As 2019 draws to a close, what will the year be most remembered for?
Politics will be high up on the list, with Brexit continuing to be a divisive topic, and one I certainly won’t be bringing up around the dinner table this Christmas.
But if I were to choose one theme, I would say 2019 is the year climate change and environmentalism firmly hit the mainstream.
A year ago most of us had never heard of Greta Thunberg, yet in a short space of time, her influence in bringing environmental issues to the fore has made her Time magazine’s 2019 Person of the Year - the youngest individual to have ever been given the title.
When it comes to issues of pollution and the wider effects it has on the environment it’s easy to get discouraged, so here’s some good news that 2019 can be remembered for. Back in May the country was powered without coal for a record fortnight, the longest stretch since the Industrial Revolution.
Once the cornerstone of our energy mix, the use of coal to generate electricity in the UK has been declining steadily. Coal now accounts for under 10% of Britain’s power output and the government plans to phase out the country’s last coal-fired power plants by 2025, in an attempt to cut carbon emissions.
What’s more, latest government figures show that from July to September this year, renewable energy generated a record 38.9% of our electricity, narrowly beating gas-fired power which made up 38.8% of the mix.
This means the proportion of the UK’s power generated by fossil fuels has fallen to a record low, with renewable energy making up the largest part of the electricity output over the summer.
The latest Energy Trends report, published by the Department for Business, Energy and Industrial Strategy (BEIS) also emphasises the role wind power is playing within the renewable energy mix.
Despite the extra daylight hours in the summer and the boost that gives solar power, wind was the principal source of renewable generation providing 19% of the UK electricity over the July to September period, with offshore windfarms performing more strongly than onshore ones.
The key challenge with harnessing the weather to generate power is its unpredictability, especially in this country. While wind power has played a key role this summer, it hasn’t always been plain sailing. In the heat wave of 2018, those with solar panels on their rooftops basked in the glorious free power it produced, while the nation’s windfarms weren’t as productive. There were even days when wind turbines sat completely idle. While solar panels helped fill the gap, less environmentally-friendly gas-powered power stations were used to meet the demand.
To be really green the UK needs an optimum blend of wind and solar energy to power the country. It appears the ‘goldilocks’ temperature to achieve this is 16.5 degrees - not hot enough for air-conditioning and not too cold to put the heating on.
Green energy offers many opportunities for investors, sometimes in less obvious ways. Renewables can be a good option for those seeking income because they tend to be financed through long term contracts ranging from 10-30 years, providing a steady stream of cash that can be used to provide a regular income. Additionally, there is a very strong regulatory push to increase renewables into the energy mix, also boosting their long-term appeal.
As you would expect, green energy is one of many themes being followed by funds that invest in companies with high ‘environmental, social and governance’ (ESG) standards. If you look under the bonnet of an ESG fund you will see a range of companies on display, often including those focused on providing more environmentally-friendly energy, but it doesn’t stop there.
Take, for example, the Jupiter Ecology Fund. In its top 10 holdings you’ll find the Danish wind turbine manufacturer Vestas Wind Systems. But you’ll also find companies you’ve probably never heard of such as Xylem, a large US company focused on wastewater treatment and Orsted, a Danish wind power energy provider. In April we interviewed the manager of the Jupiter Ecology Fund. You can watch the video here.
The key takeaway from all of this is to remember the importance of diversifying. Just as the country’s electricity generation comes from a combination of gas, wind power, nuclear, solar and biomass, it would be wise to invest across a diverse range of energy sources as they each have a role to play - whatever the weather.
More on ESG investing
Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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