Plug Power (NASDAQ:PLUG) announced on Sep. 24 an agreement to source 100% of its green hydrogen production plant with renewable electricity from Brookfield Renewable Partners LP (NYSE:BEP). That’s a good deal for PLUG stock and BEP stock.
Here’s why.
Brookfield Usually Delivers
Brookfield Renewable is one of the world’s largest publicly traded, pure-play renewable power companies with more than 19,000 megawatts (MW) of installed capacity and another 18,000 in development. The sources of renewable power include hydroelectric, wind, solar, and storage facilities from North America, South America, Europe, and Asia.
In 20 years, Brookfield has grown to become a renewable power business with more than $50 billion in operating assets.
“The world continues to be in the early stages of a global transition to the decarbonization of electricity grids. This shift, which is fueled by a push to reduce CO2 emissions, to meet increasingly stringent carbon reduction targets, and solar and wind power becoming the lowest cost, easiest to build providers of bulk power, will require significant investment over the coming decades,” states Brookfield’s Q2 2020 interim report.
More About Brookfield
“Accordingly, there is considerable room for our business to grow for many years ahead and, as subsidies decline or fall away, the opportunity will increasingly favor investors like ourselves who can drive value and enhance cash flows from our global scale and depth of operating expertise.”
One of my favorite investment companies is Brookfield Asset Management (NYSE:BAM), which owns 50.4% of Brookfield Renewable. In September 2019, Brookfield Asset was one of seven stocks I recommended for passive investors.
“Although Brookfield is an asset manager and is paid fees to manage the assets, it also puts a significant amount of its own capital into these deals, providing shareholders with the assurance that their interests are aligned with Brookfield’s,” I wrote Sep. 23, 2019.
It hasn’t done much in the 13 months since. Still, if Brookfield’s affiliate is providing green energy for Plug Power, shareholders should pay attention because the Brookfield group of companies all do extensive due diligence.
Sure, renewable energy companies are in business to supply electricity, so when a big contract comes along, you jump at it. That said, you never want to spend the time putting a supply agreement together only to have it fall apart at the last minute.
If Brookfield feels Plug Power’s hydrogen and fuel cell ambitions are real, they probably are.
What Does It Mean for PLUG Stock?
That’s hard to decipher.
If you look at Plug Power’s trading in the 10 days after announcing the Brookfield Renewable supply agreement, PLUG stock gained 69%, rising to a 52-week high of $19.02, before falling back into the mid-teens.
Between Sep. 23 and Sep. 24, Plug Power had five different announcements. Investors can dismiss the Sep. 24 press release announcing the hiring of Connie Dubruel as the company’s managing director for Europe.
That’s not to say the hiring won’t be a gamechanger. Plug Power announced new products for its European portfolio on Oct. 22. It now has 15 GenDrive products. Someone with Dubruel’s experience will be able to hit the ground running. So, it’s good news indeed.
Plug Power Partnership
On Sep. 23, Plug Power announced a partnership with Universal Hydrogen, a fuel logistics company that’s looking to develop hydrogen-powered commercial turboprop flights. Possible regulatory approval won’t come until at least 2024. So, I doubt that could have moved the stock as much as it did.
On Sep. 24, Plug Power announced a partnership with Virginia-based Apex Clean Energy to develop a green hydrogen network in the U.S. Apex Clean Energy develops wind and solar facilities from concept to design to financing to completion and asset management. That’s certainly got the potential to move Plug Power’s share price.
Finally, on Sep. 24, it signed a memorandum of understanding (MOU) with Linde (NYSE:LIN) to supply the industrial gas company’s Class 6 and Class 8 vehicles with Plug Power’s ProGen fuel cell engines. Expected to be on the road in early 2021, this is another move by Plug Power to infiltrate the transportation industry.
The announcement is another positive step in reaching its goal of $1 billion in sales by 2024.
More importantly, it’s a sign the company’s plan is moving ahead, and that’s excellent news for owners of PLUG stock.
The Bottom Line
The last time I wrote about Plug Power in September, I expressed concern that the company’s long-haul trucking plans might not come to fruition. I suggested this possibility because of Bill Gates’ belief that electro-fuels (hydrogen and carbon dioxide mixed) were a better option.
As a result, I suggested that investors wait for its share price to fall into single digits. Trading around $15 as I write this, I don’t know if we’ll see this level in 2020.
However, I have to admit that the Brookfield announcement, mixed in with these other press releases, suggests I might have overreacted slightly.
If you’re investing for the long haul, I don’t see a problem buying in the mid-teens with some cash on the sideline in case it does fall into single digits. PLUG is a long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
