Thematic investing: renewable energy stocks

The world is starting to invest in renewable energy. You can too. From wind energy stocks to utility firms, we take a look at some of the key clean power stocks that could perform well in the short and long term.

How you can invest in renewable energy

The case for green power

Global governments have committed to slashing their carbon emissions. The UK and US are both gunning for net-zero CO2 emissions by 2050, while the EU has pledged to cut its own greenhouse gas output in half by 2030.

We’ve also seen countries in areas like Central America go all in on renewables, adopting mass solar, wind and hydro power for their national grids. Billions is being pumped into large-scale solar farms throughout the Middle East too with Saudi Arabia, Dubai, and Abu Dhabi leading the way.

Pressure is mounting on China to cut the use of coal-fired power stations over the next decade to meet climate goals.

The historic 2016 Paris Climate agreement was a major step towards a greener future. Under its protocols, signed by 197 nations, the world essentially pledged to limit global temperatures no more than 2°C higher than pre-industrial levels. A lofty goal, to be sure, but one that could pay dividends for investors and traders.

The investment behind this worldwide initiative is nothing short of gargantuan. Joe Biden’s presidency alone is pushing through $2 trillion worth in clean energy projects and investments. Since 2019, over $54bn has been spent by the EU and UK on wind power development alone. China’s figure is over $100bn.

Climate change is one of the biggest challenges the planet faces. Countries are likely to continue to invest in renewable energy into the 21^st century.

Using Britain as an example, the UK’s renewable market is expected to grow at a CAGR of other 9% from now until 2026, and that’s just one nation amongst many.

We can also see commitment to new green power generation infrastructure by looking at capacity installation. In total, 260 GW of renewable capacity was installed in 2020 – a 50% y-o-y increase.

As such, wind energy stocks, solar, and other green power sources could be poised to benefit greatly in the short and long term. See below for some renewables stocks that could be worth adding to the portfolio of the environmentally-conscious commodities investor.

Renewable & wind energy stocks to watch

Brookfield Renewable Partners

Brookfield Renewable Partners is one of the world’s largest publicly traded clean power suppliers. It has a multi-pronged approach to renewable energy, developing and supplying solar, hydro and wind power, as well as offering energy storage functions.

The bulk of Brookfield power is purchased under long-term, fixed rate deals, giving the firm steady cash flow. It also boasts a strong balance sheet and a BBB+ bond rating from S&P – one of the highest awarded to a renewables firm.

Currently, Brookfields believes it can pump around $800m-$1bn worth of liquidity into fresh projects from now until 2025. Estimates suggest annual cash flow growth per share of 11% to 16%, supporting yearly dividend increases between 5% to 9%, making it one to watch.

Vestas Wind Systems

One the key wind energy stocks is Vestas.

It’s a bit of a behemoth when it comes to wind power, being a cornerstone turbine supplier to on and offshore projects throughout the world, including three upcoming projects in Australia totalling 420 MW. The Danish firm is also mulling over expanding its footprint in the UK’s offshore sector.

In 2020, Vestas revenues grew by an impressive 22%, with its bottom line amount too €771m. Profitability did dropped by 25%, to €750m, caused by Covid-incurred costs. Deliveries, however, increased over 2020, with Vestas delivering 17.2 GW of capacity to project sites across the world – a 34% year-on-year rise.

Vestas’ €43bn project backlog is enough to inspire major confidence. It has increased dividend by over 5% in 2021, making the company one of the few renewable energy stocks with a pay-out (although its yield is less than 1%).

NextEra Energy

NextEra Energy powers 5.5m Florida homes with a combination of wind and solar and claims to be one of the world’s largest suppliers of wind and solar-generated power.

The company has been pumping cash into its renewables subsidiary over the past decade. Under its Florida Power & Light utility provider, the firm will be piloting something new for Florida: a “green hydrogen” plant, generating clean gas production via solar power, set to go live in 2023.

What’s more, NextEra has snapped up desirable acreage throughout the Sunshine State. It has plans to develop these key sites over the next 20 years.

In the short term, NexEra’s investments should power earnings growth of at least 6% to 8% per year through 2023. The firm could also increase its dividend by about 10% annually through at least 2022.

Want to invest in renewable energy? Remember the risks

While in the long term, the world is shifting towards a cleaner, greener future for energy generation, please be aware that all investing and trading is risky.

Whether you want to add wind energy stocks to your portfolio, or you’re looking at renewable utility suppliers or solar companies, bear in mind your investment can go up or down. You can lose more money than what you started with.

Only invest or trade if you are confident you can afford any losses.