Green energy – Opportunities for investors

The UK government recently released its British Energy Security Strategy. It sets out how the UK will accelerate the deployment of wind, nuclear, solar and hydrogen, whilst supporting the production of domestic oil and gas in the nearer term. The strategy could see 95% of electricity being low carbon by 2030. Understandably, the plan aims to break with any reliance on Russian oil and gas while boosting renewable energy sources. But there has been plenty of criticism over the strategy, not least in that it does nothing to help tackle soaring energy bills currently facing consumers, and set to continue for months, or even years to come. The strategy is about preparing for the future, not now. But can it help investors decide where to put their money over the coming years, and maybe offset those rising costs?

Nuclear

Nuclear energy is a surprisingly large part in the mix. The strategy aims to deliver up to eight new reactors before 2030, with nuclear supplying 24 gigawatts (GW) of electricity by 2050, or around 25% of the UK's predicted energy demand. As things stand, the UK has 15 reactors supplying around 20% of demand, with most expected to cease operations before the end of this decade. Consequently, it looks as if there will be opportunities around the building and operating of nuclear reactors in the UK.

Wind

Offshore wind is an even bigger part of the plan. The strategy envisions offshore wind delivering 50GW of energy by 2030, more than double that of nuclear. About 10% of this may come from floating turbines which are far less controversial than onshore wind farming is proving to be. To this end the government has vowed to relax planning rules to speed up the approvals process from four years to one.

Oil and gas

There are also plans to encourage new North Sea oil and gas projects, and a taskforce will be set up to consider new developments. Ministers say this is not about burning more fossil fuels, but rather producing it domestically as we transition to renewables. Alongside the strategy, a new scientific study has also been commissioned into fracking - the process of extracting shale gas from the ground. To the considerable annoyance of Extinction Rebellion and other green pressure groups, the Business Secretary Kwasi Kwarteng says the war in Ukraine means it is right to look at "all possible domestic energy sources”.

Solar

On solar the plan is to increase the UK's current 14GW solar capacity by 500% to 70GW by 2035. But as with onshore wind, plans for new farms have faced local resistance, including from Conservative MPs.

Hydrogen

There is also a target to double UK hydrogen production to 10GW by 2030. Hydrogen is a fuel that emits only water when used. But it rarely exists as a gas and must be separated from other elements, a process that requires a considerable amount of energy. The strategy acknowledges how expensive current processes are, and rests on hopes that advances in technology can reduce costs. ‘Green’ hydrogen is generated entirely by renewable energy or from low-carbon power. Green hydrogen could be a critical part of a sustainable energy future and key to decarbonising sectors like steel manufacturing, shipping, and aviation. For this reason, it is already proving to be a target for venture capitalists and others looking for the next important investment trend.

Fusion

Another potential game-changer in the aim of creating a sustainable energy future is nuclear fusion. There are several projects currently underway, with some working to improve existing technologies while others are coming from completely different angles. Fusion works on the same principle as the Sun in creating energy. Unlike nuclear fission, there are no unpleasant waste materials with which to deal, so energy production is much safer while also being abundant. There have been some recent breakthroughs, but the probability of creating energy from nuclear fusion and getting it onto the national grid before the end of this decade is small.

Big spenders

Of course, it is not just the UK government that is planning to spend large amounts on green energy. The US is looking to pour in billions through the Biden administration’s ‘Build Back Better’ campaign. The $1.75 trillion bill includes plans to spend over $500 billion on climate programs to help reduce greenhouse gas emissions. At the corporate level it includes incentives for the domestic manufacturing of renewable technologies including solar panels and wind turbines. The bill also offers tax credits to individuals for the installation of renewable energy systems including solar and wind, and for the purchase of electric vehicles.

Conclusion

In conclusion, there is a lot of government (or should I say taxpayer) money getting pumped into green energy projects. Some of the technologies mentioned above are well-established, while others are yet to be properly tried and tested. Consequently, there should be opportunities for both medium and high-risk investors. Unfortunately, for retail traders, some of the most exciting work going on, around fusion for example, is just about impossible to get exposure to. In addition, governments may be about to pour enormous amounts of taxpayers’ money into green energy projects, but it can be difficult to choose winners over losers. Nevertheless, it is quite straightforward to carry out some homework and find out where there are companies doing work in hydrogen, nuclear, solar, wind and even oil and gas. It is also worth thinking laterally about the types of companies providing goods and services for those green energy providers of the future. The point is, as we are seeing repeatedly, green and renewable energy is the future. So, we had best be prepared for it.