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A fair wind

As the world grapples with the challenge of climate change, we examine a fund which aims to generate growth for its shareholders via companies which can deliver a cleaner future…
Kepler Trust Intelligence
Last update 10 November 2021

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Jupiter Green. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Energy is – pardon the pun – a hot topic at the moment. Soaring gas prices have put pressure on households and businesses in the UK and around the world.

They have also drawn new focus to the clean energy transition, with views changing as the situation has progressed. Initially, the fallout from the spike in gas prices was touted as evidence that the clean energy transition remained in its infancy and that the global economy would be particularly reliant on legacy fuels for some time to come.

However, as the global energy supply has struggled to return to equilibrium the market’s view on this issue has reversed. Both media discourse and stock prices suggest the current consensus is that the energy transition will be sped up by the current energy crisis.

A compelling case

This rapid about turn came as little surprise to Jon Wallace, manager of Jupiter Green Investment Trust. After years of studying the energy transition and the technologies being developed to refine and universalise clean energy production, he says that the case for clean energy versus natural gas is clearer cut than some of the conversations over the last few weeks would have consumers and investors believe.

Natural gas has long been touted as a ‘cleaner’ transition fuel, helping bridge the gap in our energy supply from coal and oil to exclusively clean technologies, including solar, wind and hydropower.

The recent supply challenges have put paid to that argument. In order to bring reliability to the supply significant infrastructure would need to be created, the creation of which would make net zero an impossible target. At the same time, the carbon benefits of natural gas, such as the emissions stated by providers, usually fail to factor in methane leakage further upstream in the production process. With political will so clearly behind achieving net zero by 2050, these are likely to be unacceptable consequences for any government.

A further issue is the security of the energy supply. At least some of the shortage experienced in the UK in the last few weeks has stemmed from decisions taken by other governments, in particular the Russian state. With clean energy largely domestically-produced, this is a challenge mitigated by the transition. The recent opening of a long-distance power link between the UK and Norway also offers a glimpse of the future.

It looks increasingly possible that the current energy crisis could be something of a watershed moment for natural gas, in the same way that the 2014 VW diesel controversy prompted a sea change in perspective on diesel’s role as a transition fuel for transport – ultimately, catalysing the adoption of electric vehicles.

Investing in clean energy 

With new impetus now behind the energy transition, the case for investing in clean energy is clear. However, distinguishing where to invest in order to tap into the potential in this market is more challenging.

JGC’s manager, Jon Wallace, has been analysing sustainable stocks for more than eight years and has therefore witnessed the evolution of this subsector. He seeks to identify which technologies will be vital parts of the energy transition and which are more likely to flounder. Energy currently makes up 18% of the JGC portfolio, split between large-scale energy operators and smaller technology suppliers.

One of the portfolio’s stocks that is particularly prescient at the moment is Ceres Power, which licenses its fuel cell technology to other businesses to support their clean energy technologies. More widely, the trust has exposure to heat pump technologies which have gained new attention since the UK government announced a £450m grant programme to encourage take up of this solution as part of a planned phase out of the gas boiler. With the eventual aim being that this programme will make the pumps more affordable and therefore more viable into the future, it is clear that demand for these technologies is only likely to build.

Another portfolio business meeting the demand for clean energy is First Solar. It sells solar power technologies to the utility-sector, meaning the company is playing a key role in speeding up the energy transition. But it is also differentiated from its competitors by not using polysilicon-based technologies. Polysilicons have been linked to forced labour in certain regions, so First Solar is an attractive proposition in clean energy markets where project developers and their partners – many of whom are well-known companies wishing to own the clean energy produced on long-term contracts – clearly wish to avoid indirect exposure to this controversy.

Cleaning up  

With political and economic tailwinds so firmly behind the energy transition, the case for investing in the companies leading the way becomes stronger every year. With long-held experience in this area and a clear mandate to invest only in sustainable stocks, Jupiter Green provides a vehicle to tap into this evolution – among other sustainable themes – through the application of specialist knowledge and skills.

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