Castlefield | Blog | Bloomsbury Festival - Enlightening Investing, Light is Critical

Article for Bloomsbury Arts Festival:

ENLIGHTENED INVESTING

John Ditchfield

Light is critical to all our lives, our sun is the primary source of energy for all life on earth, an unimaginably vast and relatively stable nuclear fusion reactor which releases vast quantities of energy in the form of light. You are able to read this page because light is reflected from it and carries the information to your retina, it powers the photosynthesis in plants to produce the oxygen we breathe and, through electric light, it massively extends our working and leisure hours. So it’s no surprise that light can make for an exciting investment theme – especially for those who want to invest in a sustainable way.

Let the light in

Energy demand has tripled in the past 50 years and is forecast to increase a further 37% in the next 25 years[1]. This demand, combined with the risk of worsening climate change creates a real opportunity for the solar power sector.

Solar is forecast to be the biggest form of power by 2050,[2] as governments from Beijing to Brussels seek to curb greenhouse emissions through cleaner power generation with many looking to solar in particular.

The massive emerging economies of China and India have recently unveiled ambitious solar power targets. China aims to quadruple its installed solar capacity within the next five-years and invested $90bn in clean energy last year alone.[3] While India intends to increase installed solar power to 100GW by 2022[4] – that’s the equivalent of installing 50 Hoover dams in seven years[5] and a massive 33 times more than current levels.

Hard to imagine as we enter the chilly British winter, but UK solar is also booming. There are more than 450 solar farms, 184 of them established in the last 12 months. In 2014 installed solar capacity doubled to 5GW or enough to power 1.5 million homes[6].

Globally, solar power is forecast to grow at such pace it will achieve a 14% compound annual growth rate (CAGR) from 2010-2020[7].

But isn’t solar expensive and what happens when the sun doesn’t shine?

A common misconception about solar power is that it is expensive. Over the last five years the cost of solar photo-voltaics has fallen 75% in price[8] and within the next decade is likely to become the cheapest form of power.[9]

Another misconception is that solar power needs endless sunshine and hot weather in order to work. Solar photo-volatiacs are actually most efficient in cool bright weather, but also work in overcast conditions. Solar panels in London, for example, generate about 65% as much energy as panels in Madrid[10]. In fact the only conditions in which solar panels don’t work is heavy snow. Thereby making it a very reliable source of power.

What are the options for investment?

One of the simplest ways to invest in solar power is via investment trusts. There are currently six renewable energy focused investment trusts[11] available in the UK and these offer a yield (income) between 4.13% and 5.8% (Data supplied by FE Analytics as at 07.10.2015).

Leading sustainability funds such as the FP WHEB Sustainability Fund also give investors exposure to smart companies that are harnessing the power of solar to create cost-efficient products for consumers. For example, WHEB invest in US manufacturer AO Smith Corp who build water heaters using solar energy to heat water and pass on the cost savings to consumers; AO Smith’s shares listed in the US have returned 45.31% (Data supplied by Bloomberg as at 07.10.2015).

Profiting from light that shines out

Another area where light presents an exciting and sustainable investment opportunity is lighting. Without the electric light illuminating our homes, streets and offices, modern life is almost inconceivable and 20% of electricity consumed globally is to power our lights[12]. And just as governments are looking to clean energy to help reduce greenhouse gas emissions they are also encouraging energy efficient products, to curb overall energy demand.

This means that energy efficient LED lights which consume a whopping 85% less energy and have a lifespan 20 times long than conventional bulbs are becoming the new illumination standard.[13] Realising the colossal energy and cost saving potential of LEDs, a number of large companies have switched to LED lights across all their sites. IKEA has even gone so far as to announce that from 2016 all the bulbs and lights it sells will be LED.[14] The switch to and increasing demand for LED lighting makes it an attractive area to invest.

An example is Acuity Brands,[15] which is an integrated LED lighting and controls company. Through the integration of smart technologies such as occupancy sensors and daylight adjusting dimmers into LED systems, Acuity products offer up to 38% greater energy efficiency. Acuity Brands are also held by the FP WHEB Sustainability fund.

Set your portfolio to light speed with Photonics

One of the most exciting areas for investment in light is photonics, photons are tiny particles of light, and photonics (the controlling of photons) is the cornerstone of most modern technology including smartphones, laptops and the internet. Just as the 20^th century became dependent on electronics, the 21^st century is set to become similarly reliant on photonics.[16]

IPG photonics for example are manufacturers of high power fibre lasers and amplifiers for use in materials processing, telecommunications and medicine.

From solar to smartphones there are many ways to light up your portfolio.

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John is one of the UKs leading advisers on environmental investment funds. To discuss sustainable solutions for your investments please see www.castlefield.com or email: john.ditchfield@castlefield.com

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[1] http://www.thisismoney.co.uk/money/investing/article-3078529/Are-giant-solar-farms-income-opportunity-ve-looking-for.html

[2] http://www.theguardian.com/business/economics-blog/2015/sep/09/solar-industry-is-being-slashed-and-burned-by-the-tories

[3] http://www.theguardian.com/global-development-professionals-network/2015/sep/15/five-developing-countries-ditching-fossil-fuels-china-india-costa-rica-afghanistan-albania

[4] http://www.theguardian.com/global-development-professionals-network/2015/sep/15/five-developing-countries-ditching-fossil-fuels-china-india-costa-rica-afghanistan-albania

[5] http://www.climatecentral.org/blogs/helpful-energy-comparisons-anyone

[6] http://www.theguardian.com/environment/2015/jan/29/solar-power-in-the-uk-almost-doubled-in-2014

[7] http://www.whebgroup.com/solar-power-making-money-or-just-changing-the-world

[8] http://www.theguardian.com/environment/2015/aug/24/south-african-team-may-have-solved-solar-puzzle-even-google-couldnt-crack

[9] http://www.theguardian.com/business/economics-blog/2015/sep/09/solar-industry-is-being-slashed-and-burned-by-the-tories

[10] http://www.theguardian.com/environment/2015/jan/29/solar-power-in-the-uk-almost-doubled-in-2014

[11] http://www.ft.com/cms/s/0/9a547158-bccc-11e4-a917-00144feab7de.html#axzz3lwJlSL2u