Aside from the coronavirus pandemic, if there’s one thing 2020 will be known for, it’s the green transition. Last year, a staggering $300bn around the world was invested in new renewable energy capacity. This investment beats the previous year by 9%, despite the economic disruption caused by the pandemic. This investment has been a boon for renewable energy stocks, and it could be just the start.
Some estimates suggest that to stop the world’s addiction to hydrocarbon energy, the planet will need to invest $22.5trn by 2050. That tells me money should continue to flow into green businesses over the next few decades.
So, with that in mind, here are three shares I’d buy to profit from this theme.
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UK renewable energy stocks
The first company on my radar is the utility provider SSE (LSE: SSE). This corporation is refocusing itself to concentrate on renewable energy. To that end, last year the group laid out plans to triple renewable energy output by the end of this decade. It’s already pledged to spend £7.5bn to meet this goal.
SSE owns significant stakes in some of the country’s largest wind farm projects, including the world’s largest offshore wind farm Dogger Bank.
What I like about this share is the fact it’s not as speculative as other renewable energy stocks. SSE is already an established utility provider and has a good track record of producing inflation-busting returns for investors. The stock offers a dividend yield of 5.4% at the time of writing, which appears safe as the payout is covered 1.1 times by earnings per share. As such, I’ll be paid to hold shares in SSE as the company builds its renewable energy assets network.
Energy storage
As renewable energy stocks go, the Gore Street Energy Storage Fund (LSE: GSF) is a direct way to play a unique investment theme. Renewable energies such as solar and wind can be unpredictable, which presents a considerable challenge for the energy market. Energy storage is one solution. Batteries provide a flexible way to balance the system during periods of low wind or sun.
Gore Street’s fund is one of the few ways investors can directly access the energy storage sector. The investment trust owns and operates a selection of energy storage facilities, primarily batteries. It manages these facilities with the goal of producing a steady income to fund a regular dividend payout. At the time of writing, the stock offers a yield of around 6.6%.
Management has identified a series of projects that could triple supply capacity over the next few years. To fund these projects, Gore Street recently raised £60m from investors. However, demand was so high the company could have raised significantly more. With strong investor backing and a robust pipeline of opportunities, I think this investment trust has an exciting future.
Wind energy
The UK is a leader in renewable wind energy, and I think one of the best ways to invest in this theme is through Greencoat UK Wind. The wind farm investor has been growing through acquisitions, and the stock currently supports a dividend yield of around 5.2%. Like SSE, it’s one of the few renewable energy stocks that already has an impressive track record of positive investor returns.
