SSE - Portfolio Addition

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 center of their operations and their aim is to be a leader in a low carbon world through significant future investment in renewable energy and storage solutions.

Last month they disposed of their retail 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 and the reason I have taken another look at this company.

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 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.

Dogger Bank Wind Farm

Last year, renewable accounted for around one third of profits however over the coming decade they plan to treble renewable output to 30TWh per year which would be enough to power the whole of Scotland.

Results

According to the latest Q3 trading update SSE Renewables output increased by 6.3% in the first 9 months which was 5% lower than expected. The company confirmed that operations at its last coal power station will cease in March and they are working on plans to dispose of gas production assets over the coming year.

Adjusted earnings are on track for around 85p per share and the expected full year dividend is 80p (interim 24p to be paid in March and final in Sept). At the current share price of 1602p, this gives a yield for shareholders of 5.0%. Full year results are due 22nd May.

To Conclude

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.

3 Yr Share Price (click to enlarge)

The share price has been under pressure in recent years but seems to be back on an upward trend these past few months and a rise of 60% since last May. Obviously with the wider market sell-off, there has been some pull back over the past week or so but much less than the FTSE 100 index. The shares were added to my ISA at the price of £16.00.

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!

Ceres Power - Portfolio Addition

Having had some rewarding returns from my recent acquisitions which focus on hydrogen - AFC Energy, ITM Power and Proton Power - I have been looking for opportunities to diversify my holdings.

Ceres Power is another AIM-listed company. It is a world leader in low cost, next generation fuel cell technology which can facilitate the transition to zero-carbon emissions. The technology can be used in a variety of applications - transport, industry, data centres and home heating.

It holds the LSE Green Economy mark awarded to listed companies that derive at least 50% of revenues from products or services that contribute to the global green economy.

Fuel cell technology is already a core component of energy strategies in Japan, Korea, Germany and the US. Ceres are working with global leaders such as Bosch to embed their technology in mass market products. The stationary global fuel-cell market is estimated to be worth over $40bn by 2030.

solid oxide fuel cell

In November 2019, the company announced its first zero-emission combined heat and power system designed exclusively for use with hydrogen fuel. The system can operate on all forms of hydrogen but the CHP technology running on hydrogen from renewables such as wind/solar offers a solution to tackling climate change and air pollution.

Expansion

In January 2020, German engineering giant Bosch increased its holding in Ceres from 4% to 18% citing their steel fuel cell technology as potentially the best in the business. Other partners include China's engines giant Weichai Power who hold a 20% equity stake and Japan car maker Honda. The proceeds of £38m will enable Ceres to expand into high power applications and diversify its existing technology into new areas including green hydrogen.

The company has licence agreements signed up with four of the world's largest engineering and power companies.

The deal with Bosch has obviously had a positive impact for the share price which has strengthened by over 40% in recent weeks and broke through 500p before falling back.

Huge Potential

Whilst there are many companies in the proton membrane fuel cell sector, global companies are signing up solely with Ceres in the solid-oxide fuel cell department where the company is a global market leader.

The company doesn't want to focus on fuel cell manufacturing but rather a technology licensing company working closely with a range of partners who are looking to adapt their business' and address the huge challenges posed by climate change.

Analysts at Berenberg have likened the companies licensing model to ARM Holdings whose RISC technology became the default during the smartphone revolution of the past decade. The broker suggests they could reach 40% to 50% operating margins and generate revenues of £800m each year from licensing agreements with their partners over the coming decade. Here's a recent article from Proactive Investors.

Ceres are growing quickly and have doubled revenues in each of the last four years. However, they are yet to convert the potential into profits for shareholders. For the last full year to June 2019 the loss was -£4.8m compared to a loss of -£9.9m the previous year. The company will publish interim results for the 6 month period to end December on 16th March.

6m chart v ITM Power (click to enlarge)

The share price has recently retreated from its all-time high point of 520p. The markets have tracked south today spooked by the spread of the coronavirus which has caused a sharp downturn in global equities. Equities may well experience further weakness in the coming days/weeks however I picked up my initial holding for my ISA at the price of 427p and will look to add on any further price weakness.

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!

TRIG - Full Year Results

This clean energy investment trust was launched in 2013 and gives investors an opportunity to tap into the European renewable energy sector - wind, solar and battery storage. They aim to generate sustainable returns from a diversified portfolio of renewables infrastructure that contribute towards a zero-carbon future.

It has grown steadily over the past seven years, from £300m at launch to become one of the largest funds in the renewable infrastructure sector with a current market cap. of £2.2bn. The shares were first purchased for my portfolio just after the results were announced last year and topped up with discounted shares from the share issue last March at the price of 114p. I also subscribed to a further placing of new shares in September at 123p per share which makes TRIG the largest weighting in my 'green' portfolio - currently 15%.

The trusts works closely with InfraRed Capital who have extensive expertise in the renewable energy market and flag up opportunities for expansion and also with Renewable Energy Systems who manage the assets after acquisition and ensure they are operated safely whilst delivering maximum efficiency.

Since launch in 2013, TRIG has outperformed the FTSE All Share Index with total returns averaging 10% p.a. plus lower volatility. The shares are increasingly in demand from institutional investors wanting to respond to the demand from their clients for more climate-friendly ESG investments and as a result the shares trade at a premium to net assets of 15%.

Results

The company have today released results for full year 2019 (link via Investegate).

Net assets total return for the period was 11.9% and profits before tax came in at £162m (2018 £123m).

Capacity has increased by 50% to 1,664MW and the portfolio of projects increased to 74 with new assets in offshore wind and further expansion in mainland Europe.

The board have announced a final dividend of 1.66p for the end of March making a total of 6.64p for the year and will target a 1.8% increase for the coming year to 6.76p. The dividends are well covered by earnings of 11.4p per share.

Europe

Since the government effectively blocked new onshore wind and solar in England and Wales from 2017, there has been a marked slowdown in these markets. The focus in recent years has been offshore wind with the new government looking to significantly expand capacity from 10GW to 40GW over the coming decade.

Over the past year the company has stepped up the push into Europe - Sweden, France and Germany which now accounts for 45% of the portfolio - up from 28% at the end of 2018. The directors have amended their mandate so they can now invest up to 65% in Europe and a minimum of 35% in UK.

Gode Wind 1

The company have made their first investment in Germany - the Gode Wind 1 represents the second largest offshore wind development in the world. This sector is forecast to grow 5x to 35GW by 2035.

On the solar front, both France and Spain have ambitious plans to grow the sector with plans for 45GW in France by 2030 (up from 8GW) and 77GW in Spain (up from 5GW). The company are currently looking to expand into this sector which makes sense given the high levels of irradiation in Southern Europe.

Commenting on the results, Chair Helen Mahy CBE said:

"2019 marked another strong year for TRIG, increasing our NAV and our dividend target.  We have been well supported by our shareholders with two successful fund raises during the year enabling us to make further attractive investments. Renewable energy has a central role to play in decarbonising our energy usage and we remain confident that TRIG will continue to play its part in the energy transition.

Renewables will play a major role in tackling global greenhouse gas emissions and mitigating climate change, the defining issue of our time. At TRIG, we recognise that emissions are at record levels and continued action is essential to mitigate the adverse impacts of pollution and global heating for future generations. Our portfolio, including committed investments, generates enough renewable power for one million homes and is capable of avoiding approximately 1.1m tonnes of carbon emissions per annum.

TRIG is notable amongst renewables investment companies for its portfolio diversification, both in terms of geography, with investments across the UK, Ireland, France, Germany and Sweden, and technology, with investments in wind, solar and battery storage assets. This has helped us manage exposures to power markets, weather patterns and regulatory risk and thereby enhance our NAV resilience and dividend stability".

Conclude

The demand for more renewable electricity both in the UK and Europe will only be moving in one direction as governments come under increasing pressure to decarbonise their economies and meet their carbon emission reduction targets. The UK government have recently announced all new cars will be emission free from 2035 and this date could be brought forward to 2032. 35 million pure electric cars on our roads will require lots of clean energy.

TRIG 3 yr Share Price - currently 137p
(click to enlarge)

In addition, gas which heats 90% of our homes is due to be phased out for all new house builds from 2025 so there will be increased demand for alternatives for space heating. Hydrogen from renewable energy will be part of the mix as well as electric heat pumps.

The increased demand should provide support to long-term power pricing.

I would not be surprised to see some take-over activity in this sector over the coming year or two as the big oil majors step up their efforts to meet their obligations under the Paris Agreement. The likes of TRIG and Greencoat UK Wind could well become a target.

Happy to hold for the foreseeable future.

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!

Passive Investing and Climate Change - A Few Thoughts

Over the past year or so, the global climate emergency has risen to the top of the political agenda. Every day we are reminded of the effects of a gradually warming world - wildfires in California and Australia, hurricanes and typhoons, closer to home the widespread flooding in South Yorkshire and Derbyshire at the end of last year. Currently, disruption from storm Ciara with winds gusting up to 95 mph and widespread flooding and 200 flood warning issued by the environment agency.

More and more school children are taking to the streets every Friday and Extinction Rebellion captured the headlines for many weeks as they organised mass protests in London and elsewhere to highlight the climate issues. Surely this sort of direct action will increase this year.

Naturally, a growing number of people are starting to question where their savings, investments and pensions are invested and finding they may be contributing to the climate problem - invested in fossil fuel companies or companies involved in the destruction of the Amazon rainforest. They are increasingly demanding their money is moved to investing for good and sustainable solutions rather than continuing to support the big business which are part of the problem which has got us to this point.

Snowdrops at their very best in early Feb  (thanks Jan!)

The Case Against Index Funds

Globally diverse, low cost index funds and ETFs from the likes of Vanguard and BlackRock have become increasingly popular over the past decade. Indeed the Vanguard Lifestrategy and HSBC Global Strategy funds formed the core of my investing portfolio for several years.

However, in 2019 I took the decision to dispose of my index funds. This was due to the fact that these funds hold a significant proportion of fossil fuel companies involved in the extraction of oil, gas and coal as well as all the major banks which fund their operations and also the insurance companies which underwrite them. If I was to take stock of all the large companies in any global index, I would suggest well over one third are continuing to make global warming worse and despite assurances to the contrary. They are failing to align their business models in line with the Paris Agreement to reduce CO2 levels well below 2.0C by the end of the century.

Obviously I get it that the whole point about passive investing and index funds is to stay above the fray, avoid trying to beat the market etc. but what's a person supposed to do when a large part of that market is hell-bent on destroying the planet and refusing to make any changes? The sort of capitalism championed by the likes of President Trump and Scott Morrison!

What To Do

Obviously, the starting point for any responsible investor is to avoid the sectors which are the most polluting - coal, oil and gas. However, this is currently almost impossible to achieve by adopting the passive approach, even using the so called ESG funds, they all seem to hold the big oil companies and the big banks which fund their continuing operations for exploration and drilling.

The big pension funds and institutions are ahead of the curve and are starting to divest out of these fossil fuels. The more this gathers momentum, the more risk builds for those who remain invested.

Fossil fuels is not the only sector to be affected - there is a strong possibility the transition will impact airlines, cruise industry, motor manufacturers, space exploration as well as the big insurers and banks which are closely connected to these sectors.

Having decided in 2018 to transition to a more climate-friendly portfolio, I naturally put my index funds - Vanguard Lifestrategy and HSBC Global Strategy which together had previously formed the core of my investments - under the spotlight in early 2019. I came to the conclusion that holding a little bit less of an oil company drilling for ever more oil in the Arctic was not the answer - this seems to be the basic proposition offered by the majority (all?) of the ESG funds.

Therefore to avoid these sorts of dubious companies, it was necessary to move back to those actively managed funds which avoid these sectors such as the likes Mid Wynd and also individual company shares - Orsted, Vestas, ITM Power etc. where it was fairly clear what activities the company are engaged in together with a range of renewable infrastructure trusts.

The Future

I am hoping that the index fund providers will come up with some climate-friendly index alternatives. I was encouraged to hear last month that Blackrock has joined Climate Action 100+, the world's largest group of investors pressuring the big companies to act on climate change. 

Global assets under management...$7 trillion

CEO Larry Fink has said : "Climate change has become a defining factor in companies' long-term prospects … But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. In the near future — and sooner than most anticipate — there will be a significant reallocation of capital".

In the light of this acknowledgement, I think it is now far more likely Blackrock will soon be offering investors the option of fossil-free alternatives to their main index funds and ETFs.

For the fossil fuel companies, the passive investing revolution of the past decade has provided support for their shares as a steady stream of investors money has headed their way. Furthermore, the big index fund providers such as Blackrock and Vanguard have shielded their executives from climate scrutiny...until now.

I sense the tectonic plates of the global financial system are beginning to move more quickly. Pension funds, local authorities and institutional investors are increasingly coming to realise they can no longer afford to be passive when it comes to addressing our climate crisis. I am sure that when investors have the opportunity to invest in a more climate-friendly way they will switch their money into investments which do not compromise the planet and life as we know it.

It just has to made simpler for everyone to make such a choice. 

If you have any thoughts or opinions on the climate issue and passive funds, feel free to share them in the comments below.

Vestas Wind - Full Year Results

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. It's market cap. is currently 143bn DKK (approx £16bn).

The shares were added to my ISA portfolio last October at the price of 535 DKK.

Results

The company have this week released results for the full year to end December 2019 (link via Company website).

Orders have increased by 25% to a record 17.9MW. Revenues increased to 12.15bn EUR (10.13bn in 2018) with the bulk of this provided by their Power Solutions sector - 10.3bn and a further 1.9bn from servicing.

They propose a 6.6% hike in the dividend to 7.93 DKK which equates to just over 1.1% at current share price.

Commenting on the results, group CEO, Henrik Andersen said :

“Wind energy manifested its position as a leading global energy source in 2019, driving Vestas’ order intake to a record 17.9 GW, 20 percent growth in revenue and expected high activity levels in the coming years. In an extraordinarily busy year, Vestas extended its industry leadership, met its guidance on all parameters and scaled the company to deliver on our highest-ever order backlog of EUR 34bn.

Once again, our Service business delivered year-on-year growth and improved profitability, underlining its strategic importance in a tough market. In 2019, the industry thus faced challenges from trade wars and tariffs, causing execution costs to increase, which we expect to continue in an even busier 2020.

Together with our customers and partners, everyone at Vestas worked vigorously to create the momentum to finish 2019 strongly, and we must continue this momentum to achieve our goals for 2020. As we continue to lead the transition towards a world powered by sustainable energy, we remain focused on executing our strategy and pushing the industry to higher levels on technology, profitability and sustainability,” 

The results have been well received with the share price rising 5% to 721 DKK on Wednesday.

12m share price chart  (click to enlarge)

Outlook

The company expects strong growth in the renewables sector over the coming decade. They forecast that global renewable capacity for electricity will increase from 10% to 35% by 2035 with annual investment in wind power to double to $200bn during this time frame.

Vestas has launched a seriously ambitious sustainablity drive throughout their own business and entire value chain. The company aims to become carbon neutral by 2030 and produce zero-waste turbines by 2040.

As with Orsted, I am more than happy with my acquisition and may look for an opportunity to top up my holding over the coming few months.

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!

Orsted - Full Year Results

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, Holland the US and also Taiwan. Total offshore capacity is around 7.5GW and the recently completed Hornsea 1 is the largest in the world accounting for 1.2GW.

The US arm has recently started work on their first utility scale solar+storage project. A 460 MW facility in Texas which is due to become operational in mid 2021.

The shares were added to my portfolio in April at the 495 DKK and have advanced nicely over the past few months to currently 740 DKK - an increase of 50%. The shares represent around 9% of my 'green' portfolio.

Renewable energy is very much in the ascendancy due to concerns about our climate emergency. 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 from fossil fuels to low-carbon clean energy.

Results

The company has recently announced full year results to end 2019 (link via company website).

Operating profits were ahead of expectations and increased by 17% to DKK 17.5bn (2017 13.3bn). The dividend will increase by 7.7% to DKK 10.5 - a yield of 1.4% based on the current share price.

Henrik Poulsen, CEO and President of Ørsted, says:  “2019 was a great year for Ørsted with continued strategic progress and global expansion. We achieved a very satisfactory operating profit (EBITDA), and the green share of our heat and power generation increased to a new high of 86%.

We reached significant milestones by winning two large-scale offshore projects in the US. We were awarded 1,100MW with our Ocean Wind project in New Jersey and 880MW with our Sunrise Wind project in New York. With these awards, we have secured a US offshore wind portfolio with a total capacity of 2.9GW to be completed towards 2024. In addition, we have up to 4.5GW of lease rights which can be developed for future offshore wind projects in the US. The Sunrise Wind project will be constructed together with our partner Eversource. For Ocean Wind, we are in exclusive negotiations with the Public Service Enterprise Group (PSEG) regarding a joint venture agreement to acquire 25% of the project.

In the UK, we commissioned Hornsea 1, the world’s largest offshore wind farm with a capacity of 1,218MW. We passed further milestones when we inaugurated phase two of Taiwan’s first-ever offshore wind farm Formosa 1, and when we commissioned the onshore wind farm Lockett in Texas in the US".

Investment for the coming year will be around DKK 30bn reflecting high levels of construction activity for both offshore and onshore wind as well as solar PV.

A decade ago, this company was heavily involved in oil & gas but has transformed itself to become the most sustainable company in the world according to Corporate Knights Global 100 Index. The management realised that fossil fuels were neither environmentally or financially sustainable - something the other large oil companies have yet to grasp.

The company has the ambitious target of becoming carbon neutral by 2025. Their vision is to see a world run entirely on renewable energy.

Orsted is one of six stand-alone company shares I have added to my 'green' portfolio over the past year and as it currently represents around 9% of the whole portfolio, I don't want to go too much overboard with any one holding. But obviously very happy with progress so far and hoping for more progress over the coming year or two.

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!