Thursday, 24 October 2019

Vestas Wind - Portfolio Addition

Following on from my acquisition of Orsted earlier this year, I have decided to add another Danish-based renewable energy company to my green portfolio.

Vestas is one of the world's leading players in wind turbines - it designs, makes, installs and services both onshore and offshore turbines and holds the record of providing more turbines throughout 80 countries than any other company. The core of the business is providing sustainable, clean and affordable energy to people all around the world.

They are the global leader in onshore wind - over 100 GW installed and also onshore servicing. They are #2 in offshore wind (behind Orsted) with 5 GW installed and plans to double this by 2022.

The Drivers

Demand for renewable energy solutions is growing rapidly and according to a recent report from the International Energy Agency, could expand by a further 50% by 2024 due to the rapid electrification of transport, industry, heating and cooling. During the coming decade, around 1,500 GW of power from coal, oil and gas will be retired. Renewables are expected to increase capacity to fill the gap and grow from around 10% today to at least 30% of global energy by 2035.

As a global leader in wind power solutions, Vestas should be well placed to capture a fair share of this growing renewables demand.


According to the recent half year results, high demand for their product has led to a record-high order intake and a 15% growth in service revenues. The order backlog stands at an all-time high of EUR 31bn. However profits and margins are down so a bit mixed.

3 Yr Share Price

As can be seen from the chart, the share price can be volatile and of course there are FX considerations as the shares are listed on the Copenhagen stock exchange.
The shares have been added to my Halifax ISA and the purchase price was 535 DKK (approx. £63.00).

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!

Friday, 4 October 2019

ITM Power - Finals & Key Partnership Announced

This small AIM-listed clean energy company was added to my portfolio in August. 

It has recently announced results for the full year to end April 2019 (link via ITM website). Sales increased by 40% to £4.6m and grant revenue was up 75% to £7.2m.

However, the company is still not profit-making as it invests heavily to scale-up its operations. Cash burn this year was £15m and the company now needs to raise more cash to keep the show on the road. 

It has therefore announced plans to raise a minimum of £52m from equity fundraising. This involves a new partnership with Linde AG for £38m and then a placing with institutional investors for £14m and an open offer of £6.8m.

Linde Engineering Joint Venture

This is a big deal for ITM. Global industrial engineering group Linde will acquire a 20% stake in ITM for the £38m. The 50:50 joint venture will target an increasing number of companies and governments that are looking to green hydrogen as a solution to tackling climate change. These include the storage of renewable energy and grid balancing as well as the essential task of reducing CO2 emissions from sectors such as transport and heavy industry. ITM will focus on hydrogen production from its electrolysers whilst Linde will look after the engineering and construction side of the projects.

Graham Cooley, CEO of ITM Power plc, said: 
“The major strategic investment from Linde cements a five year relationship between us and provides ITM Power with a world leading partner that brings deep expertise in engineering, procurement and construction and a global customer base. The joint venture will enable us to focus on our core competency of the development and sale of electrolysers, and with Linde as our partner to deliver green hydrogen at scale, The successful fundraising provides the financial resources to exploit this exciting opportunity to the full.

We are seeing increasing global demand for hydrogen as a solution to renewable energy storage needs and the decarbonisation of major industrial processes. The fundraising and our partnership with Linde will help us to meet this demand on a growing scale, deliver efficiencies throughout our supply chain and represents a significant step on our pathway to medium-term profitability”

Energy Observer - World's First Hydrogen Powered Boat

The Case for Hydrogen

Hydrogen is the most commonly occurring element in nature and is set to play a defining role in the 'green' industrial revolution as it replaces 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 used as a gas to replace natural gas for heating our homes. It is a clean source of energy and when used the only emissions are water and heat.

12 m Share Price

The announcement seems to have gone down well with the market as the share price jumped 11% to 48p yesterday. Good news for me as my investment is up 30% since purchase and I will certainly take advantage of the open offer of a top-up to my holding at 40p if available via my broker.

Hopefully these moves can translate to profitability over the coming year.

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!

Tuesday, 1 October 2019

Divesting My Portfolio of Fossil Fuels is Complete

For some time now, I have been concerned about the impact of the major oil companies in relation to global warming. Here's an article from earlier in the year outlining some concerns about investing in fossil fuels.

The extraction and burning of fossil fuels is the main cause of our climate crisis. The message is fairly simple, to have any chance of keeping warming below the 1.5C or more likely 2.0C, we can no longer afford to use coal, oil and gas.

The goals set out in the Paris Agreement to tackle our climate emergency require a complete decarbonisation of the global economy. Clearly the first stage of this process is to switch our energy production. The IPCC have indicated that the world needs to make a speedy transition from fossil fuels to renewables to limit warming to 1.5C but the message is largely ignored by the industries who have a vested interest in maintaining business as usual. The governments of the large industrialised nations, including the UK, spend over $100 bn each year to subsidise large fossil fuel extraction companies.

The large oil companies acknowledge the threat and in their annual report last year Shell said :

“Rising climate change concerns have led and could lead to additional legal and/or regulatory measures which could result in project delays or cancellations, a decrease in demand for fossil fuels, potential litigation and additional compliance obligations.”

The report specifically identifies fossil fuel divestment campaign as a material risk: 

“Additionally, some groups are pressuring certain investors to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access equity capital markets.”

It also highlights the risk of climate litigation efforts: “Further, in some countries, governments and regulators have filed lawsuits seeking to hold fossil fuel companies liable for costs associated with climate change. While we believe these lawsuits to be without merit, losing any of these lawsuits could have a material adverse effect on our earnings, cash flows and financial condition.”

So long as these industries continue to explore for new oil reserves and exploit the environment, I have no desire to support their activities or invest my money in their shares. Likewise the big global banks which finance their activities.

I believe the most effective way to get their attention is to divest away from big oil. For a start, these are becoming increasingly risky assets to hold in a portfolio and secondly, continuing to derive profits and dividend income from such companies is ethically unacceptable if you understand the role of fossil fuels and our climate crisis.

Does It Work?

Some people suggest that selling shares in these big oil companies has no effect because the shares are merely bought by someone else. However, as Bill McKibbin argues in this article for the Guardian, divestment can weaken the reputation and financial creditworthiness of these companies that continue with business as usual. The US trade association spend millions on lobbying governments and media campaigns to discredit the divestment movement.

The acid test will be share price performance and we have seen this year that Exxon has fallen out of the S&P 500 index top ten for the first time in over 90 years. In fact oil and gas accounts for just 4% of the index compared to 12% just a decade earlier. The S&P is up around 15% this year to date, but the oil stocks are down 3%.

According to this latest report from $11trillion has so far been committed to divestment by institutions worldwide.

For me, it just feels better being part of the solution rather than continue to support the pollution.

In recent years over 1,000 institutional investors  have decided to divest their portfolios of fossil fuels. Many of these large organisations are beginning to understand the risks of investing in fossil fuels. Our Parliament's pension fund have agreed to develop a new climate change investment policy following representation from 200 MPs. Two thirds of UK universities have pledged to divest from fossil fuel companies. New York City $200 billion pension fund has put forward legislation to divest from oil and gas stocks. Norway's $1 trillion sovereign wealth fund - the world's largest - has started to divest from oil and gas exploration companies.

The ball is rolling and will only get more momentum as the protests from the likes of Extinction Rebellion and School Strikes for a Future grow in estimated 6 million worldwide took to the streets last week.

However, ditching these fossil fuel companies is not straight forward. Sure if you hold shares in the individual companies likes of Shell Oil or BP, it's easy to sell them and reinvest the proceeds elsewhere. But many investors hold collective investments such as investment trusts or maybe in their pension scheme and are simply unaware of what shares are held by the manager. Furthermore, as I established at the start of the year when I put my global index funds under the spotlight, multi-asset tracker funds such as Vanguard Lifestrategy can hold a surprisingly high proportion of these undesirable assets when you drill down under the surface (pun intended!).

The FTSE 100 for example holds 17% from the oil & gas sector - principally oil majors Shell and BP. Vanguard's Developed World Index (ex UK) holds 5.2% oil and gas stocks including Exxon Mobil, Chevron and Total SA.

Globally diverse index funds have gained in popularity in the past decade, in part due to their lower costs compared to managed funds. However, the likes of Vanguard and Blackrock need to react quickly to the climate emergency otherwise they continue to be part of the problem.

My Personal Divestment

Obviously if we maintain a portfolio of individual shares, something I used to do, it will be obvious what shares we hold and most investors will keep track of dividends and the annual report. If we hold investment trusts or OEICs, it can be a little more tricky to know what individual investments the manager holds but this information should be available from perusal of the annual results or failing this by contacting the fund managers.

Over the past year I have sold my investment trust which hold oil shares - so, City of London and Aberforth Smaller were disposed of in February. Later in the year I sold my global index funds - Vanguard Lifestrategy 40 & 60, Vanguard SRI Global and HSBC Global Strategy and also my Baillie Gifford Managed fund. I also sold Edinburgh Worldwide trust and Scottish Mortgage which both recently acquired Elon Musk's SpaceX and related companies involved in rocket development and space exploration.

The proceeds have been reinvested in my growing green portfolio and some remains in cash awaiting further climate-friendly opportunities. However, my portfolio is now fossil-free and also divested out of the big banks which provide the life support for these big oil Some people will regard the transition of divesting fossil fuel companies and their backers as more risky but I would contend it is probably more risky to continue holding them, regardless of the moral and ethical considerations. But everyone must make their own decision.

  • energy generation from oil & gas (also coal) is now more expensive than renewables such as wind and solar, 
  • continuing to use oil and gas is morally unacceptable due to the climate crisis, 
  • the fossil fuel sector has underperformed the wider market for the past decade, 
  • there are increasing number of law suits filed against big oil.

Remaining invested in this sector is increasingly risky, so I am pleased to have finally managed to secure a more climate-friendly investment portfolio.

For further reading/reference :

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!