Despite the global pandemic, renewable energy is still quickly growing in the U.S. and around the world. And investment-wise, this sector has sustained the hit better than many other industries and looks poised to have a very strong showing in 2021 and beyond.
That’s true for a few main reasons. The cost of solar energy itself keeps dropping dramatically. The ability to store solar and wind energy continues improving rapidly while the price also quickly falls. And many governments are requiring their economies to scale back reliance on fossil fuels due to the looming threat of climate change. So don’t hesitate to start belting out “Here Comes the Sun” — and wind, geothermal, and electric vehicles (EVs) — when the new year begins.
In fact, renewable energy stocks have still been delivering for investors this year. The S&P Global Clean Energy Index, which looks at 30 key renewable and other clean energy stocks, was 43% higher in 2020 than it was in 2019 and is not expected to slow down.
And renewables’ rise is coming at the expense of traditional fossil fuels. A similar index (the S&P Energy Select Sector) that watches fossil fuel stocks had dropped about 40% because in general there is an increasing demand for renewables and decreasing demand for traditional stocks.
With prices declining, more consumers, businesses, and state and local governments are turning to solar, wind, and other renewables to cut energy costs and greenhouse gases. This has at least somewhat offset decreasing support for green energy at the federal level under the Trump administration.
With President-elect Joe Biden taking over, it looks like he plans to devote considerable resources to clean energy as a way to combat climate change. His website says he “will make the largest investment in history in American innovation,” including developing new zero-carbon technologies. If his strategy is successful, he says it can “create more than 10 million well-paying jobs” in the clean-energy sector.
This could significantly accelerate the adoption of renewables in the U.S.
However, two key U.S. financial institutions recently declared climate change a serious threat, which could also help promote interest in renewables. For the first time, in a biannual report, the Federal Reserve said climate change threatens financial stability. And SEC Commissioner Allison Herren Lee warned in a speech that the risk climate change poses “looms even larger than the pandemic and could have even more grave human and economic costs” than COVID. She added that the SEC’s role is to try to make sure that public companies provide accurate information on the climate risk. Besides helping protect the economy, this information is needed to help investors “protect their investments and drive capital toward meeting their goals of a sustainable economy.”
And a recent survey by the Pew Research Center seems to show Americans are ready to embrace renewable energy. When Pew asked Americans if the U.S. should focus mainly on fossil fuels like oil and gas or renewables such as wind and solar, 79% preferred renewables, while only 20% favored fossil fuels.
Solar Will Be New “King” of World Electricity Markets
Globally, a recent International Energy Agency (IEA) report found that solar power is now the cheapest source of electricity in history in some parts of the world because of policies encouraging more renewable energy. More than 130 countries now have policies that cut the cost of building new solar installations.
The IEA’s annual World Energy Outlook report estimates the cost of solar power has fallen between 20%–50% per region compared with last year.
“I see solar becoming the new king of the world’s electricity markets,” IEA Executive Director Dr. Fatih Birol declared. “Based on today’s policy settings, it is on track to set new records for deployment every year after 2022.”
But that doesn’t mean we should leave wind power out in the cold. The IEA also said wind power could grow significantly, reporting in November 2019 that offshore wind sources alone could eventually generate 18 times the global electricity demand, according to Investopedia.
And overall, the global renewable energy market is projected to reach $1.057 trillion by 2026, up from $626.8 billion in 2019, growing 9.1% per year during that time.
So now let’s look at some renewable energy companies that could be good investments for you because of these trends.
Top 10 Renewable Energy Stock Picks for 2021
When we’re discussing solar here, we’re mainly talking about solar photovoltaic (PV), which uses solar cells in panels to provide electricity.
Shanghai-based JinkoSolar (NYSE: JKS) was the world’s largest manufacturer of solar panels in 2019. It also features one of the industry’s leading research and development (R&D) facilities and says it’s a “market leader in R&D of next-generation high-efficiency” solar devices. Nearly half its shipments — 40% — will fall into this category, which includes state-of-the-art mono wafers that make up solar panels. And Jinko claims at the top of its website that its Eagle panels are “the most reliable… on the planet.”
The company also says it’s shipped more solar panels over the past four years globally than any other firm. Jinko’s market share increased from 11% in 2018 to 16% in 2020, and it expects market share of the top five solar manufacturers (which include Jinko) to further increase in 2021.
As for financial soundness, Bloomberg New Energy Finance named Jinko the “Most Bankable” solar photovoltaic manufacturer, and 85 banks around the world have approved financing of Jinko projects. And in terms of investment, Jinko was rated the fastest-growing renewable stock as well as a top value by Investopedia.
SunPower (NASDAQ: SPWR), headquartered in San Jose, California, is the largest installer of commercial solar in the U.S. It can also be considered a disruptor of the solar market overall. Unlike most other installers, it not only sells, finances, and services its systems, but it also designs, engineers, and produces them. This means it’s not vulnerable to supply chain disruptions due to tariffs or the whims of other manufacturers.
SunPower also claims to offer the most efficient solar panel on the market (up to 22.7%). As for staying power, it guarantees a 92% peak power rating for its panels in the 25th and last year of their warranty, versus 80% for other vendors. And like Tesla (but unlike many other manufacturers), the company has its own power-storage module, which it expects to contribute $100 million in revenue in 2021.
Northland Power Inc. (OTC: NPIFF), based in Toronto, produces and supplies wind, solar, and natural gas power, with more than $10 billion in energy-producing assets. Its strategy includes being an “early mover into growth markets and technology” and “creating and sourcing high-quality clean energy projects.”
The company also aims “to continually increase shareholder value by creating high-quality projects underpinned by revenue contracts that deliver predictable cash flows” while “carefully managing and mitigating” risks.
And Northland backs up that talk — it’s consistently delivered for investors, with a 24% five-year total shareholder return and 16% 10-year return, as of this past August. In addition, its overall revenue and earnings per share grew an impressive 145% between 2015 and 2019. And Standard & Poor's gave the company a BBB “Stable” investment grade for 2020. Investopedia included Northland on both its “Best Value” and “Best Growth” renewable energy stock lists.
Vestas Wind Systems A/S (OTC: VWDRY), based in Denmark, designs, manufactures, installs, and services wind turbines across the globe. With turbines generating electricity in 82 countries, Vestas has installed more wind power than anyone else: more than 122 gigawatts, or 17% of the total global installed base. And it has a long history with wind — it made its first successful turbine all the way back in 1979.
The company managed to make the most deliveries it ever had in the third quarter of 2020 despite the pandemic. Its revenue also increased nearly one-third — 31% — in that period compared with last year in spite of the challenging environment.
And it strengthened a partnership with Mitsubishi Heavy Industries (MHI) by buying MHI’s shares in an offshore wind joint venture between the two companies. The aim of the stronger relationship is to make Vestas “a leading player in offshore wind by 2025.” This includes offering a new, more efficient offshore wind platform that will cut the cost of the energy it produces. Investopedia included Vestas in its renewable stocks with the “most momentum.”
Electric Vehicles (EVs)
Tesla (NASDAQ: TSLA): If you want to buy American and like good branding, you have to start with Tesla, the only EV manufacturer to become a household name in the U.S. so far. And it’s still a great investment opportunity — its stock value has jumped almost 400% in 2020 as it generated $24.6 billion in revenue.
Tesla has also stated it boosted the range of its mainstay Model S car to a very robust 402 miles, picked its next U.S. battery “Gigafactory” site, and continued boosting production rates for its Model Y and China-made Model 3 vehicles. In addition, the company plans to start building three factories on three different continents by year’s end.
However, some experts believe its stock is overvalued. And while Elon Musk, its founder and CEO, has been described as a genius, he’s also been called unpredictable and eccentric — not necessarily qualities you want in the CEO of a prominent publicly traded company. And Tesla stock isn’t exactly cheap, so the average investor could buy fewer Tesla shares than those of another renewable energy stock that might also be a good play.
Nio (NYSE: NIO): And if you want to explore the Chinese EV world, which is by far the biggest in the world, you’ll probably want to start with Nio. This company, which some call “the Tesla of China,” is its best-known and most prominent EV manufacturer so far.
Like Tesla, it focuses largely on the luxury market. Its three current models are the seven-seat ES8 SUV, five-seat ES6 high-performance SUV, and EC6 five-seat electric coupe SUV. And like Tesla, Nio is also trying to make its cars as high-tech as possible by letting them connect with other devices, drive by themselves, and make the most of artificial intelligence (AI).
Nio also offers a range of charging options to address the key issue of keeping EVs juiced up despite a limited charging infrastructure in both China and elsewhere. These include a home charging system, a service that lets owners swap out batteries instead of taking up to hours to recharge, and a fleet of charging trucks.
Geothermal energy heats and cools buildings by literally using the Earth as a heating and cooling source, as well as to generate electricity. Since the temperature just below ground stays about the same year-round — approximately 55 degrees Fahrenheit — underground pipes can use the ground to cool buildings in the summer and warm them in winter. This gives geothermal an advantage over wind and solar because unlike them, it depends on a constant power source. However, you can only carry out geothermal projects in certain areas, and they may take longer to complete than solar or wind.
Ormat Technologies (NYSE: ORA), based in Reno, Nevada, is one of the oldest and most well-established geothermal companies in the U.S. Ormat and its shareholders may be able to benefit significantly from a California law that requires the state to get 100% of its energy from renewable sources by 2045. And this may include doubling the use of geothermal in the state by 2030.
Ormat operates in 30 different countries, though the bulk of its operations are concentrated in the U.S. It plans to grow 18% by 2022 by adding 160–180 megawatts of geothermal and solar power by then. In addition, it plans to expand its energy storage operations. The ability to store energy, especially from the sun and wind, is seen as key to meeting renewable energy mandates.
As for Ormat’s financials, its market cap is $3.85 billion and operating income jumped one-third (from $38.7 million to $51.7 million) year to year between 3Q 2019 and 3Q 2020. Its share price rose steadily from January 2019 to shortly before the pandemic hit.
Three Other Stocks for the Rise of Renewables
NextEra Energy (NYSE: NEE) is actually a utility serving more than 5 million customers in Florida. But it’s best known as the world's largest producer of wind and solar energy, as well as one of the largest battery storage companies in the world. NextEra owns and operates wind assets generating close to 15,000 megawatts, and it also has 140 megawatts of storage capacity.
The company proclaims at the top of its webpage, “This is our era. This is America’s Energy Era” — against a backdrop of wind turbines stretching as far as the eye can see. NextEra says it’s “helping ensure that the next energy to power our dreams will be American energy.” With that in mind, Next Era has between $50 billion and $55 billion in new infrastructure investments planned through 2022 alone. This includes continuing “one of the largest solar expansions ever” in the United States.
The company’s expected total revenues stand at about $17.5 billion. It expects to grow 6%–8% in 2022 and 2023, based on projected higher earnings per share in 2021. NextEra’s price per share has grown steadily since November 2017 except for a sharp but temporary drop in spring 2020 due to the coronavirus, and it’s more than recovered from that. The company is a Fortune 200 firm and is included in the S&P 100 index.
Hannon Armstrong (NYSE: HASI) isn’t a manufacturer but rather a real estate investment trust (REIT) that calls itself “the first U.S. publicly traded company solely dedicated to investing in climate change solutions.”
In a video on the company's homepage, chairman and CEO Jeffrey Eckel declares that climate change “is such a compelling and large problem that it needs our attention. The crisis is that acute and frankly, the investment opportunity is that great.” The company’s key investments include onshore wind and solar, energy efficiency and solar storage, and sustainable infrastructure such as stormwater remediation and resilience to the effects of climate change.
Based in Annapolis, Maryland, Hannon Armstrong has more than $6 billion in managed assets and says these are diversified and long term — 208 investments averaging $11 million each and with a 16-year weighted average life.
Renewable Energy Group Inc. (NASDAQ: REGI): Renewable Energy Group’s (REG) motto is “Cleaner Fuels for a More Sustainable Future.” It produces and supplies renewable fuels such as biodiesel and renewable diesel as well as renewable chemicals and other products. The company says it is “leading the transformation of biofuel into something that helps improve the environment and grow customers’ profits.”
Based in Ames, Iowa, REG is North America’s largest producer of biodiesel and currently operates 13 biorefineries in the U.S. and Europe. It says it’s also expanding a network of biofuel stations to bring biofuels directly to consumers. And REG states that its biodiesel and renewable diesel fuels generate 50%–90% lower carbon emissions than fossil fuels.
The company reported revenues of $576 million on 176 million gallons of fuel sold in 3Q 2020. President and CEO Cynthia Warner said that demand for REG's fuels was resilient despite the effects of the coronavirus, “which we believe further demonstrates that the renewable fuel industry is at an inflection point driven by customer demand."