UK renewable energy stocks: here’s how I’d invest

The clean energy sector has had a great run in 2020 with many UK renewable energy stocks soaring. Here’s how Edward Sheldon would invest.

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Renewable energy stocks are on fire right now. The increasing interest in sustainable investing is driving them, as is the possibility of a Joe Biden US Election win. In fact, the S&P Global Clean Energy index has surged 70%+ this year.

So, I’m going to take a look at UK renewable energy stocks. And for those interested in investing in clean energy, here are some options.

UK renewable energy stocks

Those of us who prefer to invest in individual stocks have lots of choice when it comes to renewable energy.

In the large-cap area of the market, BP is one stock to consider. It isn’t an obvious renewable energy play as it’s one of the largest oil companies in the world! However, the company recently announced a huge transformation programme. It plans to eliminate the carbon footprint of the oil and gas it produces to ‘net zero’ by 2050.

Another large-cap stock I’d consider when looking at renewables is SDIC Power Holdings, a Chinese company engaged in the operation of electric power plants. It recently listed on the London Stock Exchange and has a market cap of £65bn.

In the mid/small-cap arena, there are a number of exciting renewable energy stocks too. Ceres Power Holdings is one. It’s a fuel cell technology company aiming to bring cleaner and cheaper energy to businesses, homes and vehicles. Its revenues have grown substantially in recent years although it’s still not profitable. 

ITM Power is another company to check out. It’s a clean-fuel company that specialises in hydrogen energy services. Its solutions take excess energy from the power network, convert it into hydrogen and use this clean energy in a wide range of applications.

Other renewable energy stocks I think are worth mentioning include Drax Group and Powerhouse Energy. The first is an electrical power generation business dedicated to enabling a zero carbon, lower-cost energy future. The second is a clean energy business. And it has developed a technology that converts non-recyclable waste plastic and end-of-life-tyres into synthetic gas. 

Clean energy investment trusts

Those who prefer to invest in investment trusts also have plenty of options. One of the best UK renewable energy investment trusts, in my view, is the Renewables Infrastructure Group. It’s a FTSE 250-listed trust that owns a broad portfolio of wind and solar farms in the UK and Europe. It aims to provide investors with regular dividends and has a trailing yield of about 5%.

There are more, of course. Other investment trusts with a focus on renewable energy include Bluefield Solar Income FundGreencoat UK Wind, and Greencoat Renewables.

Investing in renewable energy

As you can see, we really do have lots of options when it comes to UK renewable energy stocks.

But it’s important to understand that (like any other emerging industry) there are risks associated with the sector. Not all technologies are proven. And the stocks can be volatile.

So how would I approach this type of investment? I think the best strategy when investing in renewable energy is similar to investing in many sectors. I’d spread any capital over a number of different stocks and investment trusts. That way, stock-specific risk can be minimised.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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