Handelsblatt: 4 ways investors can take advantage of the electricity price surge in the stock market

The price of electricity in Germany does not seem to know any upper limit at the moment. It recently rose to 988 euros per megawatt hour – at the beginning of the year it was less than 150 euros. This is a problem for businesses and consumers, whose costs are rising dramatically.

However, according to Handelsblatt, there are also companies that benefit directly or indirectly from high electricity prices. Their shares have already risen sharply, but in some cases it may still be worth investing as a hedge against a further rise in electricity prices – because then further price rises can be expected.

Handelsblatt presents four ways investors can invest in such stocks, what analysts’ price targets look like, and explains why a fifth way is currently closed.

1. Energy suppliers

DZ Bank analyst Werner Eisenmann sees energy company RWE among the gainers from growing energy shortages. He writes in his current study that RWE benefits from increased attention to security of supply and a permanently higher level of electricity prices.

Because where the electricity is produced is irrelevant to the price. The deciding factor is the last offer accepted. So the most expensive power station determines the price.

RWE generates electricity at its plants not only from natural gas, but also from hydropower and biomass, and can sell some of it at current record prices. As a result, the company recently raised its annual forecasts and now expects earnings before interest, taxes, depreciation and amortization of five to 5.5 billion euros instead of the previous 3.6 to four billion euros.

Although RWE is also affected by increased supply costs, especially for natural gas, it can pass this on to consumers for the most part. In addition, the company is expanding its green energy capabilities. RWE’s stock has already gained 22 percent this year to around 43 euros. Analysts expect it to gain another 18% to 51 euros on average over the next 52 weeks.

The share of EnBW, Germany’s fourth-largest electricity producer, has already risen by 30 percent this year. The company is not listed on any major indices and therefore is not regularly covered by analysts.

Although the Karlsruhe-based energy group is struggling with a sharp increase in supply costs due to a lack of natural gas supplies from Russia, it is also benefiting in the green electricity sector from higher prices and the commissioning of new solar parks.

Recently, EnBW reaffirmed its forecasts for 2022, according to which operating profit is expected to increase by two to seven percent to three to 3.2 billion euros.

2. Operators of wind and solar parks

The operators of wind and solar farms, as well as the farmers of these units, also benefit from the current situation – and not only in the short term, but in the long term. Johannes Maier, fund manager at asset manager Bantleon, explains this with a special feature of the market: “Units are only built when there is a contract with the customer and project developers can seriously assess whether the construction is also worth it.”

This depends on the price of the electricity produced. This is fixed in the contract in the long term through a power purchase agreement, usually for the next ten to 15 years: Mostly based on the market price at the time of construction – only a small percentage is based on the current market price.

This means that operators of already built wind and solar farms benefit from higher electricity prices only if the electricity market is not determined by a power purchase agreement. For most companies, the immediate additional return is therefore small in percentage terms, but cannot be ignored due to the explosion in electricity prices. “But if you build a wind farm now, you have the opportunity to benefit in the long term from the current high electricity prices,” says Maier.

In this context, not only the future operators of the plants have a great interest in a fast construction, but also the governments in Europe, observes Maier: “Everyone wants to get away from natural gas. As a result, the commissioning and approval processes are speeding up “.

The Bantleon Select Infrastructure and Bantleon Changing World funds, which Maier manages with a team, are also betting on some of the beneficiaries of this growth. These include Hamburg-based Encavis, which operates wind and solar farms across Europe.

Its stock has risen more than 50% since the start of the year and is now ten percent above the average of analysts’ target prices. Shares in Bremen-based Energiekontor, which develops, builds and operates wind and solar farms, rose 30% over the same period. Here analysts still see a 30% price outlook.

The share of PNE, the Cuxhaven-based developer of wind projects, has even almost doubled over the same period and has therefore risen faster than analysts’ forecasts. Their price targets are currently 13 percent below the current price. An alternative from abroad are Spanish companies Grenergy and Solaria, whose shares have risen by more than 30 percent since the start of the year.

3. Operators of energy exchanges

Deutsche Börse is also benefiting from the rise in electricity prices as it owns a majority stake in the Leipzig-based European Energy Exchange (EEX). It offers products for the trading and clearing of spot and derivative products in the electricity and natural gas market, as well as emission certificates.

Already in the previous financial year, net income in this sector increased by 13% to 342 million euros. And this year there are signs of further growth: In the first half of the year, net income in this sector increased by 38%.

Deutsche Börse’s stock is already up 16% this year to over €170. On average, analysts believe it could gain another ten percent by the end of the year, with a target price of 186 euros.

4. ETFs by sectors

Those who don’t want to invest directly in stocks can also invest in exchange-traded index funds (ETFs) that cover a specific thematic sector. One possibility is ETFs in MSCI Europe Utilities, which offer access to the largest European energy suppliers.

The Justetf platform lists ETFs from providers State Street Global Advisors (IE00BKWQ0P07) and DWs (LU0292104899) here. The biggest positions here are Spanish utility Iberdrola, British transmission system operator National Grid and Italian energy group Enel. Although ETFs have outperformed the overall market this year, overall they have only moved sideways.

An alternative is ETFs that offer access to companies active in the alternative energy sector. Examples are “L&G Clean Energy UCITS ETF” (IE00BK5BCH80), which is referenced to the Solactive Clean Energy Index and has gained ten percent since the start of the year, and “Invesco Solar Energy UCITS ETF” (IE00BM8QRZ79), which it has gained nearly 20 percent since the beginning of the year.

Because there are no derivatives in the price of electricity

A fifth theoretical way would be to enter through the futures market. In the case of natural gas or oil, for example, this is possible through options and certificates – investors can make specific price bets here. However, Handelsblatt’s research shows that there are currently no such electricity price products for private investors.

This is partly due to the fact that the electricity futures market has special rules and settlement methods. But one provider also explains: “We are always looking at this option, but hedging is more than difficult due to the state of the market, which is why we have held back so far.

Hedging means protecting the issuer of the derivatives. If he sells an option with which an investor is betting that prices will rise, the issuer has the opposite position on the books. However, he does not bet against the client and does not bet on falling prices, but hedges this position. But hedging is now so complicated that potential providers prefer to stay away from it: The price increase is simply too strong.