As climate change becomes an ever bigger political issue, stocks in companies producing alternative energy are tempting investors.
And Andy Crossley, fund manager at Invesco Perpetual’s UK smaller companies fund, has given a rundown of where he sees the best opportunities for growth.
He pointed to firms including D1 Oils, which is establishing plantations of Jatropha Curcas trees – which can be used to produce a sustainable, low cost biodiesel and other valuable by-products.
“Increasing concerns over global warming and the decline of traditional mineral fuel supplies are driving the growth of biofuels as substitutes for petrol and diesel,” Mr Crossley explained.
“Biodiesel is a biodegradable, environmentally friendly fuel, which can be used in existing diesel engines without modification, or can be blended with petroleum diesel in varying quantities.”
He pointed out that his fund also has exposure to companies involved with the collection and trading of carbon credits.
Emissions trading is a process where firms unable to cut carbon dioxide emissions due to the nature of their business – for example an airline or concrete manufacturer – can buy ‘carbon credits’ from companies that are beating their targets.
“Point Carbon, a company which provides independent analysis of the carbon emissions market, forecasts that the global market for carbon credits is likely to reach ?34 billion by 2010,” Mr Crossley noted.
“The price of carbon emissions is certainly very strong at the moment, so the companies involved with the trading of the carbon credits are performing well. We have invested in Agcert, for example, which collects carbon credits by reducing greenhouse gas emissions through the operation of methane capturing systems on huge livestock farms in South America. These credits are then sold to companies unable to meet their carbon emission targets.”
Along with trading of carbon and a move to biofuels, there is also considerable interest in renewable energy. This is when electricity is generated, not by limited resources like oil, coal, or uranium, but by naturally occurring unlimited sources including solar energy, wind power, and tidal stations.
Invesco’s Mr Crossley noted: “Many companies utilise existing technologies to harness natural energy sources, and many more are developing new technologies to extract this energy more efficiently. Ocean Power Technology, for example is a company in which we have invested, that implements wave power technologies using an ocean-going buoy to capture and convert wave energy.”
One technology in particular that is drawing attention is the fuel cell.
While this technology is not new, it is seen as the long-term replacement for the internal combustion engine in cars and planes – with General Motors, Ford, and Honda all working on it. A fuel cell takes on a hydrogen-rich fuel, and converts it to electricity – with the only emission is water.
The technology can also be made small enough to power laptops and even mobile phones – potentially replacing batteries.
“We have invested in several companies involved with the development and manufacture of fuel cells,” said Mr Crossley.
He particularly highlighted Voller Energy – which manufactures portable fuel cell systems for use as battery chargers and mobile generators.
“Climate change is clearly a significant international issue, and its impact on the global economy will be considerable. Coupled with the decline of traditional fossil fuels, we see renewable energy as being an area of vast potential in the next few years,” Mr Crossley concluded.
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