Don’t go bananas but tomorrow is the deadline for applications to Great British Nuclear to develop small modular reactors, possibly including one near you. Few issues facing our new government are more important — or controversial — than the transition from dirty coal and oil to cleaner, renewable energy.
This could boost our economy by £57 billion, according to the Confederation of British Industry (CBI). Nobody calls them “watermelons” — woke folk who are green on the outside but red inside.
Labour aims to cut carbon emissions from the electricity grid to net zero by 2030 and briefly pledged £28 billion a year to do so. Then it dumped those plans in the recycling bin on fears that they would supercharge household bills. Even so, it remains committed to creating “650,000 new high-quality jobs” producing electricity from solar, wind and nuclear power.
Energy independence and net zero are among the new government’s few stated goals. But how we get there, who builds the nuclear reactors and where they are based is unclear. Before Thursday’s ballot, the head of the CBI, Rain Newton-Smith, pleaded: “No more prevarication, no more rowed-back commitments. The government has to let the world know it’s serious about investment opportunities from net zero and that we’re in this for the long-haul.”
Individual investors already supply some of the capital required because there is a limit to what the state can spend on our behalf. Now Labour is creating another quango, to be called Great British Energy, plus extending the Conservatives’ energy profits levy, although it remains unclear how increased regulation and taxation will galvanise economic growth.
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So a diversified mix of different sources of power is needed to keep us warm and in work when the sun don’t shine and the wind won’t blow. Energy is essential to the economy and investors who want to own real assets should have some exposure. Here are six shares — ranging from the clean to the debatable and the downright dirty — some of which have given me income and growth during more than a decade.
• Renewable energy: how and where to invest
The investment trust Ecofin Global Utilities and Infrastructure (stock market ticker: EGL), is my biggest energy stake, sitting just outside the “forever fund” top ten by value. I began buying in March 2011, paying £1.22 per share for what was then called Ecofin Water & Power Opportunities.
Today, this portfolio of low or no carbon electricity producers generates 4.6 per cent dividend income, which increased 4 per cent a year on average over the last five years, according to the independent statisticians Morningstar. The shares cost £1.77 at close of business on Friday, which is nearly 13 per cent lower than their net asset value (NAV). EGL will never shoot the lights out but its largely inflation-proof income is comforting.
Next up, Exxon Mobil (XOM), the oil and gas giant, replaced Shell in my modest portfolio when I fled from talk of Tory windfall taxes and paid $91 per share in March 2022, as reported here at that time. The shares cost $113 on Friday.
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Dividend income of 3.3 per cent, rising a modest 2.6 per cent per annum, is part of the attraction — as is XOM’s discovery of one of the world’s biggest oil and gas reserves off the coast of Guyana, in South America. Whatever characters glued to the tarmac may claim, we need fossil fuels to keep powered up during what Germans call “dunkelflauten”, or dark and still days when solar and wind won’t work.
Yellow Cake (YCA) yields no income but glows in the dark with controversy because this Jersey-based business owns more than 20 million pounds of uranium, stored in Canada and France. The oxide of this metal, needed for nuclear power, is more formally known as U₃O₈ and colloquially called yellow cake.
These shares cost £4.86 when I invested last September, as reported here at that time, and traded at £5.70 on Friday. They might have further to go if self-sufficiency through renewable energy becomes a priority for more countries and companies.
UPM Kymmene (UPM) is an example of the latter. This Finnish forestry giant is moving out of paper and into bio-fuels, using trees to replace oil in the production of plastic. Its stake in Europe’s biggest nuclear power plant, Olkiluoto in the Gulf of Bothnia, provides the energy behind shares I bought for €29.70 last August. They now cost €32 and yield 4.6 per cent dividend income, rising by 2.9 per cent.
Greencoat UK Wind (UKW) is the self-descriptive investment trust where I paid £1.45 last August for shares that fetch only £1.35 now. However, they yield 7.6 per cent income tax-free in my Isa, surging 8.1 per cent higher per annum, and I would rather be a buyer than a seller of shares priced 17 per cent below NAV.
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Finally, Woodside Energy (WDS) stock was issued “free” to shareholders in the miner BHP Holdings (BHP) after the dirty digger left London and cleaned up its act. Australian oil and gas continue to yield 7.6 per cent income with WDS priced at £15.40.
Closer to home, expanding energy sources may entail planning permission conflicts with the militant wing of the “nimby” tendency. If our new government is serious about keeping the lights on, sooner or later it will have to confront vociferous voters and protesters sometimes called Bananas — Build Absolutely Nothing Anywhere Near Anyone.
The power shares that proved a turn-off
Small companies involve big risks because they are less likely to be long-established, diversified businesses and more probably put all or most of investors’ money on one idea. This risk warning should be underlined where the idea is a new one that might work but probably won’t.
Step forward Sheffield-based ITM Power (ITM), which makes machines that use renewable electricity to split hydrogen out of water. The share price has been almost as volatile as the explosive gas but might now gain from our new government’s plan to “level up” in Yorkshire and elsewhere, even if the Northern Powerhouse was somebody else’s idea.
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It’s more than a decade since I first plugged into ITM, paying 41p per share in January 2010 after the billionaire Peter Hargreaves told me about it. I took profits at 56p the following year before investing 2 per cent of my life savings at 124p in January 2020, as reported here at that time.
Thank heavens I took two thirds more cash out the following January and March by selling at 539p and 446p, as also reported here. The shares languished at 50p on Friday.
This should remind investors that paper profits are all very well but we haven’t really made a penny until we sell. Last month’s trading update from ITM predicted it will halve its losses while trebling revenues since last year.
Looking forward, this business might benefit from the drive to revive de-industrialised parts of our country with renewable energy. Investors willing to accept extreme volatility and the risk of losing all our money could clean up. Again.
Full disclosure: Ian Cowie’s shareholdings
