3 renewable energy shares to watch

Our writer looks at three UK renewable energy shares and explains why he is watching them in case they offer potential value for his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Solar panels fields on the green hills

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With oil and gas supplies in the news again, there is more focus than ever on the potential for alternative sources of energy. 

Here are three UK renewable energy shares I am watching at the moment to see whether they offer a good fit with my portfolio. For now I am just watching and not buying — below I explain why.

Hydrogen business

In the hydrogen space, one option is AFC Energy (LSE: AFC). The company produces alkaline fuel cells that are fuelled by hydrogen. Over the past year, the AFC Energy share price has fallen by 23%. The company revealed its final results for 2021 today. Although revenue was only around half a million pounds, even that was an important step on the company’s road to commercialisation. The post-tax loss was £9.3m.

As of today, the company’s contracted commercial agreements are worth £5m. So not only is the company starting to generate revenue, but that trend is likely to accelerate in the next year. I continue to think £255m is a heady valuation. But the company had £55 in cash at the end of the year and the prospect of growth. I am waiting to see how fast AFC can commercialise and hopefully generate earnings, so for now am not investing. But the improving business outlook — albeit from a standing start — has caught my attention.

Renewable energy shares

Another hydrogen-focussed share is Ceres Power (LSE: CWR). The market for hydrogen energy is booming, and this fuel cell specialist has a growing order book. Its revenues and other income came close to doubling at the half-year stage and I expect strong continued growth. With its technology and growing customer list, I like Ceres Power as a business. That does not mean that I like it as an investment for my portfolio at the current share price, though.

That is because I think its £1.4bn market capitalisation prices the company for large success. But in fact, any developing company can face setbacks along the way. Given its heavy losses and first half revenue of £17m even after strong growth, Ceres Power continues to look overpriced to me. The shares are down 35% in a year but I still do not see a buying opportunity for my portfolio.

Established business

A far more established business is energy company SSE (LSE: SSE).

The utility is spending an extra £1bn a year as it drives towards a so-called ‘net zero’ target. But this comes at a cost, which is what puts me off SSE as a possible investment for my portfolio. In 2019, the SSE dividend was 97.5p per share. It was then cut to 80p and has crept up a little since then. Those gains may be short-lived, though, as the company plans to “rebase” its dividend again, to 60p per share, in 2023-24.

So SSE is partly funding its growing environmentalism by reducing its shareholder returns. That might be beneficial in the long term, with capital expenditure now setting the scene for higher profits down the road. But in the coming years it means SSE may well pay me smaller not bigger dividends for owning its shares. That is not the direction of travel I look for in dividends, and I will not be buying SSE.

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.

Christopher Ruane has no position in any of the 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.

More on Investing Articles

Young black man looking at phone while on the London Overground
Investing Articles

1 giant red flag for Diageo shares!

As an investor in Diageo shares, I'm increasingly worried about one unstoppable generational trend that could reduce sales in future.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Billionaire David Tepper has doubled down on these incredibly cheap shares

This top Wall Street fund manager is known for targeting dirt cheap shares in the stock market. What was he…

Read more »

Investing Articles

Down 23%, are Greggs shares a long-term bargain?

Christopher Ruane slices into some possible pros and cons of buying Greggs shares for his portfolio after they slid by…

Read more »

Investing Articles

This boring FTSE 250 stock has an incredible earnings forecast!

This FTSE 250 stock has moved sideways for years. It certainly hasn’t rewarded shareholders. However, things could change in the…

Read more »

Investing Articles

Make or break: could US trade tariffs hurt the UK stock market?

Mark Hartley examines the knock-on effect that Trump tariffs could have on the UK stock market and considers a stock…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

I don’t care if my passive income stock Phoenix Group doesn’t rise this year – I’ve got the 10.1% yield!

A firm’s yield moves in the opposite direction to its share price, so with my core passive income holdings I…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Vodafone’s share price is down 13% to 69p despite promising Q3 results, so it is an unmissable bargain for me?

Vodafone lost ground after its recent results, but they seemed promising to me, which leaves the share price looking significantly…

Read more »

Buffett at the BRK AGM
Investing Articles

Is Warren Buffett right about this 1 thing when it comes to Lloyds shares?

With the words of Warren Buffett ringing in his ears, our writer considers whether the Lloyds share price will do…

Read more »