Originally published by Rivkin Securities
Many environmentally aware investors in Australia are looking for ASX listed companies that are involved in renewable power. While there are relatively few such companies at present, there are some investment opportunities that are linked to renewable energy. For example, one of Australia’s large engineering services providers, Downer Edi Ltd (AX:DOW), has recently been awarded the engineering, procurement and construction contract for the Clare Solar Farm, owned by global solar development company Fotowatio Renewable Ventures. The Clare Solar Farm is a photovoltaic (PV) solar plant located in Northern Queensland. PV solar is one of two major types of solar power that utilizes material properties to directly convert sunlight into electricity. The other major type of solar power is solar thermal which concentrates heat from the sun to ultimately drive a turbine which produces electricity.
Solar power has generally been an expensive option compared to some of the other power generating options but the costs of solar panels has been dropping rapidly as technology and economies of scale bring prices down. Analysts at Sustainable Energy Research Analytics (SERA) point out that the value of the contract awarded to DOW for the Clare Solar project demonstrates that the costs of utility-scale solar are significantly cheaper now compared to projects that were constructed just a few years ago. Wind power is currently the cheapest form of renewable energy but solar is starting to become competitive with wind and both are becoming competitive with power generated from fossil fuels. The variability of renewable sources such as wind and solar means that obtaining power from a diversity of sources is very important. The relatively low correlation between wind and sunshine means that these two sources can work well together. Solar also has the advantage of being slightly more predictable than wind power with the main uncertainty for solar being cloud cover.
Solar power is probably the most direct form of the renewable energy sources that rely on the sun (e.g. wind, wave, hydroelectric). Wind power, for example, comes as a result of heating of the earth’s surface by the sun and is therefore indirectly harnessing the sun’s power. Wave energy is ultimately generated by wind and is therefore another indirect form of solar energy. This means that there is far more power available in the solar energy that reaches the earth’s surface than there is available from wind, and solar power plants therefore aim to take advantage of this fact.
Unfortunately for investors interested in solar, there are very few options for investment currently. Unlisted fund New Energy Solar aims to invest in renewable power and currently holds a portfolio of four US based solar power plants. The fund aims to target investments that yield 7-10% which we think is a little low considering the risks involved but nevertheless provides a good vehicle for investors wanting a socially responsible investment.
Over time, we expect more investment opportunities to open up in the renewables space but for now investors will have to choose from a relatively limited pool. The Rivkin Local momentum strategy currently holds DOW in its Momentum portfolio.