Whatever your feelings are on climate change, green energy is here to stay — and these UK shares could be the next big gainers.
Unlike comparatively antiquated methods of fossil fuel extraction, green energy is heavily reliant on new technology for efficiency, and tech companies are throwing money at solving this problem.
Even Amazon is on board, having invested millions into green energy over the past five years, so could it be the next big tech revolution?
I’m looking at two promising UK shares in this sector to aim to secure healthy returns in the coming years.
Greencoat UK Wind
At 142p, Greencoat UK Wind (LSE:UKW) shares haven’t seen much growth since early 2019, but hit a high of 168p in September last year. A recent dip took them down to 130p but they’re bouncing back and the general consensus currently puts the shares in buying territory, in my opinion.
Last month, Greencoat UK Wind increased its annual dividend and decided to go ahead with Q4 payouts. Not only that, but it’s launching a £100m share buyback program. Between 2021 and 2022, revenues grew an impressive 142% from £423.47m to £1.03bn. And with nearly £5bn in assets and only £1.1bn in debt, Greencoat UK Wind looks financially sound to me.
The green energy challenge
While the costs of renewable energy technologies have been decreasing, they still need to compete with traditional — often subsidised — fossil fuel alternatives. Achieving grid parity (where renewable energy costs are equal to or less than conventional sources) is crucial for widespread adoption. With 45 operating wind farms totaling 1,610MW capacity, Greencoat UK Wind appears to be achieving this, but it’s a constant and ongoing battle.
NextEnergy Solar Fund
When it hit a low of 77p last month, NextEnergy Solar Fund‘s (LSE:NESF) share price was a far cry from last year’s high of 122p. But a mild recovery is on the cards and at 85p, I think NextEnergy shares are now at an excellent entry point for me to get in cheap. The company invests primarily in solar photovoltaic technologies, with additional interests in energy storage devices. It currently delivers 889Mw of capacity from 99 operating solar assets.
With a £500m market cap, it’s a smaller fish than Greencoat UK Wind – but one that I believe has excellent growth potential. In its latest FY results, NextEnergy announced an 11% increase in dividend shares and 3.8% higher revenue than expected. It also has a very attractive dividend yield of 9%.
Governments worldwide are increasingly setting ambitious targets for renewable energy adoption to address climate change, and technological advancements may continue to drive down the costs of green energy production. However, infrastructure costs and regulatory policies are key challenges that firms like NextEnergy must overcome.
With Amazon shares up by over 1,000% since 2013, matching that performance is a big ask. But with huge investments from both governments and tech giants alike, green energy is certainly a sector I’ll be keeping on my watchlist.