Interactive Investor

Energy independence: shares to benefit from green energy boom

10th March 2022 14:19

Graeme Evans from interactive investor

Conflict in Ukraine has highlighted precisely why the West must depend less on Russia for its energy supply. This explains renewed interest in these alternative energy stocks.

Green energy stocks including ITM Power (LSE:ITM) and Ceres Power (LSE:CWR) have soared after Europe’s race to reduce reliance on Russian gas heightened interest in their technologies.

AIM heavyweight ITM, whose electrolyser systems are used in the generation of green hydrogen, is up 68% since Russia’s invasion of Ukraine and fuel cell business Ceres up 49%.

Despite these increases, ITM shares are barely changed over 2022 and Ceres is down 21% after an earlier period when valuations were hit by rising raw material costs and the impact of expectations for higher interest rates.

In a note published yesterday, Liberum said: “The hydrogen sector has rallied strongly in the last month but our coverage continues to trade below fair value.”

Other alternative fuel businesses on AIM that have experienced similar fortunes include Atome Energy (LSE:ATOM), AFC Energy (LSE:AFC) and EQTEC (LSE:EQT), which are up by 43.8%, 20.6% and 10.8% respectively between 23 February and last night but still lower in the year-to-date.

For Europe-focused investors, wind turbine makers Nordex SE (XETRA:NDX1), Vestas Wind Systems A/S (XETRA:VWSB) and Siemens Gamesa Renewable Energy SA (XETRA:GTQ1) have seen major buying in the past month.

Exposure to green hydrogen also comes from former blue-chip stock Johnson Matthey (LSE:JMAT), whose shares are up 5% since the Ukraine invasion. It recently pulled out of the ultra-competitive battery material sector in favour of a pivot towards green economy technologies including hydrogen.

The EU imports 90% of its gas consumption, with Russia providing around 45% of those imports. Russia also accounts for some 25% of oil imports and 45% of coal imports.

The European Commission said this week it believed phasing out the continent’s dependence on Russian fossil fuels can be done well before 2030.

As well as more LNG and pipeline imports from non-Russian suppliers, it is targeting much larger volumes of biomethane and renewable hydrogen production and imports.

Whereas renewables are unable to generate electricity on demand, electrolyser technology from companies like ITM Power can convert green electricity to green hydrogen for storage and use as and when needed.

Hydrogen is now seen as a key part of the global energy mix in other areas, such as for reducing emissions in heavy road transport, steel, cement and shipping.

European Commission president Ursula von der Leyen said on Tuesday: “The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system.”

The energy industry has until now been frustrated by the slow pace of approvals for government funding or renewable infrastructure investment.

Company Subsector Market Cap (m) Price Change 23 Feb to 9 March 2022 (%)
ITM Power (LSE:ITM)  Renewable energy equipment £2,434 397p 68.1
Ceres Power (LSE:CWR) Alternative fuels £1,496 784.5p 48.7
Atome Energy (LSE:ATOM)  Alternative electricity £26.20 80.5p 43.8
Nordex (XETRA:NDX1) Wind turbine manufacturer € 2,693 1685c 37.7
Vestas Wind Systems (XETRA:VWSB) Wind turbine manufacturer kr.221,634 kr.220.50 37.2
AFC Energy (LSE:AFC) Alternative fuels £277 37.7p 20.6
Siemens Gamesa Renewable Energy SA (XETRA:GTQ1) Wind turbine manufacturer € 13,047 1918.5c 17.6
Simec Atlantis Energy (LSE:SAE) Renewable energy equipment £9.20 1.275p 10.9
EQTEC (LSE:EQT)  Alternative fuels £75.2 0.875p 10.8
Greencoat Renewables (LSE:GRP)   Alternative Electricity € 1,090 122.5c 7.0
Good Energy Group (LSE:GOOD)  Alternative Electricity £45.7 272.5p 5.8
Johnson Matthey (LSE:JMAT) Green economy technologies  £3,487.0 1,855p 5.1
S&P 500     4,290 1.5
FTSE 250     20,069 -3.7
FTSE 350     4,029 -4.0
FTSE All-Share     3,999 -4.1
FTSE 100     7,191 -4.1
FTSE AIM All-Share     987 -4.4
Source: SharePad. Prices as at close of business 9 March 2022

At the beginning of 2020, Liberum notes there were about 380 project announcements for completion by 2030 equating to $160 billion of investment, but that most were at the announcement or planning stage. More than half these projects were in Europe.

It said: “The EU plan is welcome as the wheels turn slowly in Europe.”

Liberum adds that green hydrogen or ammonia are not as cost disadvantaged as they once were following the surge of natural gas prices since September. In its coverage of the sector, the broker has “buy” recommendations on both ITM Power and Ceres Power.

Support for ITM also comes from Arden Partners after it named the stock among 12 oil and gas producers or “new-energy” companies to benefit from current market tightness.

It said: “The high oil and gas prices we are seeing help highlight the relative value of new-energy sources, both from the point of view of existing widespread sources such as wind and solar, but also newer technologies yet to see wider adoption and lower costs.”

Arden has an ITM price target of 550p, which compares with today’s 393p for a valuation of about £2.4 billion. ITM, which was the first hydrogen related company to be listed on the London Stock Exchange, recently opened the world’s largest electrolyser production factory in its home city of Sheffield. Further sites are at the planning stage.

The recent note from Arden also backs AIM-listed EQTEC, which uses various waste streams to create syngas that can then be used to generate electricity.

Projects under development include a waste gasification and power plant at Stockton-on-Tees, where there is the potential to turn 200,000 tonnes a year of non-recyclable everyday municipal waste into enough green electricity to power 50,000 homes and 34MW of thermal heat production.

The company’s technology is also being used in developing projects in Italy, Greece, Croatia, Spain and the United States. Shares fell 53% last year and are down 27% at 0.9p so far this year, but Arden has a 4.5p price target.

Ceres Power, which was spun out of London’s Imperial College, produces fuel cells for power generation and electrolysis for the creation of green hydrogen and energy storage.

Its shares rose by as much as 10% on Tuesday after it announced a multi-million-pound agreement with Nuneaton-based engineering firm Horiba Mira to expand the UK’s delivery of new fuel cell and hydrogen technology to international markets.

The AIM-listed stock, which is worth about £1.5 billion, halved in value between November and mid-February.

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