5/10/2022 12:00:00 AM

High growth in renewable energy sector

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Growth in the global renewable energy sector is providing investment opportunities for Pie. Toby Woods, Senior Investment Analyst for Global and UK & Europe funds, who is based in London, explains.

The European Green Deal, the energy crisis caused by the war in Ukraine, and cultural attitudes are driving growth in the renewables sector. 

Supporting businesses that develop and own solar, wind, hydro and battery storage assets has become a theme for Pie’s funds, with plenty of good investment opportunities. 

Before the recent conflict in Ukraine, it was the European Green Deal that was promoting the sector. Its aim is to reduce net emissions in the EU by 55% from the level in 1990 by the year 2030. It is an ambitious target and is followed by a secondary requirement of achieving climate neutrality by 2050. 

The Ukrainian war has upped the stakes, as it brought into sharp focus how much reliance there is on gas and oil supplies from Russia. The EU is racing to diminish its reliance on this source, with a current plan to slash its dependence on Russian imports by two-thirds in 2022 alone. This has prompted many countries to reconsider their energy supplies, with renewable energy being an obvious choice to turn to. 

Finally, the consumer is driving demand for more sustainable energy, particularly from younger generations. Populations across the world are becoming more educated and interested in the threat of climate change and recognise the requirement for more diversified energy supplies. Governments, especially of richer nations, can see the support for renewable sources so sustainable energy targets are at the heart of manifesto pledges and fiscal policy both in the short term and long term.

Renewable energy is going to be a critical part of the energy transition required to wean the world off the dependence on fossil fuels. We see this as a multi decade process so, at Pie, we want to own businesses that have proven to have a good network of development and ownership opportunities to be able to grow with the required demand.

We believe that the four companies that we own across this space – EDPR (Portugal), Encavis (Germany), Grenergy (Spain) and NextEra Energy Partners (US) – all have that characteristic.  The renewable energy theme is in line with our active management strategy, where our investment team focuses on selecting high-quality, growth companies. We also look for a competitive advantage and a strong management team.

One example of a renewables stock that has performed well for our portfolios is Encavis. 

This stock is held in our Global Growth Fund, Growth UK and Europe, and Pie’s Conservative Fund.

Encavis is one of the first publicly listed pure play renewable energy suppliers in Europe with a focus on solar, but also some wind assets. Its business model is to buy solar and wind farms during the construction phase, negotiate the sales of the energy to private companies (e.g. Amazon) or utility companies that supply the national grids and own the asset throughout its lifetime. It has a midterm ambition to double the amount of renewable energy it supplies from 2020 to 2024, and is on track to hit these targets. Importantly, Encavis has built an exclusive relationship with ten large European developers of renewable asset parks that gives it superior visibility and better pricing on new projects compared to many of its peers.

Encavis is now a sizeable position in the Global Growth and Growth UK and Europe funds and it has risen about 25% this year.

Information is current as at May 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary.