The top 4 clean energy stocks for ESG investors to watch

Why invest in clean energy stocks?

A rising sense of environmental awareness has led to the emergence of environmental, social and governance (ESG) investment, to cater to the needs of those investors who prioritise ethical issues such as sustainability and societal impacts.

In Australia, demand for ESG investment has resulted in the creation of exchange-traded funds (ETFs) such as Australian Ethical as well as the provision of ESG products by established players such as Martin Currie and Vanguard.

Major fund managers such as AustralianSuper have issued statements in support of ESG investing, committing to the allocation of funds to ethical and sustainable companies.

This enthusiasm at the institutional level for ESG investment could aid the fortunes of those listed companies that promise to make a real difference to the efficiency levels and sustainability chops of the real economy.

In Australia, renewable energy companies perhaps figure most prominently amongst top ESG investment picks, due to the strength of the country's R&D capabilities in the sector as well as its abundance of geographical features that support the development of solar and wind power facilities.

Figures from Australia's Department of Climate Change, Energy, the Environment and Water indicate that renewable energy sources accounted for 39.4% of Australian energy consumption in 2023, up 9.7% from 35.9% in 2022 and 29% in 2021.

Despite this upward trend, 2023 data revealed performance in the sector was very split. Investment in big batteries and the uptake of rooftop solar saw a significant increase compared to the year before, but investments in large scale plants and new projects were significantly down.

In 2022, the Australian federal government committed to renewable energy accounting for 82% for power generation by 2030, a target which they remain dedicated to. This means Australia's renewable energy sector will need to dramatically increase output in order satisfy the national target.

In its second budget, the Albanese government committed to the development of green technologies as part of its 'plan for Australia to become a renewable energy superpower.'

Given support for clean power at the institutional and governmental levels, now could be an opportune time for Australian investors to consider ASX-listed renewable energy stocks.

Top 4 ASX-listed clean energy stocks to watch

Here is a list of four of the top renewable energy stocks listed on the ASX as of August 2024 for the consideration of investors who have made climate concerns a priority or expect the sector to flourish due to the broader push for clean power.

1. Origin Energy Ltd

2. Meridian Energy Ltd

3. Infratil

4. Genex Power

Origin Energy Ltd (Market cap: $18.07 Billion)

While Origin Energy Ltd is renowned as the operator of Australia's largest coal-fired power plant at Lake Macquarie in New South Wales, the company appears to have seen the writing on the wall when it comes to fossil fuels and the need to transition to clean energy facilities.

Origin Energy is a leading player in Australia's solar power sector and one of the country's leading installers of home solar panels.

It has purchase agreements with a slew of solar and wind power farms across Australia, including the 110 MW Darling Downs Solar Farm and the Stockyard Hill Wind Farm in Victoria.

The energy company also recently entered an agreement to acquire the Yanca Delta wind farm in NSW, one of the largest and most advanced wind power projects in the state, for a consideration of $300 million.

For FY24 the company’s overall revenue was down 12% from the year before, mostly due to lower commodity prices. Sales volumes of electricity remained stable year on year, but the company saw a 10% decrease in gas sales for this period.

Looking ahead, Origin Energy have announced plans to either own or manage 1.5 GW of battery projects as it adapts to new changes in the energy market. Committing to this will make their share price less susceptible to the price of energy.
Our analysts have given the stock a buy rating and anticipate a potential upside of 4.55% within the next 12-month period, reaching a target price of $11.08.

Meridian Energy Ltd (Market cap $16.3 billion)

Meridian Energy Limited is the largest power generator in New Zealand and a standout amongst the world's national utilities companies in deriving 100% of its power from renewable sources.

MEZ's portfolio of renewable energy properties includes seven hydropower stations, five wind farms, as well as a diffuse array of commercial solar installations erected on the roofs of commercial sites.

Its 122 MW Manapouri hydro station is the largest hydropower facility in New Zealand. The station is situated in an underground installation in the UNESCO World Heritage site of Fiordland National Park, located on the country's South Island.

Company earnings for the first half of this year reached $443M, up 4% on a year-on-year basis, with a 12% increase in retail sales for this time period. Operating costs also increased, reaching $16M, up 13% from H1 in FY23.

The stock is currently viewed in a hold position with an average analyst price target of $6.359 in the next 12-month period. Down 2.17% from its current market price.

Infratil (Market cap: 10.42 billion)

New Zealand-based infrastructure investment company Infratil Limited has operations around the globe, in New Zealand, Australia and Asia as well as the US and EU.

Infratil is highly committed to ESG investment, with renewable energy being one of its four core investment areas alongside airports, healthcare and digital infrastructure.

The company has a 51% stake in New Zealand hydro-power company Manawa Energy. Manawa owns 26 hydro-power schemes, accounting for 9% of New Zealand's total hydro capacity.

Infratil also has a 37.1% stake in Boston-headquartered renewable energy developer Longroad Energy, and a 40% in pan-European wind and solar power company Galileo.

June last year saw the company double their stake in telecommunications company One NZ, acquiring 99.90% of the company in total.

The company reported strong FY24 results with annual earnings reaching $864.1 million, up 63% on a year-on-year basis. Although some of this was down to their higher stake ownership of One NZ, strong performance across their operational business was also a contributing factor, with growth standing at 15.5% even without One NZ.

Plans have been announced to continue investing in growth across the company’s portfolio, with momentum expected to increase in FY25. Analysts have given the stock a buy rating.

Genex Power (Market cap 380.92M)

Electricity generation company Genex Power Limited focuses on the development of renewable energy and storage facilities. It currently has 150MW in operation and a further 250MW under construction.

Its flagship project is the Kidston Clean Energy Hub in north Queensland, which consists of the 50 MW Kidston Solar Project that commenced operation in 2017, alongside the 250 MW Kidston Pumped Storage Hydro project.

The Kidston Pumped Storage Hydro Project is the first such project to be developed by the private sector and the third largest electricity storage device in Australia.

Genex recently achieved a milestone on the project, with the completion of the main access tunnel for underground works.

The company’s most recent earnings report revealed an annual revenue of $23.76m, down 4.2% from $24.8m the year before.

The stock currently has a buy rating where analysts anticipate a potential 9.2% price increase in the next 12-month period reaching $185.71.

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