased each year a little ahead of inflation. During the next three years I have withdrawn significant lump sums tax free and placed the excess which I did not require for income in my ISA. Of course, there are no tax liabilities for all monies subsequently withdrawn from my ISA.

I now need little or no income from my SIPP in the future and will therefore focus on longer term growth combined with environmentally responsible options. As I am no longer depleting the capital, this should hopefully grow much the same as during the accumulation phase before drawdown and in the knowledge the pot can be inherited by children and grandchildren possibly tax-free at some point in the future if not needed for care home fees!

For me, the big advantage of the SIPP is the flexibility it offers. I started off with a portfolio of income-generating investment trusts. I then introduced the multi-asset, globally diverse index funds such as Lifestrategy and now I can focus on more climate-friendly options and do my bit for the planet. It certainly feels much better to have aligned my investments with my values and lifestyle and know I am no longer investing in fossil fuels which are continuing to add to global warming and undermine efforts to tackle the climate crisis.

What's not to like!

If you are managing your SIPP accumulation or drawdown or you are planning to do this, feel free to share your experience in the comments below.

Wednesday, 17 June 2020

SSE - Full Year Results

SSE (formerly Scottish & Southern Energy) is a FTSE 100 company operating in the energy business across the UK and Ireland. Tackling climate change is at the centre of their operations and their aim is to be a leader in a low carbon world through significant investment in renewable energy.

At the start of this year they disposed of their Energy Services arm to Ovo and going forward the bulk of operating profits will be generated from regulated electricity networks and renewables which are core elements of their low carbon strategy.

SSE Renewables

In late 2018, the company announced it would consolidate its renewable energy assets under the single entity of SSE Renewables. The current portfolio has around 4GW of both offshore and onshore wind as well as hydro which includes 300MW of pumped storage and 750MW of flexible hydro. It has the largest offshore wind pipeline of future projects in the UK and Ireland of over 7GW.

SSE in partnership with Equinor are engaged in the construction of the world's largest offshore windfarm at Dogger Bank in the North Sea which will generate 3.6GW of clean electricity, sufficient to power 4.5m homes and using the world's most powerful turbines, the GE Halidade-X. The windfarms are due to start operations in 2022.

Over the coming decade they plan to treble renewable output to 30TWh per year which would be enough to power the whole of Scotland. This is the main reason for adding this company to my green portfolio earlier in the year.


The company have today released results for the full year to end March 2020 (link via Investegate). They appear to be making progress in restructuring the business to focus on the core electricity networks and renewable energy.

Adjusted profits before tax are up 49% to 1.0bn and adjusted earnings per share up 35% to 83.6p which supports the full year dividend of 80p. A final dividend of 56p will be paid in September (xd 23rd July). They confirm a target of 80p plus inflation for the coming year which gives a fwd yield of just under 6% based on the current share price.

It is pleasing to note that profits from the renewables arm increased by 24% to £567m (2019 £456m) due to more favourable weather conditions and the additional capacity from Beatrice offshore wind farm. This represents around 38% of the total compared to 30% in 2018. Renewables are on track to generate the lion's share of profits in the future.
Richard Gillingwater, Chair of SSE, said:

"2019/20 was a year of progress for SSE.  Financially, there was a solid recovery from the previous year.  Strategically, we reshaped the Group with the sale of Energy Services and increased our focus on our core businesses of regulated electricity networks and renewable energy.  Operationally, these businesses made significant progress towards our strategic priorities and ambition to be a leading energy company in a net zero world.

Climate change remains a critical issue and we see significant opportunities to create sustainable value for shareholders and society through contributing to a much-needed green economic recovery and supporting the transition to net zero emissions."
Share Price past 3 years  (click to enlarge)

Covid is expected to have some impact on profits over the coming year and the current assessment is in the range of £150m to £250m before mitigation. However, the management are fully aware that the consequences of failing to tackle climate change will be far greater than those of the coronavirus. They have published their 'greenprint' for a cleaner more resilient recovery from Covid and are pressing the government for greater ambition and an increase in offshore wind to 75 GW by 2050.


SSE will be pleased to have disposed of its retail energy service arm to Ovo following the failed attempt to offload to nPower last year. The plans to wind down coal and gas, decarbonise the business model and focus on renewables is clearly the way to go in my book - I would not have added to my portfolio otherwise!

The new Government have pledged to increase the UK's offshore wind capacity from 8.5GW to 40GW over the coming decade. This is a very significant shift in our approach to energy as we move away from fossil fuels and should give confidence to the renewables industry and provide profitable opportunities for the established operators such as SSE and Orsted.

SSE have pledged to invest £7.5bn in new and upgraded infrastructure over the coming 5 years. 90% of this will be allocated to the core business of renewables and electricity network. Spend on renewables infrastructure projects include Seagreen, Dogger Bank and the new 443MW Viking onshore wind farm in Shetland - the largest in the UK. They have increased the target for cuts in carbon emissions from 50% to 60% by 2030.

It is clear SSE will play a significant part in the UK's transition to a net zero emissions economy and I am hoping the increasing share of the core business moving to SSE renewables will provide value for its shareholders.

The share price has been under pressure in recent years and certainly during the past few months but these results appear to have received a good reception from the markets with the shares up 9% to £13.82 at the close.

The shares were added to my ISA in two tranches earlier this year at an average price of £15.00. My timing was not great and had I waited just a couple more weeks I could have picked them up for £11.00 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!