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3 shares to watch for low-carbon power production

With ever increasing demand for low-carbon power production, here’s three companies that may end up powering a clean-energy future.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

In 2012, just 12% of UK energy was coming from low-carbon sources, in 2022 it was 21%. But as climate change becomes a bigger problem, more needs to be done globally to develop the alternative energy sources we need.

Here’s a look at three global companies that could end up powering a clean-energy future.

This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Past performance is not a guide to the future. Ratios shouldn’t be looked at on their own.

Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.

Remember, before you can trade US shares, you need to complete and return a W-8BEN form.

Ceres Power – royalty pays

Ceres is a UK-based developer of clean energy technology. Its solid oxide cells enable low cost, high-efficiency energy conversion.

These cells are a two-in-one. Run in one direction, it’s a highly efficient fuel cell for power generation. Run in reverse, it delivers low-cost green hydrogen – providing a potential route to industrial decarbonisation of whole sectors like steel, fertilisers and future fuels.

Ceres’ highly differentiated solid oxide technology is protected by a growing family of patents. This means the group owns the intellectual property on its technology and makes money by licencing it to various partners, generating royalties as those partners achieve commercialisation.

Ceres made strong progress over the first half of the year, with revenue up by 13.4% to £11m. But we did see the revenue outlook for the second half get pulled back as the group’s joint ventures in China were delayed due to regulatory hurdles. This is a clear reminder that Ceres’ fortunes aren’t entirely under its own control.

Ceres’ partners have reiterated their commitments to the ventures, and the group expects to recognise the associated £30m of revenue in the next financial year.

Cash burn’s also a key risk, given the group’s research and development needs and plans to expand and open multiple factories by the end of the decade. If collaboration with key partners like Bosch, Shell and Doosan continues, then we think Ceres can benefit from the global transition to cleaner power sources, but keep in mind it certainly won’t be a smooth ride as Ceres looks to build scale.

Find out more about Ceres shares including how to invest

NextEra Energy – size matters

NextEra Energy is a clean energy giant in the US.

It owns Florida Power & Light Company (FPL), which is an electric utility. It generates and supplies power to more than twelve million people across Florida, making it the biggest power supplier in the US.

The utility’s recently announced a ten-year plan to expand its capacity by 20 gigawatts of solar power by 2032 - enough to power around two billion LED bulbs. If it works, it means more than a third of the group’s power generation would come from solar sources, up from just 5% in 2022.

There’s also NextEra Energy Resources (NEER), which joins forces with other companies. NEER has become the world’s largest generator of renewable energy from the wind and sun, as well as a world leader in battery storage.

From here, NextEra’s expected to invest $80bn through to at least 2027, with more than half of this focused on building out its solar generation and energy storage capabilities. Companies that invest today are more likely to benefit in the future, although there are no guarantees.

As with all utility companies, NextEra’s fortunes are to some extent at the mercy of regulators. FPL’s also been on the receiving end of allegations of improper donations. After an internal review, management said it believes the company won’t be penalised. But the case is still open, and any negative developments would likely harm investor confidence.

Overall, NextEra Energy offers investors the comfort of a large utility, with inbuilt exposure to the growth potential of renewables. But these growth prospects are reflected in a valuation which is much more demanding compared to its peers.

Find out more about NextEra shares including how to invest

Tesla – supercharge super cars

Tesla’s not just an electric car manufacturer - it has its hand in solar energy generation and energy storage products too.

While still only a small part of the group’s $48.3bn pie, total revenue from energy generation and storage more than doubled to $3.0bn in the first half of the year. This jump was largely due to increased sales of the group’s ‘Megapack’ at a lower price point.

The long-term success of this segment will depend on whether margins can be improved, which first needs volumes to increase to help spread fixed costs across more units. That’s why we’ve seen the production of energy storage products ramped up recently, alongside the announcement of a new ‘Megafactory’ in Shanghai for 2024. If successful, both of these actions should help move future profits in the right direction.

The group’s charging network is another area of interest. With more than 45,000 Superchargers, Tesla owns and operates the largest charging network in the world. And by opening the network up for use by other electric cars, Tesla will qualify for some of the $5bn in US federal funding earmarked for public charging infrastructure - easing the burden on cash resources.

But given that the group’s fortunes rely on continued car sales, there could be some speedbumps on the road ahead. Economic uncertainty is weighing heavy on consumers’ minds and wallets, so upgrading to the latest model is likely to take a back seat on most people’s to-do lists if a recession hits.

Tesla has an excellent product, and if production can be ramped up efficiently, the horizon looks rosy. But the current valuation means there’s lots of pressure to deliver, and any target misses could see that valuation come under pressure.

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Find out more about Tesla shares including how to invest

Unless otherwise stated, estimates, are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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