New energy will not just benefit environmental funds

Robin Batchelor, co-fund manger of the BlackRock's New Energy Investment Trust said that an interesting area for investors is the wind market, particularly onshore wind.

The large oil majors are pulling out of offshore wind in favour of onshore, because wind is scaleable and if it is in the right part of the country it is cost competitive against other forms of power generation.

Therefore, BlackRock's New Energy Investment Trust is looking to turbine manufacturers and large wind farm developers with strong balance sheets. The fund’s top ten holdings include Vestas Wind Systems, according to Trustnet data as of 30 June.

Batchelor said: "Despite the fact that solar panels can be retrofitted into existing buildings and easily integrated into transmission systems, short-term oversupply issues mean the outlook for solar is less appealing. However, we expect valuations in this area to reach attractive levels soon."

"The new energy sector is suffering headwinds from tight debt markets. But the long term investment case remains intact with legislative and financial backing from governments, who know that climate change is a major concern for voters."

He notes that governments around the world are determined to reduce carbon emissions and will invest and legislate to reach their targets.

Batchelor said: "This legislation typically extends to 2020/25. Europe is seeking a 20 per cent reduction in carbon emissions by 2020, the US has already set state targets for emission reductions and is on its way to having a national policy."

"All this means government stimulus money will be coming into the new energy sector over the years ahead. It is already flowing in China and is likely to arrive in the US towards the end of this year."

Meanwhile Jupiter Asset Management’s head of socially responsible investment Emma Howard Boyd said of the UK Government’s low carbon transition plan: "Arguably this plan will become a defining moment in the green investment thesis. However, we also believe it has the potential to have an impact beyond what are traditionally regarded as green companies."

"As a result a transition to a low carbon economy is likely to gain greater importance for all investors over time."

Indeed growing commitment to green issues by governments could benefit infrastructure funds. Im addition, sectors other than environmental investment trusts are showing interest in this area, for example, the new energy theme is being picked up by technology funds.

Walter Smith, fund manager of the RCM Technology Fund notes that change in energy sources is a growth area, in particular grid management and renewables.

He said companies in this area will need applications to give them the information to conserve and save energy, with lower carbon emission targets adding to the pressure to achieve this.

This will be one of a number of high growth areas within the next three years.

Meanwhile Oriel Securities notes that the Obama administration in the US recognises the need for investment in technology, education and tech infrastructure and one of the key areas of focus is energy technology. It said companies like First Solar find themselves with strong market positions, decent margins and a huge potential margin and the RCM and Polar Capital Technology Fund have taken advantage of this.

However, First Solar accounts for only 4 per cent of RCM’s holdings, its third largest holding, and also less than 5 per cent of Polar Capital Technology’s holdings, suggesting some caution on the outlook for the financing of wind and solar.

Batchelor notes: "Share prices fell heavily last year because the sector is largely comprised of growth companies reliant on external funding. Historically, investors switch out of growth companies into defensive large companies when markets fall."

"The closure of the debt markets blocked new energy companies' access to capital. Without capital the wind farm, which requires heavy investment upfront, doesn't get built."

But he adds: "The (UK) Government's White Paper on reducing carbon emissions has swung the spotlight back onto the clean and new energy sector."