Types of renewable energy and investment options October 31, 2022
Read the related article about Renewable ETFs and Green Bonds here!
The use of fossil fuels such as coal, crude oil and natural gas has contributed greatly to the emission of greenhouse gases such as Carbon Dioxide, Methane and Nitrous Oxide. They cause heat to be trapped within our ozone layer, leading to major climate change. The energy from the burning of fossil fuels goes towards transportation (27%), electricity (25%), industry (24%), and commercial & residential uses (13%). The burning of agriculturale waste has also contributed to about 11% of greenhouse gas emissions. [Sources of Greenhouse Gas Emissions, 2022]
The greenhouse effect has led to adverse climate change over the past 140 years as shown by the graph below. The annual mean temperature index has been rising gradually, from sub-zero centigrade in 1880s-1920s to surpassing zero degree centigrade in the 1940s. Due to rapid industrialisation, temperatures started climbing exponentially after the 1980s. [Climate Change, N. G. C. (n.d.)]
Worsening climate conditions have hastened the need for renewable energy. The value of using renewable energy comes from its sustainability and the absence of pollution from generating this energy. In 2021, at the United Nations Climate Change Conference, or 2021 Conference of the Parties (COP26), the participating members advocated for policies to promote renewable energy use. [The growth of Renewable electricity is accelerating worldwide, supporting the emergence of a new global energy economy – News. (n.d.)] The ratio of global renewable energy generation to total energy generated rose from 36.6% in 2020 to 38.3% in 2021, which also translates to an addition of 257GW of energy generation. Furthermore, global renewable energy generation amounted to 3,064GW. As of 2021, hydropower makes up the largest share at 1,230GW, followed by solar and wind energy at 849GW and 825GW respectively. [Global renewable energy installed capacity rose 9% in 2021. (n.d.)]
According to the International Energy Agency, the global renewable energy capacity is forecast to surge by more than 60% to reach over 4,800GW in 2026; this value is also the current level of global power consumption generated through fossil fuels and nuclear power.
This brings us to the main theme of this article where we will address various points as such as:
- Types of renewable energy
- Investment products that relate to renewable energy
1. Wind & Solar Energy
Wind energy is highly popular in areas, where there are high mountains or vast open spaces with no restrictions. Basically, it makes use of strong winds to spin a turbine, which in turn spins the rotor connected to the generator. Through this process, kinetic energy from wind is converted into electricity through the generator.
For solar energy, facilities are mostly built on flat land or even reservoirs to convert sunlight into energy through photovoltaic (PV) panels or through mirrors that concentrate solar radiation.
Due to the sustainability of this renewable energy, corporations and fund houses are incorporating renewable energy into their investment portfolio, in turn allowing investors to take a stake as well.
Here are some financial instruments that incorporate wind energy.
- Keppel Infrastructure Trust (KIT)
KIT is a large diversified business trust listed in Singapore with S$6.1 billion in assets under management (AUM). Incorporated in 2007, it is a key leader in three core segments: Energy Transition; Environmental Services and Distribution & Storage. These core businesses provide essential services such as waste management, energy generation and storage facilities.
This allows KIT to generate regular and resilient cash flows with growing potential for further acquisitions to enlarge the portfolio.
The most noteworthy of its recent acquisitions would be the European Onshore Wind Platform and the German Offshore Wind Farm (BKR2). The European Onshore Wind Platform was jointly invested in with Keppel Renewable Investments Pte. Ltd. (KRI) and has Fred Olsen Renewables AS as their operating partner. Fred Olsen Renewables is one of the largest renewable energy producers in Northern Europe.
As for BKR2, it was jointly acquired with KRI and has Orsted AS as the operating partner. Orsted AS is the largest developer and operator of offshore windfarms in the world.
Considering the co-investment with KRI, KIT will eventually own stakes of 13.4% and 20.5% in the European Onshore Wind Platform and BKR2 respectively. The combined output from both facilities will provide up to 723GW of energy [Keppel Infrastructure Trust investor presentation (2022, August 30)], which based on the average EU country’s energy consumption of 2,500KW to 5,000KW, would be able to provide energy to between 144,600 and 289,200 households. [Statistics Explained. (n.d.)]
- Sembcorp Industries
Sembcorp Industries, a leading energy and urban solutions provider in the Singapore market, strives to play a role in constructing a sustainable future. Leveraging its energy-related expertise and solutions, it was able to grow its renewable energy business segment into a leading provider of sustainable solutions.
Furthermore, it is a constituent of the Straits Times Index (STI) and various sustainability indices such as FTSE4Good Index and iEdge SG ESG indices. [Sembcorp – About Sembcorp. (n.d.)]
Since the start of its commitment to go green in end- 2020, Sembcorp Industries has increased its portfolio of renewable energy farms from 3.2GW in 2020 to 7.1GW (taking into account both installed and under development capacity) in 1H22. This is an incredible 122% growth in renewable energy production, but Sembcorp Industries is not stopping there.
According to the company’s direction, it is aiming to achieve a 10GW capacity by the end of 2025, and is on its way to doing so.
Considering Sembcorp Industries’s wind energy portfolio, its largest source of renewable energy is mainly situated in China and India with a combined production capacity of 4.98GW. This is comprised of 3.02GW from China and 1.96GW from India with about 9% of it still under development. [Sembcorp Industries 1H2022 Results Announcement (2022, August 5)]
Sembcorp Industries is one of the giants in the solar energy sector. Its solar assets in Singapore, Vietnam, China and India generate a gross capacity of 1.466GW of power. It acquired its first solar energy asset in India but has since expanded to other Southeast Asian countries. To top it off, it just completed one of the world’s largest inland floating solar farms in Singapore with a capacity of 60MW at Tengah and also built a 400MW solar power farm in India, in line with the nation’s direction towards clean energy. [Sembcorp – About Sembcorp. (n.d.)]
2. Hydrogen Fuel Power
Hydrogen in itself is considered a clean fuel; when consumed in an energy generation process, it produces a byproduct of only water. Generally, during the thermal process, steam reacts with hydrocarbon fuel to produce hydrogen, which in turn acts as an energy carrier. [Hydrogen Fuel Basics. (n.d.)]
- Keppel Corporation
Keppel Corp’s subsidiary, Keppel Energy, recently reached an agreement to develop a 600MW advanced combined cycle gas turbine (CCGT) power plant. It is set to be the first hydrogen-ready power plant in Singapore. The S$750M development is set to operate with 30% hydrogen content and can even shift to run purely based on hydrogen. The plant is expected to be completed in 1H2026 and will have lower emission intensity and higher operation flexibility. The main advantage of this power plant is that it will be able to cut down up to 220,000 tons of carbon dioxide emissions per year, which loosely translates to a removal of 47,000 cars from the roads annually. This will also allow Keppel Corp to grow its power generation portfolio from 1,300MW to 1,900 MW. [Keppel to develop Singapore’s first hydrogen-ready power plant (2022, August 30)]
This is also in line with Singapore’s commitment to reduce greenhouse gas emissions by 36% from 2005 to 2030.
-  Sources of Greenhouse Gas Emissions. (2022, August 5). US EPA. Retrieved October 10, 2022
-  Climate Change, N. G. C. (n.d.). Global Surface Temperature | NASA Global Climate Change. Climate Change: Vital Signs of the Planet. Retrieved October 10, 2022
-  Renewable electricity growth is accelerating faster than ever worldwide, supporting the emergence of the new global energy economy – News. (n.d.). IEA. Retrieved October 10, 2022
-  Global renewable energy installed capacity rises 9% in 2021. (n.d.). Retrieved October 10, 2022
-  Keppel infrastructure trust investor presentation (2022, August 30). Retrieved October 10, 2022
-  Statistics Explained. (n.d.). Retrieved October 10, 2022
-  Sembcorp – About Sembcorp. (n.d.). Retrieved October 10, 2022
-  Sembcorp Industries 1H2022 Results Announcement (2022, August 5). Retrieved October 10, 2022
-  Hydrogen Fuel Basics. (n.d.). Energy.gov. Retrieved October 10, 2022
-  Keppel to develop Singapore’s first hydrogen-ready power plant (2022, August 30). Retrieved October 10, 2022
-  Singapore And International Efforts. (n.d.). Retrieved October 10, 2022
About the author
Tan Jun Sen
Jun Sen graduated from Nanyang Technological University with a Bachelor in Mechanical Engineering and has previously worked in finance related roles dealing with stock analysis. He is trained in SG equities fundamental analysis from past work experience. He believes in value investing and staying invested throughout the high and lows of market cycles.