International Energy Agency leader Fatih Birol said he wouldn’t invest his personal pension in fossil-fuel companies in an interview this week on the global news platform Semafor.
That’s not entirely surprising, as Birol has broadened the agency’s scope of work to include renewables since taking the helm in 2015, but it’s still a remarkable statement coming from the chief of what once was a key cheerleader of oil and gas companies.
Now, Birol says, the focus of these companies on oil and gas “may not be really profitable” in the medium and longer term, as reputational risks rise and fossil-fuel investments perhaps become stranded assets.
While the extent to which legacy energy companies will participate in the transition away from fossil fuels remains an open question, other parts of the energy industry are well on their way toward decarbonizing the global economy with renewably produced electricity and the infrastructure to get it to homes and businesses. This creates opportunities for investors interested in the energy transition while Big Oil drags its heels.
Ecofin portfolio manager Michel Sznajer sees an acceleration in renewable electricity demand in the U.S. amid electric vehicle and data-center growth, coal plant retirements and rising adoption of heat pumps. Battery storage to help balance the grid will also be a growth area, he says.
In 2023, catalysts for the renewables sector include a potential peak and then decline in interest rates, a potentially cold winter and rising power prices, and continued declines in solar costs, he says. High interest rates can hit renewable energy companies particularly hard because of the upfront costs of building clean energy projects.
“Whether you are a socially conscious investor or an investor who sees an investment opportunity from things like climate change, falling costs of renewables and large companies investing in and producing more renewable energy, diversifying your portfolio with renewable energy stocks is a good idea,” says Jim Penna, senior manager of retirement services and investment strategy at VectorVest.
With that in mind, here are seven top renewable energy stocks to consider for this year:
|Renewable energy stock
|YTD return as of June 15
|NextEra Energy Inc. (ticker: NEE)
|NextEra Energy Partners LP (NEP)
|ReNew Energy Global PLC (RNW)
|Iberdrola SA (IBDRY)
|Quanta Services Inc. (PWR)
|Prysmian S.p.A. (PRYMY)
|First Solar Inc. (FSLR)
NextEra Energy Inc. (NEE)
NextEra Energy is a perennial darling of investing experts who watch the renewables space. The company says it’s the largest utility in the world by market capitalization, and it produces electricity from clean and renewable sources, including wind and solar. In addition to solar and wind generation, NextEra is involved in battery storage and green hydrogen.
“NextEra Energy is my top renewable energy stock pick for several reasons,” Penna says.
For one, the stock pays a safe and growing dividend yield of 2.6%. Furthermore, Penna thinks the dividend will grow about 13% through next year.
“As one of the world’s largest producers of wind and solar energy, and an earnings growth rate of about 7% projected over the next year, the investor can potentially benefit from the best of both worlds: income and capital appreciation potential,” Penna says.
NextEra Energy Partners LP (NEP)
This growth-oriented limited partnership was formed by NextEra Energy Inc. to acquire, manage and own contracted clean energy projects with stable, long-term cash flows, NextEra Energy Partners says.
In addition to interests in wind and solar projects in the U.S., the company also owns natural gas pipeline infrastructure in Texas and Pennsylvania. But in May, the company said it would sell the natural gas infrastructure and use the proceeds to buy out certain convertible equity portfolio financings, simultaneously focusing itself solely on renewables and simplifying its capital structure.
The plan alleviates some funding concerns, says Sznajer, who lists NEP as one of his top stock picks.
“NEP benefits from the strong pipeline of renewables projects of its parent company that it acquires on attractive terms,” he says, plus it has a growing, 5.1% dividend yield.
ReNew Energy Global PLC (RNW)
Sznajer also likes this “leading Indian renewables developer and operator taking full advantage of the accelerating growth in renewables deployment in a country still highly dependent on coal.”
The company’s expertise in solar, wind, hydro and batteries helps it capture superior returns by providing complex renewables solutions like round-the-clock renewables power, he says.
ReNew is also starting to manufacture solar panels in India at a lower cost than those imported from China and Southeast Asia, he says.
Meanwhile, the stock is attractively valued at about seven times the 2024 enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio, Sznajer says.
Iberdrola SA (IBDRY)
In his interview with Semafor, the International Energy Agency’s Birol said governments haven’t been spending enough on electricity grids, a headwind for expanding renewable energy.
“You built the most sophisticated car,” he told the news outlet. “It is cheap, it is comfortable, it can drive very fast … but you forget to build the roads.”
Upgrading electric infrastructure, including grids, is essential for decarbonizing the economy, says Pascal Dudle, head of the impact investing team at Vontobel Asset Management.
“Next to companies that produce solar panels or wind turbines, it needs utilities like Iberdrola, one of the largest operators of renewable projects and hence critical to the development of the global renewable energy sector,” Dudle says.
The Spanish multinational electric utility company is a leading utility in wind and solar generation in Europe, the United States and Latin America. It’s also the parent company of Avangrid Inc. (AGR), an energy services and delivery company heavily involved in renewables.
Quanta Services Inc. (PWR)
This contracting services company designs, installs, repairs and maintains infrastructure for the electric power, energy and communications industries. It has operations in the U.S., Canada, Australia and other international markets.
Its renewable service offerings include solar and wind power engineering, procurement and construction; battery energy storage systems; carbon capture; and biofuel plant construction.
“Companies like Quanta Services that construct energy infrastructure and provide related maintenance services are also crucial, as only well-built and regularly maintained power lines, including quick response for repairs, enable a reliable grid,” Dudle says.
Prysmian S.p.A. (PRYMY)
Renewably generated electricity needs to be connected to grids, which can be miles away from where the power is created, such as in the case of large offshore wind farms that provide power to coastal cities.
Enter Prysmian, an Italian company that manufactures underground and submarine cables, systems for power transmission and distribution, and medium- and low-voltage cables for the construction and infrastructure sectors. It’s also involved in fibers and cables for the telecommunications sector.
“Another important area is connection cables for solar and wind power plants, including high-voltage direct current connections for offshore wind farm and long-distance power transmission,” Dudle says. “Cables from companies like Prysmian help to reduce transmission losses, and excess renewable power generated can be transmitted to storage facilities.”
First Solar Inc. (FSLR)
This solar cell manufacturer uses cadmium telluride technology in a process that has a smaller carbon footprint than that of other manufacturers who use polysilicon. Additionally, First Solar isn’t reliant on Xinjiang, a polysilicon-producing region in China where the U.S. says Muslim minorities are forced to work against their will.
These factors are important for investors who stress environmental, social and governance (ESG) metrics in addition to financial performance.
The company says it is the largest U.S.-headquartered solar photovoltaic manufacturer.
During the first quarter, First Solar posted net sales of $548 million, which was $454 million less than the previous quarter, as the company increased shipments to its distribution centers to mitigate logistics costs and align future shipments to customers with contractual delivery schedules.
Still, sales were up from the year-ago quarter’s total of $367 million, and the company swung to a profit of $42.5 million from a loss of more than $43 million in the first quarter of 2022.
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