Thrive Renewables - Full Year Results

In 2018 I started to transition to a more climate-friendly portfolio to bring my investments more closely in line with my values and lifestyle. So, last year I decided to take up a stake in a new share offer from Thrive Renewables (previously Triodos Renewables). The crowdfunding raised a total of £6.8m and saw 900 new shareholders join the Thrive community. The shares account for around 5% of my green portfolio.

This is 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.

About

Thrive has been going since 1994 and is all about connecting ordinary people and sustainable renewable energy opportunities. They now have around 7,000 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 certified 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. Thrive are committed to reaching net zero carbon emissions by 2030 and have already achieved zero with scope 1 & 2 emissions.

Results

The company have recently released results for the full year to December 2022 (link to pdf via Company website).

Turnover increased by 59% to 17.5m which resulted in gross operating profits of £6.7m compared to just £2.5m in 2021.

Clean energy capacity increased by 6MW with a further 25MW under construction. The portfolio generated a total of 133,858 MWh of clean electricity over the year - enough to power 38,000 homes or the equivalent of a town the size of Halifax.

“2022 has been a challenging year for many, with energy bills soaring as a result of the UK’s dependence on gas. Our response is to continue getting new renewable capacity built. This includes community-based projects such as England’s largest onshore wind turbine, as well as funding new rooftop solar arrays that help UK businesses to decarbonise and constructing a 20 MW battery storage project that will offer vital flexibility services to the grid. We've allocated a total of £11.4 million to developing more projects - all of which will help with decarbonising the UK’s electricity system so that people can benefit from cheaper, cleaner power in future.” – Matthew Clayton, Managing Director, Thrive Renewables

Power Prices

Most of Thrive’s income comes from the sale of renewable electricity. The wholesale market has been very volatile in recent years. For the 5 years to April 2021, the average price was £46/MWh but by August 2022 the price had risen to £370/MWh...an 8-fold increase.

Thrive manages its exposure to this volatility by maintaining a variety of long-term power purchase arrangements (PPA) and fixing the price for up to two years in advance. So already in May 2023 the majority of prices have been agreed for the whole of this year and beyond.

Around 37% of current generation benefits from government legacy 20 year support under the Feed in Tariffs and ROCs but more recent and future projects will obtain revenues from a range of power and grid servicing arrangements. These include selling power directly to the market via PPAs, selling power directly to industry via a private direct wire, entering into arrangements for government backed Contracts for Difference and, in the case of battery storage projects, providing grid servicing and balancing to take advantage of periods of high demand.

Community-Owned Onshore Wind Turbine

Projects over the year included England’s largest community-owned wind turbine supporting Ambition Community Energy in Bristol and the construction of a 20MW Feeder Rd battery storage site. They also secured government funding of £91m towards a new ground-breaking geothermal energy site in Cornwall. This will involve drilling down 17,000 ft to extract the heat from the granite rocks which should provide heating and hot water for 3,800 homes in the Redruth area.

This was a record-breaking year for wind across the UK and combined with higher energy prices, the board are increasing the annual dividend by 70% from 7p to 12p. This represents a yield of 5.1% on the price of 235p I paid for the shares last September.

Conclusion

Each year we see more and more evidence of the devastating impacts from the climate crisis all around the world. The latest warning from the World Met. Org. confirms something that has been apparent for some time - a probability that we will breach the key 1.5C global limit by 2027! Just last week N. Italy experienced its worst flooding for 100 years with 6 months of rainfall in a single day.

We need to decisively 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.

United Downs Geothermal Project

Obviously an investment in Thrive Renewables will only have a small impact on the climate crisis. But it is rewarding to know that your investment is making a positive difference and helping to build the clean energy projects that will move us towards net zero emissions. The more people that support 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!

The All-Weather Portfolio for Uncertain Times

A little while back I was thinking about the type of portfolio allocation that would be most appropriate for longer term investing during what could well be an uncertain future bearing in mind the significant threats posed by climate change. This report from Chatham House is one of many in recent times which highlights some of the risks we face over the coming decade and beyond. So, as I have pondered about these risks and how to position my portfolio, what came to mind was something I have known about for quite some time but until recently had dismissed as too extremely cautious... but the times they are a changin’!

What Is It?

The Harry Browne Permanent Portfolio is essentially an all-weather strategy and was devised in the 1980s by US investment analyst Browne. It is very simple and merely consists of an equal mix of equities, government bonds, gold and cash (or Treasury bills). Browne argued that this mix would be profitable in all types of economic situations. When times were good, equities would benefit; gold would prosper during periods of high inflation ( as we have seen over the past year or so); government bonds should perform better during periods of deflation and cash is king during a depression.

It is recommended that the portfolio is rebalanced every year to maintain the 25/25/25/25 mix.

Performance

Browne eventually created a fund based on his 1982 theoretical portfolio. Over the past 40 year period from 1976 to 2016, a hypothetical permanent portfolio would have given a compound annual return of 8.6% p.a. compared to a more traditional 60/40 portfolio return of 10.1%. The permanent portfolio returns come with much lower volatility. (via Investopedia)

According to Browne, the portfolio provides 3 key features - safety, stability and simplicity.

Possible Constituents

It should be fairly straight forward to set up a simple portfolio.

For equities, a low cost global index fund/ETF should fit the bill e.g. Vanguard All World ETF (VWRL). Personally I would prefer something that avoided fossil fuel companies so would select the likes of iShares MSCI World SRI (SGWS)

For government bonds maybe Vanguard Global Aggregate (VAGP)

Gold could be held via the likes of iShares Physical Gold ETF (SGLN)

For cash, I think the most obvious solution would be a higher interest cash deposit a/c with a building society.

None of us can know what’s around the corner and we live in increasingly uncertain times - climate change, Ukraine, Taiwan/China, inflation combined with high levels of government and corporate debt, the long term threats to humanity from AI chatbots - I just cannot see investment returns over the coming years from a more traditional 60/40 or 80/20 equity/bond mix being anywhere near the average of 8% or 9% we have seen over the past 20 or 30 years.

This excellent article from earlier this year on Monevator makes the case for looking further than just bonds for a truely defensive portfolio.

The benefit of the Permanent Portfolio is that it should deliver a half-decent return for investors in nearly every scenario short of the outbreak of nuclear war or some climate-related tipping point.

Conclusion

For some time I have been prevaricating on how to rebalance my portfolio to reflect the perceived risks ahead. This has resulted in a reduction in equities over the past 18 months or so and a significant increase in cash but of course holding high levels of cash over the longer term in times of high inflation is far from ideal.

There have been a few bumps in the road but on the whole, over the past 50 years, patient investors will have reaped their rewards when the markets bounced back. And after those downturns, investors have not had to wait too long for the 'inevitable' bounce-back...a year or so, maybe two years tops. But the markets don't always rebound as expected and as we are always reminded...past performance is no guide to the future. For example, during the Wall St crash of 1929, the Dow Jones index fell almost 90% from 381 in September 1929 to a low of 41 in July 1932. It was not until the end of 1954 that the index passed its previous peak of 381. The great optimism, consumer spending and economic growth of the 'Roaring 20s' became the Great Depression of the 1930s.

Just looking at my current portfolio mix, I am more or less on track to match the permanent portfolio with cash and government bonds so would just need to cut back on the equities a little more and increase gold quite a bit to create my diy all-weather portfolio. However, I will most likely be holding on to my renewable energy investment trusts which account for around 25% of my portfolio so maybe I will add them to the mix as an additional 5th asset class.

Could this is the ultimate set-and-forget portfolio?

Further reading - The Permanent Portfolio by Craig Rowland & J.M. Lawson

If you have any thoughts on the ideal defensive portfolio mix for an uncertain future feel free to leave a comment below.