Ask around and you probably won’t find too many folks that will question the idea that the future of energy stocks is green and renewable. Primarily, the technology to extract free “power” from sources like the sun or wind is too compelling to ignore. At the same time, challenges to this burgeoning phenomenon exist, many of which have pressured investments in this space.
First, dependability ranks as the number one challenge, according to the Thunderbird School of Global Management at Arizona State University. In its words, “You get power when it’s sunny or windy and when it’s not, you don’t. That kind of intermittent generation wouldn’t be a problem if we had a cost-effective, reliable way to store power — but we don’t, yet.” Until storage solutions become viable, green energy stocks will be a difficult proposition.
Second, environmentally friendly power sources offer clean energy but at the expense of significant costs. As Thunderbird states, “Energy economics is notoriously complicated – even more so when renewable energy comes into the mix.” Mainly, the issue is that volatility in generation and loads can result in massive price hikes due to the unpredictability of wind and solar. This concept has heaped more pressure on green energy stocks.
While the obstacles are onerous, there’s also the reality that the world is getting bigger. Not too long ago, the global population was about seven billion people. Now, it’s at 7.7 billion and heading closer to an even eight billion. As well, developing nations have accelerated their economic growth — and that translates to higher energy consumption. Therefore, sustainable energy stocks represent an absolute necessity.
Also, let’s keep in mind that access to power sources evokes political rumblings, both domestic and international. To truly be energy independent requires us to consider all power sources, from fossil fuels to nuclear to renewable. Therefore, these green energy stocks might resume their long-term bullish trajectory following a difficult environment in 2021.
Before we dive in, be aware that broader market volatility could easily and negatively affect energy stocks. Thus, don’t go too overboard in this or any other sector as we a navigate a delicate situation.
- NextEra Energy (NYSE:NEE)
- Brookfield Renewable (NYSE:BEPC)
- Enphase Energy (NASDAQ:ENPH)
- Bloom Energy (NYSE:BE)
- SunPower (NASDAQ:SPWR)
- Ormat Technologies (NYSE:ORA)
- Ocean Power Technologies (NASDAQ:OPTT)
Renewable Energy Stocks: NextEra Energy (NEE)
Billed as one of America’s largest capital investors in infrastructure, as well as being the world’s largest utility company, NextEra Energy is of course a massive name among energy stocks, particularly in the renewable sector. With the U.S. population rising due to a combination of natural births and immigration, it’s virtually inevitable that the country needs to diversify its infrastructure.
Over the years, NEE stock has been lighting up the technical charts with black ink, rewarding buy-and-hold investors. However, this narrative took a hit in early 2021 — right when the Texas winter storm devastated the region. Unfortunately, talking heads on popular media outlets took to the air to blast green energy stocks, which imposed a sentiment impact on the industry.
Additionally, revenue for NextEra Energy in the first quarter of 2021 was disappointing, posting $3.73 billion compared to top-line sales of $4.6 billion in the year-ago quarter. However, it’s also possible that tense geopolitical relations in Europe, Asia and the Middle East could provide a rebound effect for NEE stock.
Again, we need diversification in our energy infrastructure. And NextEra Energy is more than capable of providing it.
Brookfield Renewable (BEPC)
Since making its public market debut in July 2020, the equity unit of Brookfield Renewable put up an impressive performance. So far in its short lifespan, BEPC stock returned shareholders nearly 50%, which is a great number when you’re talking about energy stocks. Still, if we turn back a few pages on the calendar, the upside performance was even more remarkable.
Between July 24, 2020 and Jan. 8, 2021, BEPC soared over 118%. However, shares got stretched at that point, with traders recognizing a bearish head-and-shoulders pattern in play and dumping out accordingly. Shortly thereafter, the Texas cold snap put a chill on Brookfield Renewable stock, which saw its valuation plummet.
Not helping matters was a relatively lackluster Q1 2021 performance, with revenue of $839 million down almost 2% from Q1 in the year prior. Also, net income was negative, constituting four consecutive quarters of net losses.
Nevertheless, BEPC stock has the potential for a comeback in the second half of this year. Geopolitically, it’s becoming clearer that we cannot rely on the goodwill of other nations to support our infrastructural interests. Therefore, BEPC is a name to watch closely.
Enphase Energy (ENPH)
It goes without saying that 2020 will forever be associated with the novel coronavirus (though to be technically accurate, experts first recognized Covid-19 in December 2019). But the crazy part about last year was that even without the pandemic, it would have been a remarkable period for all the wrong reasons.
An incident that personally affected me was the rolling blackouts in California last summer. True, our state, like others, experienced a massive heat wave, adding to the woes of the pandemic. At the same time, we collectively represent the biggest economic engine in the U.S. — it makes you wonder what the heck is going on.
Well, if any of the energy stocks benefited from this storyline, it would be Enphase Energy. A solar power company offering battery storage solutions, the blackouts of 2020 demonstrated the need for personal energy resilience. Better yet, Enphase goes a step further with its load control.
Should you find yourself in a situation where you must use your battery storage system to power your home, Enphase’s load control platform allows you to control how much energy power-hungry appliances consume.
With grid infrastructure inadequacies likely to be exposed in the years ahead, you should keep close tabs on ENPH stock.
Bloom Energy (BE)
During my time when I was a worker bee, I remember enduring my fair share of blackouts. But one in particular was permanently memorable due to the horrible effect that it had. Basically, the entire grid went out for roughly half a day — including elemental infrastructure such as traffic lights. It was a miracle that I was even able to make it home at a relatively decent hour.
This perfectly demonstrated that blackouts aren’t just inconvenient — they impose a sharp economic impact. Bloom Energy cited data from the U.S. Department of Energy, which estimates that power outages cost the economy $150 billion annually. That’s not an insignificant amount, especially when you consider that not all states are fiscally robust.
To get around this problem, we don’t just need energy diversification; instead, we need a way to harness energy stored away from the main grid. That’s why BE is intriguing for those interested in buying energy stocks. Primarily, its proprietary AlwaysON microgrid offers resilience to commercial enterprise during blackouts.
Moving forward, BE stock can continue building on its recent momentum as fragilities in energy infrastructures incentivize demand for microgrid solutions.
Even if you’re not interested in energy stocks, you may want to look at SunPower just as a reflection of consumer sentiment post-pandemic. Following the initial onslaught of Covid-19, SPWR stock tumbled — just like virtually everything else. But as home prices began a quick and frankly stunning recovery, SunPower became a hot commodity.
There are multiple factors at play here, mainly the pride-of-ownership effect that drew people toward solar energy solutions. But there’s also the fact that millennials from areas with high costs of living moved to neighborhoods in the Sun Belt. Having solar energy in many of these arid regions just made sense from an economic perspective.
However, valuations eventually got stretched. And in February of this year, the Texas winter storm did a number on SPWR stock. Essentially, the extreme weather event put a glaring spotlight on the intermittency issue affecting renewable energy stocks.
However, the narrative that could bring back customers to SunPower and the solar industry are more rolling blackouts. As the New York Times warned, a combination of blackouts and extreme heat may contribute to a profoundly deadly climate-related event.
In other words, you don’t want to be unprepared, which just might boost SPWR.
Ormat Technologies (ORA)
Typically, when people think about renewable energy stocks, they focus on the elements that strike the surface of the earth: light rays from the sun or wind that blows across the land. But we often forget that as earthlings, we’re living atop one massive energy source. And geothermal energy specialists like Ormat Technologies can potentially bring this power source into the mainstream.
According to the U.S. Energy Information Administration, “Geothermal energy is heat within the earth. … Geothermal energy is a renewable energy source because heat is continuously produced inside the earth. People use geothermal heat for bathing, to heat buildings, and to generate electricity.”
What’s fascinating here is that contrary to several other renewable energy stocks, geothermal energy is a continuous source. Theoretically, then, geothermal energy technologies could one day answer the intermittency problem associated with green solutions.
Unfortunately, ORA stock has been in a downtrend since February 2021 — just like other renewable plays. In this case, I think the speculative fervor got ahead of itself. Still, if you have a longer-term outlook, the compelling science behind Ormat could yield substantial gains down the line.
Ocean Power Technologies (OPTT)
I’m going to end this list of renewable energy stocks on an extremely speculative note. In prior InvestorPlace articles, I discussed the pros and cons of Ocean Power Technologies. As you might guess from the company name, Ocean Power specializes in wave energy solutions; basically, harnessing the kinetic energy inherent in our ocean waters to produce practical, usable energy.
On paper, it’s a brilliant concept. OPTT stock evokes several elements of Ormat Technologies above, in that wave energy is one of the renewable power sources that is recurrent. Also a big plus is that wave energy infrastructure is in the water and therefore, doesn’t impose an unsightly effect on our beautiful landscape.
Plus, wave energy solutions are much more ecologically friendly to their surrounding environment than wind turbines are to theirs. While I’m not going to get political, turbines kill birds — there’s no question about it.
Nevertheless, this doesn’t mean that Ocean Power has the comprehensive answer to our energy challenges. A major drawback — one that’s familiar to other energy stocks — is the economics. Wave energy is not friendly to the budget, which is why it’s a relatively obscure concept.
Still, if you want to gamble in the green sector, this might be the platform to do it on.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.