Two companies could solve Boris Johnson’s 40 GW wind challenge

Boris has certainly had a change of heart. Just seven years ago he was shale’s biggest cheerleader, claiming that it would power Britain’s houses and create a boatload of new jobs at the same time. Wind power, he argued, “couldn’t pull the skin off a rice pudding”.

But never mind the windy rhetoric. That was the contrarian Telegraph columnist of the past.

Now Boris claims that wind will power our homes “cleanly and without guilt from the breezes that blow around these islands” by 2030.

At the Conservative conference this week, Boris reiterated his pre-election pledge to pump £160 million into offshore wind farms and raised the offshore power generation target from 30GW to 40GW by 2030. More significantly, a hefty chunk of the £100 billion being raised throughout Parliament for capital spending will go to clean energy.

Established names in wind power enjoyed a bump in their share price, with General Electric and Nordex rising 2.2% and 3.1% respectively.

Offshore wind is by far the most politically and economically effective way for the UK to reach its renewables targets.

Solar works to an extent. But you don’t need me to tell you that British weather is, at best, erratic. Tidal energy’s huge upfront costs led to the government dropping it in the 2000s. Onshore wind is vulnerable to the whims of local MPs trying to curry favour with their constituents by opposing their construction – much as local activists protest nuclear power plants by saying “not in my backyard!”

Until March this year, the Conservatives effectively banned new onshore developments by preventing developers from accessing subsidies.

With the highest offshore wind capacity in the world, the UK is already a world leader.

But there’s one bottleneck that must be addressed before offshore wind – and renewables more generally – really takes off in the UK.

Britain only has 1GW worth of battery storage so far

When the wind is blowing and the sun is shining, renewables are able to provide nearly 50% of the UK’s energy needs, as they did in the first quarter of this year. But that’s only a fraction of the time.

Often, wind turbines and other renewables aren’t able to operate at full capacity – or at all – when demand is low, as they risk overloading the grid. All of the energy they produce in the meantime is wasted. In the midst of lockdown this summer, the National Grid went as far as paying solar companies not to produce energy. On the flip side, when it’s cloudy the grid relies on fossil fuels to plug the gap.

This is because the UK has very limited capacity to store renewable energy that’s not used immediately.

Even with the government easing planning restrictions on new energy storage projects, there’s still only a total of 1GW of energy storage capacity in the entire country.

But there’s one emerging technology that could help dramatically boost the UK’s storage capacity.

And it’s also integral to the UK’s transition towards clean transport. Investors in this new technology are set to benefit from both the explosion in clean transport and the growth in offshore wind.

Profiting off clean transport and clean energy

In September, sales of pure electric and plug-in models saw a 184% and 139% increase respectively, compared with a year ago. Which means there are more vehicles plugged into the grid to charge than ever before.

But this relationship works both ways. With ever more cars plugged into the grid, they can function as a large aggregated battery – a technology known as vehicle to grid (V2G).

It’s a cheaper, more efficient way of storing energy on a large scale than simply building dedicated battery storage. And it’s already happening in the UK.

Octopus Energy has led a consortium of companies made up of names such as ChargePoint Power Services and Open Energi to trial the technology at scale across the UK.

Octopus Renewables Infrastructure Trust (LON: ORIT) is the best way to buy into the trend indirectly.

Although the £383 million fund currently operates across the UK, France and Sweden, it’s looking to expand further afield to Australia too. For investors, this will provide a degree of weather proofing – literally – by expanding into a mix of geographies.

ORIT has just announced a 1% quarterly dividend – which, with the company’s pipeline of £3.8 billion in wind and solar assets, is a prime candidate to grow over time.

The fund has weathered the pandemic fairly effectively too. Following its IPO in December 2019, where it revised its opening bid upwards from £250 million to £350 million, it has used the depressed prices in the energy market caused by Covid-19 to expand its assets.

Shareholders have enjoyed juicy returns so far, with 12.2% following the IPO through to June. Even with the prospect of a second national lockdown in the UK looming, the fund is still trading above the issue price at 108.5p.

Another path into the technology is through Nissan (7201: TYO). The Nissan Leaf is the world’s best-selling plug in electric vehicles, and the company has teamed up with Octopus Energy to trial the V2G technology. As one of the only vehicles able to transfer power back to the grid, it’s well placed to take advantage of a green revolution.

The company has also beaten analysts’ earnings estimates in each of the last four quarters – beating one by 135% – signalling that it could defy expectations and play a much larger role in the green energy revolution than most observers realise.

Regards,

Nathan Tipping
Research Analyst, Southbank Investment Research

PS A green spending-led recovery will see billions pumped into the renewable energy sector. But Exponential Energy Fortunes editor, James Allen, is already ahead of the trend. Last year, he delivered an 838% win for his readers by closing his recommendation on a clean energy stock. So now that he’s found a clean energy stock, he certainly has my full attention. Full story here.  

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