Our view

Oct 06 - UK: Norwich Union highlights investors' options in renewable energy sector

Higher oil and gas prices, fears about energy security and political initiatives to reduce carbon dioxide emissions have boosted the renewable energy sector. The team that manages Norwich Union’s Sustainable Future funds looks at the different ways of generating renewable energy and assesses the pros and cons of each sector.

Biofuels*
Biofuels are fuels made from animal or vegetable matter. They can be blended with petrol or diesel and produce less carbon dioxide.

Pros: Governments in US, Europe, UK, Canada, Australia, India and Thailand are encouraging use of biofuels to reduce car emissions and dependency on imported oil. High oil prices make biofuel prices attractive.

Cons: Not all cars can run on biofuels; distribution and demand are limited. Demand for biofuels is raising price of feedstocks and ethanol. There are also issues about sustainable land use such as clearing rainforests to grow biofuel crops.

Companies include: Abengoa, Novozymes, Andritz, Infinity Bio-energy, Cosam.

Wind
Pros: Onshore wind is now competitive with gas-generated electricity. Fears about security of supply, reduced CO₂ emissions and low input costs (the wind is free) have driven the sector, which grew 45% in 2005 with 31% pa growth since 2000.

Cons: Development has been hampered by a shortage of turbines and difficulties with planning applications. Wind power can also be erratic and only 30% productive.

Companies include: Vestas, Clipper Wind, Suzlon, Gamesa

Solar
Pros: Low input costs (ie sunshine is free), fewer issues with planning regulations, and cost-effective in remote areas. Peak power generation coincides with peak power demand.

Cons: The technology requires subsidy, and there are shortages of poly silicon, which is used to make semi-conductors.

Companies include: Solarworld, Q-Cells, Conergy, MEPC.

Fuel cells*
These convert hydrogen, natural gas or alcohol into electricity and heat.

Pros: Fuel cells have advantages over conventional power generation and are efficient at converting fuel into energy. US$3.7 billion has been allocated in the US to fuel cell research over the next 10 years and US demand is estimated to reach US$1.1 billion by 2008.

Cons: Cells are still expensive and hydrogen is not readily available as a fuel. Technology still being developed and management quality is varied. Few companies make money from fuel cells and it is difficult for investors to appraise the technology.

Wave power
Pros: Britain has a wide choice of possible sites and wave is arguably more reliable than solar and wind power.

Cons: Marine technologies are not yet commercially available on a large scale and will be expensive to build. Few of the technologies have been fully commercialised and are still being developed.

Companies include: Mostly private – Ocean Power Delivery, Ocean Power Technologies

Peter Michaelis, manager of the Norwich Union UK Ethical fund and Norwich Union Sustainable Future UK Growth fund, said: “We believe the renewable energy market will grow faster than the market in general over the next 20 years as governments try to increase security of supply and reduce the environmental impacts of power generation.

“Energy demand is predicted to double by 2030, the costs of finding oil have risen dramatically and oil companies are having to source supplies from unstable parts of the world.

“Investors should remember that renewable stocks are highly volatile and should be part of a diversified portfolio. At times all the good news is priced into the market and stocks can trade at inflated valuations.”

Norwich Union’s Sustainable Future funds are managed by Morley Fund Management.

-ends-

Press office contacts:
David Gwyer 01904 452828 Out of hours 07800 699508

Notes to editors:

* About biofuels
Biofuels are fuels made from animal or vegetable matter and produce less carbon dioxide than petrol or diesel. There are two types:

Biodiesel

• Produced from vegetable oils (oilseed rape/soybean) and/or animal fats. It contains no petroleum, but can be blended with petroleum diesel to create a biodiesel blend
• It can be used in compression-ignition (diesel) engines with little or no modifications, and is biodegradable, non toxic, and essentially free of sulphur.

Bioethanol

• Produced from fermenting starch or sugar (corn, sugar beet/cane)
• Hydrous ethanol (95% by volume) contains some water – it can be used directly as a gasoline substitute in cars with modified engines.

Anhydrous (or dehydrated) ethanol is free of water and at least 99% pure. This ethanol can be blended with conventional fuel in proportions of between 5% and 85% (E85). As a 5% additive it can be used in modern engines without modification. Higher blends require modified engines as run on so-called flexible fuel vehicles.

*About fuel cells
Fuel cells store converting fuel (hydrogen, natural gas or alcohols) into electricity and heat. New technology is moving fuel cells closer to commercialisation. Six types of fuel cell are technically available. Fuel cells have some major advantages over conventional power generation:

• They produce low emissions compared to conventional power generation.
• They could form an important component of distributed power and reduce losses we experience from producing power centrally and sending it down transmission lines (where power is lost).
• The high power to weight ratio lends itself well to providing long life batteries for mobile devices.

About Norwich Union’s socially responsible investment funds
Norwich Union has seven socially responsible investment funds. The investment management team is based at Morley Fund Management and is one of the largest and most experienced in the UK. The team is lead by Dr Peter Michaelis.

About Norwich Union
Norwich Union is the UK’s largest insurer. It is a leading provider of life, pensions and investment products and one of the largest financial adviser (FA) providers. FAs provide over 70% of the company's long-term savings business in the UK.

Norwich Union is the UK’s largest general insurer with a market share of around 14%, with a focus on insurance for individuals and small businesses.

Norwich Union’s news releases and a selection of images are available from Aviva's internet press centre at www.aviva.com/media

About Morley Fund Management
Morley Fund Management Limited is the UK-based asset management business of Aviva plc. Firms within the Morley group of companies manage Ł156 billion from offices around the world as at 28 February 2006.

Morley manages both institutional and retail funds under the Morley brand. It also acts as investment manager for a range of retail investment funds, marketed in the UK under the Norwich Union brand, and international funds marketed under the Aviva Funds brand.

Further information about Morley Fund Management can be found at www.morleyfm.com