Greencoat outshines SSE and ITM Power amid high energy prices

Soaring energy prices has helped the Greencoat Wind share price to outperform clean energy peers ITM Power and SSE so far this year. Hydrogen player ITM Power has struggled with its production, while a weaker renewables output has offset gains made earlier in the year for SSE shares.

It has been a mixed year for clean energy players SSE [SSE.L], ITM Power [ITM.L] and Greencoat Wind [UKW.L]. While rising gas prices have allowed energy producers to charge more for electricity, companies with ambitious future clean energy ambitions and smaller current operations have not been able to capitalise on this trend, but have rather been hurt by rising costs.

Greencoat Wind, a wind power investment company, has benefitted from higher electricity prices. Its share price has grown 14.9% year-to-date, despite declines in the general market. Meanwhile, SSE Energy has declined 0.5% since the beginning of the year, with shareholders concerned over a potential windfall tax impeding the company’s investments in new infrastructure. Hydrogen hopeful ITM Power has also dramatically underperformed the group, falling 70.5% within the year so far.

The current macro-economic environment has not been ideal for the expansion of new clean energy projects. Soaring inflation has made the development of new renewable energy infrastructure expensive. At the same time, high interest rates have added to the challenge of financing projects with high upfront costs.

Earnings rise for SSE but renewable output declines

Ahead of the publication of half-year results in the middle of November, SSE announced on 27 September it is forecasting an increase of more than 25% in profits this year. The group’s gas storage and thermal power plants support this estimate, with the company benefitting from higher wholesale power prices in the UK.

Shareholders, however, were more focused on the group’s lower-than-expected output from its renewable energy assets. Unfavourable weather conditions led output for the year ending 22 September to drop 13% below what was planned.

Despite this, SSE has pledged to reinvest any additional profits this year into UK’s clean energy infrastructure. This comes after talks of the UK imposing a windfall tax on electricity companies like SSE, which have benefitted from higher wholesale energy prices. New prime minister Liz Truss is currently opposed to such a tax, but the risk remains if prices remain high.

Rising costs and production delays hurt ITM Power’s share price

ITM Power has shown the weakest performance out of the three clean energy companies this year. The latest hit to the share price came after the company announced it was facing new production delays. In its full-year results in the middle of September, ITM noted that “cost escalation, supply constraints and time delays” meant that it may not be possible to meet the 5GW of hydrogen electrolyser production capacity goal set for 2024.

The group, which designs, manufactures and integrates electrolysers used to produce clean hydrogen fuel, reported increased revenue of £5.6m for the year. However, rising cost pressures nearly doubled the loss for the year to £46.7m from £27.6m the year before. 

Alongside the results, the group announced that CEO Graham Cooley will be stepping down after 13 years in the role. Though his successor hasn’t been announced, Cooley noted that the appointee would need to have “international manufacturing experience” to help expand the business from its current position.

Soaring electricity prices puts wind behind the Greencoat share price

Greencoat wind has outperformed SSE and ITM Power on the market this year and is the only one sitting in the green. The group, which invests in wind farms across the UK, has benefitted from higher electricity prices. While the price of electricity dependent on gas for generation has risen alongside that of gas, windfarms are relatively immune to that cost -- and this has led to a massive jump up in earnings.

For the six months ending 30 June 2022, the company saw its return on investments increase by over 315% to £582.2m from £140.2m the year before. The group also stepped up its investment in new wind farm opportunities in the first half of the year with the £50m acquisition of the Twentyshilling wind farm in Scotland.

However, the company’s strong performance this year may not last forever. Greencoat is highly dependent on the price of electricity over the coming years, which could decline if the macro-economic environment improves. Alongside this, wind conditions vary each year and can impact the return on investment from farms.