Are these the best ASX renewable energy stocks to watch?

ASX renewable — or green — energy shares are companies which focus partly or exclusively on energy coming from sources such as solar, wind, geothermal, and in some cases, nuclear (though this last category is subject to considerable debate).

By contrast, traditional fossil fuel-sourced energy like coal, oil and gas are viewed as non-renewable. They come from the fossilised remains of biomaterial in a process which takes hundreds of millions of years. Accordingly, fossil fuels will eventually run out — and best estimates are by 2060.

Meanwhile renewable energy sources will last until the Earth is swallowed by the sun. However, it’s worth noting that the exact time when fossil fuels will be depleted continues to move forwards as new deposits are found and technology advances.

From an ESG perspective, fossil fuels, and especially coal, release huge amounts of carbon dioxide into the atmosphere, with the science showing that the greenhouse gas is responsible for significant climate damage.

Further, while the initial capital expenditure for renewable energy sources can be higher than bringing a new hydrocarbon well online, operational expenditure is often cheaper at wind farms or solar panel arrays. For context, overall global investment in the renewables sector rose by 8% year-over-year to US$2.4 trillion in 2022 — and money tends to follow efficiency.

Australia's Department of Climate Change, Energy, Environment and Water reported that renewable energy sources accounted for 8% of Australian energy consumption in 2020 - 2021. And in 2021 alone, renewable energy sources accounted for 29% of Australia's total electricity generation, with solar accounting for 12%, wind 10% and hydro 6%.

There’s also the political element to consider: the Albanese government has committed to the development of green technologies as part of its 'plan for Australia to become a renewable energy superpower.' The Prime Minister has made no secret of his green ambitions.

There is, of course, an environmental cost attached to extracting the critical minerals required to create renewable infrastructure. While companies like Pilbara Minerals or Sandfire Resources are crucial to getting sufficient quantities of green metals like lithium and copper out of the ground, their mining techniques also exact an environmental toll — though massive investment into reducing this is ongoing.

Regardless, these types of companies are excluded from this list, leaving only renewable energy providers. But if you prefer to diversify through an ETF, one of the most popular choices is the Vaneck Global Clean Energy ETF, the first renewable energy-focused ETF to list on the ASX, which invests in the 30 largest clean energy stocks in the world.

Remember, past performance is not an indicator of future returns.

Best ASX renewable energy shares to watch

While these are arguably the five largest renewable energy companies on the ASX, there is an element of subjectivity to the selection, as the list includes companies that also derive some revenue from non-renewable resources.

1. Origin Energy
2. Meridian Energy
3. Mercury NZ
4. Infratil
5. Genex Power

Origin Energy

Origin Energy may not seem like a renewable energy company, but it remains a major integrated electricity generator, and electricity and natural gas retailer. While it operates the largest coal-fired power plant in the country at Lake Macquarie in New South Wales (NSW), it’s transitioning over to a new portfolio of renewable assets.

Once these assets are all producing, a quarter of its capacity will be green. And to underscore its commitment to change, Origin is proposing to retire a second NSW plant, Eraring, early by August 2025.

Origin is also one of Australia’s leading solar panel installers and has an exclusivity agreement to buy all the energy produced at the 110 MW Darling Downs solar farm until 2030, alongside a further deal with the Stockyard Hill wind farm in Victoria.

Half-year results saw Origin’s profit rise 17-fold to AU$747 million, and it announced a larger-than-expected dividend alongside an optimistic outlook for calendar 2024. CEO Frank Calabria enthused that the results were ‘strong’ and advised that the company remains ‘focused on supporting the most vulnerable members of our community.’

Market Capitalisation: AU$14.97 billion

Meridian Energy

Meridian Energy is one of three companies formed after the breakup of the Electricity Corporation of New Zealand in the late 1990s. It’s the largest power generator in New Zealand, generating circa 35% of the country’s electricity and is also one of the country’s largest energy retailers.

Meridian owns five wind farms, seven hydropower stations, and masses of solar panel arrays — most importantly for ESG investors, 100% of its energy comes from renewable sources. The solar panel aspect is particularly interesting, as the ASX company erects the panels on commercial sites, maintains them, and then sells the power to nearby businesses.

In addition, one of its hydropower stations is the 122MW Manapouri station on the South Island, the largest in New Zealand. The company recently agreed a new windfarm Joint Venture with NZ Windfarms worth a potential NZ$600 million.

In fiscal 2023, EBITDA increased by 10% year-over-year to NZ$783 million, while underlying net profit after tax rose by 35% to NZ315 million.

Market Capitalisation: NZ$14.44 billion

Mercury NZ

Mercury NZ also sources 100% of its energy from renewable sources and is also based predominantly in New Zealand. It owns nine hydropower stations on the North Island, which are capable of suppling 10% of the country’s annual energy needs.

It also owns five geothermal plants, several of which are currently being expanded. In addition, it boasts four operating wind farms, including the largest wind farm in New Zealand — the 222MW Turitea wind farm in Palmerston North which was fully commissioned in May 2023. A further smaller farm is being built on the South Island.

Market Capitalisation: NZ$9.36 billion

Infratil

New Zealand-based infrastructure investment company Infratil has significant operations around the globe — covering four key investment areas including airports, healthcare, digital infrastructure and renewable energy.

While not a pure-play renewables pick, the company owns a 51% stake in New Zealand hydro-power business Manawa Energy. Manawa owns 26 hydro-power schemes with a total installed capacity of 498MW — accounting for 9% of New Zealand's total hydro capacity.

It also owns just over a third of US-based renewable energy developer Longroad Energy, and a 40% stake in pan-European wind and solar power company Galileo.

First-half results saw the company deliver $1.2 billion net parent surplus, while proportionate EBITDAF rose by 45% year-over-year to $400 million. CEO Jason Boyes noted this improvement reflected increased earnings at all key operating businesses.

Market Capitalisation: NZ$8.46 billion

Genex Power

Genex Power is an electricity generation business with a specific focus on renewable energy and storage solutions. The company is far smaller than the firms listed above, but already has 100MW in operation and an additional 300MW under construction.

Its flagship is the Kidston Clean Energy Hub in north Queensland, comprising the 50 MW Kidston Solar Project that started operations in 2017, alongside the 250 MW Kidston Pumped Storage Hydro project.

This ongoing project is the first of its kind to be developed by the private sector and will be the third largest electricity storage asset in Australia. It’s part of the $777 million Kidston Clean Energy Hub and is set to provide up to eight hours of continuous energy for the grid. It’s planned to come online in 2025 — and EnergyAustralia has already entered into an off-take agreement with Genex to use the deep storage capacity.

At 31 December 2023 Genex had cash in the bank of AU$75.4 million.

Market Capitalisation: AU$242 million

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