Private Investor: Time to switch on to the power generators
Saturday 29 March 2008
With fears of a global recession and continued turbulence in financial markets, 2008 has not been a particularly rewarding year so far for investors. In such difficult times, it can pay to explore investments that are well positioned for a longer-term favourable theme rather than those dependent on a highly unpredictable economic cycle. One theme such theme with this positive outlook is global power.
The world's electricity supply is undergoing a major transformation and it is important to understand that there are a number of drivers behind it.
In the developing countries, rapid rates of industrialisation and urbanisation have led to a massive surge in electricity demand, and power generation needs to be upgraded to keep up. Recent estimates predict a shortfall of 1,000 Gigawatts (GW) in the developing world by 2015, which is more than 10 times the UK's current electricity capacity. It will take an estimated $22,000bn (£11,000bn) to be spent on new supplies to meet the demand over the next 25 years.
Western governments, however, face a different problem. Ageing power stations need to be replaced and there is a desire to reduce the instability that comes from reliance on oil and gas. There is also increased environmental legislation to be met, such as the EU's commitment to supply 20 per cent of all generation from renewable sources by 2020.
Nuclear power is being widely coveted as the solution and was high up the agenda in meetings this week between Gordon Brown and French President, Nicolas Sarkozy.
The problem, though, is the long lead times on nuclear development. In addition, the spiralling demand for nuclear infrastructure globally has heightened the development costs for the UK market, a factor also playing out in the non-nuclear power sector where the rising world cost of materials such as steel has ensured a dramatic rise in the cost of new build for power stations.
This rising cost of new supply will necessitate a rise in the electricity price to justify further investment. In addition, with the depletion of cheap gas reserves from the North Sea and a significant rise in the oil price caused by emerging market demand, it seems likely that UK consumers are facing higher energy prices for some time, a factor that will continue to irk government. Nevertheless, concern that supply is struggling to match demand has led to increased growth opportunities for UK listed power companies.
One such company is FTSE 100-listed Scottish & Southern Electricity (SSE). It has been active in developing increased capacity from renewable sources in line with more demanding environmental legislation and recently bought Airtricity, a group with substantial interests in wind power.
Furthermore, given that SSE is a vertically integrated power group with interests in both electricity supply and generation it retains a superior business model if electricity prices remain stronger for longer. Power groups without generation assets are more exposed to a rise in wholesale prices given they struggle to pass on fully the cost in a competitive supply market and control no upstream generation assets which can provide a very useful hedge in a rising price environment. This outlook perhaps goes some way to explaining the recently rumoured interest of Centrica in buying the Yorkshire based power generator, Drax.
Another stock to consider is International Power. It keeps the lights on in 20 countries worldwide and should be a key beneficiary of the trend towards an increase in the electricity price emanating from the supply and demand in-balance. Of additional interest, it operates desalination plants in the Middle East, which utilise its electricity assets to convert salt water into drinkable water. With a growing threat over longer-term water supplies, particularly in emerging nations, this part of the business may have significant investment potential for some considerable time.
Aggreko is another stock with good opportunities for growth. It provides temporary power solutions to the international market via mobile power generation units, up to the size of a small power station. The group is a key beneficiary of any trend towards power shortages given the flexibility of its operating plant.
BG Group is a company associated with the outlook for power. Essentially, BG supply liquefied natural gas (LNG) to international markets, a product that can be distributed internationally due to its high portability. Given the level of global demand for clean fossil fuels such as LNG that are not tied to pipelines, the price has been rising on international markets, a factor which benefits BG Group significantly and which has been another feature in inflating domestic and global electricity prices.
Issues such as power generation are longer term in nature and should be likely to benefit companies that respond well for some time. With uncertainties emanating from the global credit crunch, power generation is certainly a visible and viable theme to invest in.
Andrew Moffat is the manager of the Co-operative Insurance Society's (CIS) Income With Growth Trust. Sean O'Grady is away
Independent Partners: See how much you could save by switching credit cards. Compare now
auctionThe first 23 lots have now gone. But there are 22 more still up for grabs
healthJames Bond's alcohol consumption puts him at 'high risk' of cirrhosis, tremors... and impotence
musicPolice chief rejects rappers' claims that his work is as dangerous as law enforcement or military service
tvSpoiler alert: Find out the result of a heated final show
Beatles rush out 'bootleg' album to defy EU copyright law
Geoffrey Macnab reviews The Desolation of Smaug - the meat in Peter Jackson's Hobbit sandwich
Harvey Weinstein reveals his secret weapon on-set
Chiwetel Ejiofor and Idris Elba get nods for Best Actor, which no black Brit has ever won
Now that an oil trader's drinking has got him sacked, will we all have to make do with an afternoon latte?
peopleWhat advice would David Cameron give to his younger self?
Auction house to give away $1m masterpiece in charity raffle - and tickets are only $100 each
- 1 Nelson Mandela memorial: ‘Bogus’ sign language interpreter made mockery of Barack Obama’s tribute in Soweto
- 2 Mystery of Epping Forest 'big cat' is solved
- 3 French café starts charging extra to rude customers
- 4 Australia incest case: Severely deformed children found in remote farming community after generations of inbreeding
- 5 Physicists discover 'clearest evidence yet' that the Universe is a hologram
- < Previous
- Next >
iJobs Money & Business
£30000 - £45000 per annum + Bonus + Benefits: Harrington Starr: Regulatory Man...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Pre-Sales / Cl...
£40000 - £60000 per annum + Bonus + Benefits: Harrington Starr: Regulatory Man...
£40000 per annum: Harrington Starr: Senior Network Engineer (CCNP, CCIE, Netwo...
Day In a Page
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.
A six-bedroom detached period property with secluded gardens, ample parking and a double garage in Rye, £675,000.
A large split-level property with three double-bedrooms and roof terrace, close to Crouch End Broadway, £625,000.
A charming barn conversion in the picturesque Cotswold village of Ilmington with three bedrooms, a detached garage, workshop and beautifully manicured gardens £675,000.