I was getting rather fed up of the number of times brokers suggest I invest in a sparkling new 'clean power' company, and then couldn't give me any idea of its peer group or the size of the sector. Every week there seems to be a new idea - and sometimes there's a curious silence about some of the old ones, like Renova Energy Plc (LON:RVA) , an ethanol producer that looks in very bad shape (shares suspended, financial difficulties)...So, I thought, let's check out what this sector actually looks like on the UK market. It can only take half an hour or so. Boy, was I wrong! It was a lot of work.
It's difficult to track clean energy investments down, not least because they're spread around various sectors. Yes, there is an alternative energy sector, with 21 stocks listed, but you'll also find clean energy stocks scattered around Electronics and electrical equipment, Oil and gas producers, and Financials. I think I've tracked down most of them, but I may have missed a couple.
Then you have to come to terms with the fact that there are a number of different technologies represented. For instance there's solar, wave power, and wind power; biomass power plants, jatropha plantations, and coal mine methane. There's Rurelec(LON:RUR) which is involved in rural Latin American power projects which appear fairly conventional in nature. (So if you're looking at clean power from an ethical point of view, not all these companies are for you.) There is a whole cluster of firms involved in the development of fuel cells, such as ITM Power (LON:ITM) and Ceramic Fuel Cells (LON:CFU) . So to do proper research you're going to need to focus on one of these clusters, rather than 'alternative energy' as a single big tent.
More importantly, there are a number of different business models, and this I think is where the investor has to be very smart. There are some manufacturers, like PV Crystalox Solar, which have a standard manufacturing model - the more you manufacture, the better the economies of scale, the better the margins, the better the profits. It's an easy model to understand and it depends on shipping units, which may go into major projects (so there's some lumpiness in the revenue flow) but are basically manufactured in a…
