Top renewable energy stocks

Renewable energy still has plenty of growth opportunity

The International Energy Agency (IEA) predicts renewables will be responsible for powering 12.4% of global energy demand in 2023, one-fifth higher than the 10.3% seen in 2018. That includes all consumption of renewable energy, whether that be to power and heat a building or to keep transport ticking along.

EU calls for ‘climate neutral’ Europe by 2050

^{(Source: International Energy Agency, 2018)}

Capacity of virtually all types of renewable energy will continue to grow over the next five years but some are forecast to increase at a faster rate than others. A similar amount of new wind and solar PV capacity are expected to be brought online between 2018 and 2023, but bioenergy will remain the most-consumed renewable energy source.

Is investment in renewable energy drying up?

^{(Source: International Energy Agency, 2018)}

Generating electricity will remain the main use case for renewables, which is expected to account for almost 30% of global electricity demand by 2023 versus around one-quarter at present. Hydropower is expected to be the biggest contributor, accounting for 16% of global electricity demand, followed by wind at 6%, solar at 4% and bioenergy at 3%.

The IEA says around 70% of the new power generation capacity to come online over the next five years will be powered by renewables, led by solar and followed by wind, hydropower and bioenergy.

Top 30 renewable energy stocks: RENIXX-World stocks

The Renewable Energy Industrial Index (RENIXX) is a global index that tracks the largest 30 renewable energy companies from around the world.

Some of these companies have diverse portfolios while others concentrate solely on one power source, like solar. Despite the fact it is still early days for renewable energy many of the largest players are already highly cash-generative, profitable and dividend-paying, and many offer relatively stable business models that benefit from reliable revenues sourced from regulated markets.

Below is a list of 10 renewable energy stocks for investors to consider.

1. NextEra Energy
2. Siemens Gamesa
3. EDP Renewables
4. Brookfield Renewable Partners
5. Vestas Wind Systems
6. First Solar
7. Ormat Technologies
8. VERBUND
9. Renewable Energy Group
10. ALBIOMA

NextEra Energy: mastering the wind and the sun

Although not included in the RENIXX-World index, NextEra Energy is 'the world’s largest generator of renewable energy from the wind and sun and a world leader in battery storage'. It owns two businesses that supply electricity in the US state of Florida: Florida Power & Light Company, the largest rate-regulated electric utility in the country serving over 5 million customers, and Gulf Power Co, which serves another 460,000.

Its subsidiary, NextEra Energy Resources, is responsible for generating renewable energy through a combination of wind and solar farms, as well as eight nuclear plants.

The company is aiming for adjusted earnings per share (EPS) to grow at a compound annual growth rate of 6%-8% in 2021 versus the 7.7% delivered in 2018. Dividends have risen significantly over the past five years, from $2.90 per share in 2014 to $4.44 in 2018.

Siemens Gamesa Renewable Energy: a united force in wind

Siemens Gamesa Renewable Energy was created in 2017 when Siemens Wind Power and Gamesa combined their wind power businesses. German giant Siemens AG owns 59% of the business while Iberdrola owns 8%.

The company is based in Spain and is involved in building and servicing onshore and offshore wind farms. With over 90GW of installed capacity based in more than 90 countries, Siemens Gamesa is one of the largest players in the industry.

Siemens Gamesa generates over €9 billion in annual revenue and has an order backlog worth more than €15 billion. It is profitable and has more cash than debt, giving it a healthy balance sheet.

EDP Renewables: renewable energy with big backing

EDP Renewables has a diverse portfolio of renewable energy projects but is particularly prominent in one area, being the fourth-largest producer of wind power in the world. The company is majority-owned by Portuguese utility firm Energias de Portugal, meaning it has a large, stable business behind it. EDP Renewables is currently operating in 11 countries and has recently expanded capacity in North America, Europe and Brazil. North America, Spain and Portugal are the three countries where it generates most of its earnings.

The company, which pays a dividend, is pursuing 'selective and profitable' growth opportunities while having a reliable business to fall back on – 93% of its revenue for the 2019 financial year is fixed and locked in already.

Brookfield Renewable Partners: focus on returns and distributions

Brookfield Renewable Partners has over 880 power-generating facilities in North America, South America, Europe and Asia. Although it has a diverse range of activities spanning wind, solar and energy storage, 75% of its power generation comes from hydropower.

Brookfield Renewable Partners aims to buy renewable energy assets below their intrinsic value and then fund their development on an investment-grade basis. It then tries to optimise cash flows from those assets to generate returns for shareholders before selling de-risked, mature assets so the capital invested in them can be recycled.

The company aims deliver long-term annualised returns of 12%-15%, in line with the 15% total return it has delivered on average since inception. It aims to make annual distribution increases of 5%-9% per year by driving growth in organic cash flow. Distributions saw a compound annual growth rate of 6% between 2012 and 2019.

Vestas Wind Systems: harnessing wind in over 80 countries

Vestas Wind Systems has over 100GW of wind farm capacity spread over 80 countries. Its biggest countries of operation in terms of capacity are the US, Germany, Denmark, India and China.

It is currently undergoing a transition in leadership, with chief executive officer (CEO) Anders Runevad stepping down after six years in the role in August 2019, making way for Henrik Andersen.

The company’s results for its recently-ended financial year saw both revenue and earnings decline, prompting a lower dividend payment. But it expects revenue and earnings to rise in 2019, partly thanks to its push into the faster-growing, higher-margin business providing services to other wind farm operators. Its service backlog is close to €15 billion on its own.

First Solar: a global leader in solar power

First Solar is a turnkey provider for anyone who wants to build a solar plant and operates some of the world’s largest. It has built and shipped over 20GW of capacity and facilitated $17 billion worth of project financing.

It claims to invest more money in researching and developing solar technology than any other company. First Solar is focused on improving the efficiency of solar panels and making them cheaper to build and operate. It also claims to have the strongest balance sheet in the industry.

The company recently raised its guidance for 2019, stating revenue would be higher than originally expected while costs would be lower.

Ormat Technologies: a unique geothermal business

Ormat Technologies operates geothermal plants and energy recovery plants that turn excess heat into power. The company runs its own plants in the US, Guatemala, Guadeloupe, Honduras, Indonesia and Kenya, and it also builds and designs plants for others.

Ormat has taken a knock after its Puna power plant in Hawaii had to be shut down, but it has bounced back after reporting higher revenues and better margins in the first quarter (Q1) of the year. It has also pledged to bring Puna back online before the end of the year.

Revenue is expected to nudge slightly higher this year but earnings before interest, tax, depreciation and amortisation (EBITDA) adjusted is set to decline, partly thanks to Puna. Ormat’s dividend policy is based on a payout ratio of 20% of its annual profits.

VERBUND: Austrian hydropower

VERBUND is one of the biggest providers of electricity in Austria, virtually all of which is generated through hydropower. Austria generates around two-thirds of its electricity using hydropower and VERBUND is among the largest hydropower generators in the whole of Europe. Austrian taxpayers own 51% of the business.

The company has recently raised its investment budget for the forthcoming years. This will allow necessary upgrades to be made to the energy grid so it is more compatible with solar and wind projects. It is also improving existing hydropower plants and investing more sums into other renewable energy sources, including wind and solar.

VERBUND has said it expects to deliver significantly higher earnings in the current financial year and has a dividend payout ratio of between 40%-45% of its bottom-line.

Renewable Energy Group: renewable fuels and biofuel

Renewable Energy Group is the largest producer of biofuels in the US. The company makes a wide range of biofuels that can be used in transportation or to generate power or heat. It also makes industrial bio-based products.

The company has been heavily impacted by the US government’s decision to suspend the Biodiesel Mixture Excise Tax Credit, but it has said it is confident it will be reinstated for 2018 and 2019, which would involve a boon of backpayments. It said the tax credit being reinstated would have delivered net income of $55 million in Q1. That is proving to be the difference between a profit and a loss for the business, having reported a quarterly net loss of $41.4 million.

ALBIOMA: making biomass with sugar

ALBIOMA is a profitable two-pronged business. The first creates biomass from residue taken from the sugar cane named bagasse. This provides steam and electricity for sugar mills, lowering costs and improving efficiencies for sugar refiners. In the six months of the year when plants in France and Mauritius have no sugar to run off, the plants can be used like traditional ones using coal. Plants in Brazil can operate off bagasse all year round.

ALBIOMA also has 150 solar farms and thermal plants based in French overseas territories such as French Guiana and is expanding the business into mainland France.