Does the oil price surge make green energy a good investment? ANDREW OXLADE
Buyers of solar panels a decade ago are likely to be pleased with their investment.
Rooftop systems that might once have been expected to take around 15 years to pay for themselves through lower electricity bills are likely to have broken even far sooner.
The energy price surge of 2022, following Russia's invasion of Ukraine, dramatically altered the economics.
The average annual electricity bill rose from £731 in 2021 to £1,213 by 2023, according to government figures – a jump of 66 per cent.
Solar panel owners were not the only beneficiaries. A mini-bubble in green energy investments had already begun forming before the Ukraine war. Tackling climate change was the hottest of topics.
Amid a post-Covid ethos of 'build back better', makers of solar panels, wind turbines and storage batteries were expected to flourish as these new technologies would reduce our reliance on fossil fuels.
Then the oil price surge of 2022 sparked a further rise in alternative energy investment valuations.
There was a need for cheaper alternatives to gas and electricity, but countries were also reminded of the importance of energy security – the notion that it's better to make your own energy.
Green machine: The economic appeal of alternative energy sources has grown
The mood shifted with the arrival of President Donald Trump in the White House.
A new mantra of 'drill baby drill', along with a rollback of green energy subsidies, compounded an already fading wave of investor enthusiasm for the sector.
Perhaps there is another shift afoot. The surge in the oil price off the back of the Iran War suddenly changes the economic appeal of alternative energy sources to fossil fuels.
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The renewable energy investment options
There are many ways to invest in green energy but two have caught the attention of DIY investors in the last few years.
1. Investment trusts that own renewable energy projects and pay income from the sale of the energy generated.
2. Shares in companies that make renewable energy products or infrastructure – and the funds that hold them.
Among investment trusts, Greencoat UK Wind has probably generated most interest. It operates a portfolio of 49 wind farms across the UK, with the sale of that energy providing investors with dividends.
The aim is to increase the payments in line with inflation.
The level of income – shares in the trust currently yield nearly 11 per cent – has clear appeal.
This is partly because the share price has fallen, so the yield has risen. The shares have fallen 23.3 per cent over the past five years.
Even with considerable income paid and reinvested, investors would only have a total return of 8.4 per cent (according to Refinitiv data on 18 March 2026).
Andrew Oxlade: Renewable energy suddely looks much more attractive - and as an investment it's cheap
Why the fall? Returns are partly driven by broader energy prices, and these fell after a spike in 2022.
These types of investment are also at the mercy of more unusual external factors.
For instance, the government has announced that indexation under the Renewables Obligation scheme will move from the Retail Prices Index (RPI) to the lower Consumer Prices Index measure in April.
This is good news for electricity customers, but not so good for renewables schemes.
Investors must also consider the pricing of government UK bonds, known as gilts.
When yields rise on gilts, income from steady income payers like Greencoat UK Wind look less appealing, demand for the shares falls and so does the share price.
In the first two weeks of the Iran conflict, the yield on 10-year gilts rose from under 4.3 per cent to over 4.8 per cent, perhaps undermining demand for the likes of Greencoat.
Its price rose in spite of this, driven by rising energy prices, but the increases were probably stifled.
Greencoat is one of many in the renewables investment trust sector. Other examples include the Renewables Infrastructure Group, Bluefield Solar and Foresight Solar Fund.
The Association of Investment Companies (AIC) points out that despite price falls it is still the third largest investment trust sector.
On the up: Renewable Energy Infrastructure sector
Double-digit dividends for brave investors
Yields, which are not guaranteed, are high across the sector. The chart below, from the AIC, emphasises this point.
The AIC's Annabel Brodie-Smith remains is optimistic about prospects. She said: 'Over the last four years, investment trusts investing in renewable energy have experienced a perfect storm.
Interest rates rising, lower power prices, poor cost disclosure regulation and government changes on subsidies have created a very tough environment for this sector.
'But in the last month, the average share price of a renewable energy infrastructure trust has risen by 10 per cent because the conflict in Iran has led to higher energy prices and has highlighted our dependence on imported oil and gas.'
What about buying individual shares?
Another approach for a committed renewables investor is to consider the shares of companies in the sector.
High-profile options include manufacturer First Solar of the US, turbine makers Vestas Wind Systems and Orsted of Denmark and New-York listed Brookfield Renewables, which operates around the world in hydro, wind, and solar.
First Solar is interesting because it faces the headwinds of the Trump administration's hostility to green subsidies, as well as fierce competition from dominant Chinese rivals.
But the President's tariffs have helped stymie the Chinese threat. Vestas, on the other hand, faces the headwinds of both tariffs and subsidy cuts from the US, and even the cancellation of major projects.
Alex Monk, a co-manager on the Schroder Global Alternative Energy fund, draws important parallels to previous investment bubbles.
'I liken it to the dotcom experience,' he told me. 'It's easy to forget that after that bubble burst in 2001 to 2003, there were winners.
'But you don't see those winners five years after the crash – they take 10 or 20 years to emerge.
'That is what we will begin to see with alternative energy. It is an interesting time to invest.'
The largest holdings in his fund include Vestas and First Solar.
Investors may also look to other beneficiaries of the energy transition. The appeal of electric cars improves with every rise in the oil price as petrol grows comparatively more expensive.
Tesla is an obvious market leader, but its shares are already on a valuation far in excess of other car makers.
Alternatives to the alternatives
One tangential investment that is also drawing interest is London-listed National Grid.
Britain's energy needs are set to soar because of the rising number of electric cars and as heat pumps replace gas boilers for heating homes.
AI's demand for more data centres will only increase the load.
The network – the cables and systems that move the energy around – also needs more attention.
This is because so much more energy generation happens on the peripheries of the country – think coastal wind turbines – whereas gas-powered stations have been close to the industrial heartlands or near the biggest cities.
The network needs an overhaul and National Grid will be paid to do it. This perhaps explains a 39.4 per cent rise in the shares in the past year.
In theory, the more National Grid invests in the network, the more it can earn. But the calculations for this are complicated, and once again there is political risk.
And perhaps that's the problem with renewable energy investments – they are likely to be the future due to the finite nature of fossil fuels, but their fortunes are hyper-sensitive to which way the political winds blow.
