Green energy boom: 2 explosive FTSE 100 shares I’d buy to capitalise

With energy prices in the UK skyrocketing, I am looking at two cheap FTSE 100 shares in the space to buy and hold for a decade.

| 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.

Renewable energies concept collage

Image source: Getty Images

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.

FTSE 100 shares in the energy sector have witnessed a huge surge in profits over 12 months. Like many investors, I am looking at shares in the industry that could supercharge my portfolio. While there are several good stocks on offer, I have identified two showing explosive growth potential over the next decade.

But first, why are renewable energy shares witnessing historic levels of interest right now? I think the COP 26 summit last year triggered the perfect storm for a transition to cleaner energy. While governments increased focus on green alternatives, crude oil prices rose after Russia’s invasion of Ukraine. This added fuel to the green energy lobby and countries are now scrambling to secure sustainable alternatives to meet the power demand.

With money pouring into Europe’s thriving energy sector, I think this is the perfect time to invest.

FTSE 100 shares I’d buy to capitalise

The first company on my list is SSE (LSE:SSE). The FTSE 100 giant has the largest renewable electricity portfolio in the UK and Ireland. It specialises in onshore and offshore wind as well as hydropower. The company sells and distributes its energy to UK’s power grid.

In the financial year (FY) 2021, SSE generated £6.83bn in revenue and a total income of £2.28bn. These figures jumped significantly in FY 2022 when the company generated a revenue of £8.61bn and recorded an income of £3bn. The 33% jump in income comes primarily from its renewables wing.

Thanks to this strong showing, the FTSE 100 share has gone up 15.4% in the last six months. And despite this jump, it is still trading at a price-to-earnings ratio of 7.7 times. SSE shares also come with a healthy 4.6% yield making it really cheap right now

The other company on my watchlist is Centrica (LSE:CNA), a power transmission and delivery company with 11.7 gigawatts (GW) of renewable power under management.

Centrica operates British Gas, which powers millions of homes in the country. Centrica has been adding services like installing EV chargers to help consumers hit net-zero emissions as well. The company also owns a 20% stake in UK’s nuclear energy bank which is considered one of the cleanest sources of energy today.

The FTSE 100 share saw its dividend reinstated last month after the company saw revenue jump a whopping 2,851.22% in 2021 to £1.21bn. Although this is in comparison to a terrible 2020, the bounce back is significant. The energy giant also presented a stronger balance sheet, repaying the £93m debt from 2021.

Concerns and verdict

While both companies look financially strong right now, it is worth noting that energy prices play a major role here. When energy prices stabilise, profits could trend back towards pre-pandemic levels. This will slow down the investor interest in these two FTSE 100 shares.

Right now, both companies have a strong cash flow. But as we move closer to UK’s net zero ambitions, R&D budgets and asset purchases will increase, which could affect future results.

However, given the size, reach, and finances of these two companies, I think they are the best FTSE 100 energy shares for my portfolio right now. Depending on share price performance, I may be tempted to make a £1,000 investment in both in the coming months.

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.

Suraj Radhakrishnan 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 Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

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

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

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

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »