Due to the American and European Union governments’ stepped-up support and the proliferation of electric vehicles, renewable energy is entering a new, much more rapid growth stage. As a result, it’s an excellent time for long-term investors to buy renewable energy growth stocks.
To wean itself off Russian gas, the European Union hopes to generate 69% of its electricity from renewable energy by 2027. Meanwhile, the International Energy Association, or IEA, expects the bloc to achieve a more modest but impressive 55% of its electricity from renewable sources four years from now. In 2022, renewables generated 22% of the EU’s electricity.
As for the U.S., the climate law passed by Congressional Democrats features 30% tax breaks for wind, solar, and hydrogen that generate electricity or, in the case of hydrogen, fuel vehicles. I believe that because the IRS has not finalized the tax credits’ rules, the Street is underestimating the tax credit’s impact. Consequently, renewable energy growth stocks do not reflect the positive repercussions of the legislation for renewable energy companies.
Meanwhile, the EV revolution will tremendously boost the renewable energy sector. California, a leader in EVs, regularly suffers from tremendous electricity shortfalls. And as I pointed out in a previous column, “PJM, which operates an electricity grid that serves over 65 million Americans, warned that it would not have enough electricity capacity by 2030. With many fossil fuel plants retiring, the company warned that it expects an electricity deficit of 10 gigawatts in 2030.”
|BEP||Brookfield Renewable Partners||$27.08|
|ICLN||iShares Global Clean Energy ETF||$19.78|
|VWDRY||Vestas Wind Energy||$9.68|
Brookfield Renewable Partners (BEP)
Brookfield (NYSE:BEP) is “a leading global owner, operator, and builder of clean energy.” Last quarter, the company’s top line climbed 9% to $1.19 billion, while its funds from operation jumped 6% YOY to 22.5 cents. For all of 2022, its FFO increased 8% to $1 billion, or $1.56 per unit. Moreover, last year BEP obtained a renewable generating capacity of 11,000 gigawatt hours per year. It ordered “approximately 3,500 megawatts of new projects” and, in total, has a staggering total pipeline of 190 gigawatts of renewable power. That pipeline consists of projects under construction or in advanced planning stages.
Moreover, the company’s top line will be lifted by the tremendous demand for electricity from renewable sources, while its bottom line will get a big lift from rising electricity prices and climate law.
Trading with a trailing price-sales ratio of 1.5 and carrying a dividend yield of 5.2%, BEP is a great buy at its current levels.
Regarding renewable energy growth stocks, I’m most enthusiastic about solar names because solar is growing much more rapidly globally. But both the U.S. and the EU are also embracing wind energy. In fact, the Biden administration has set an ambitious goal of implementing 30 gigawatts of offshore wind by 2030, while the EU intends to increase the 14.6 gigawatts of offshore wind it had at the end of 2021 by an incredible “25 times by 2030, using the vast potential of the 5 EU sea basins.”
And offshore wind does have at least one crucial advantage over solar. Specifically, offshore wind does not require any land, a precious commodity, to function.
Denmark-based Orsted (OTCMKTS:DNNGY) is very well-positioned to continue implementing huge wind-energy projects in Europe, where it already has built or is in the process of building dozens of wind farms. And it has a large foothold in the budding American offshore-wind sector, as it has launched or is building ten wind farms in the U.S.
Globally, the company has launched 7.6 gigawatts of offshore wind and has started work on another 11.8 gigawatts of such projects.
For 2022, Orsted reported a record EBITDA of 32.1 billion Danish krones, up fr0m 24.3 billion krones in 2021. In dollar terms, that works out to $4.86 billion.
“With an annual growth rate in installed capacity of 20% over the next decade, we see ample opportunities to fulfill our ambition of adding around 3 gigawatts of offshore capacity to our portfolio yearly, exactly like we did in 2021 with additional 4.5 gigawatt capacity and 2.9 gigawatts in 2022,” said Orsted CEO Mads Nipper on the company’s fourth-quarter earnings call held on Feb. 1.
Thanks to the government’s policies, the demand for renewable diesel will “nearly” triple between 2021 and 2026 in a base case scenario, according to the International Energy Agency. The Department of Energy explains that renewable diesel “is a fuel made from fats and oils, such as soybean oil or canola oil, and is processed to be chemically the same as petroleum diesel….Renewable diesel can be used as a replacement fuel or blended with any amount of petroleum diesel.”
One of the companies best positioned to benefit from the surging demand for renewable diesel is Bunge (NYSE:BG). That’s because the company launched a joint venture with Chevron (NYSE:CVX) a little over a year ago. Under the deal, the companies’ joint venture will create raw materials that Chevron will use to create “renewable diesel and sustainable aviation fuel (SAF).”
“Chevron expects to create the capacity to produce 100,000 barrels per day of renewable diesel and sustainable aviation fuel by 2030,” a Chevron executive said.
Speaking of sustainable aviation fuel, or SAF, by 2050, the demand for the fuel is expected to soar to “17.5 billion gallons equivalent..by 2050” based on requirements already put in place by national governments.
Meanwhile, Bunge’s other businesses, which primarily consist of selling edible oils and seeds, is benefiting from high food prices due to the Russia-Ukraine War.
In 2022, the company’s earnings before interest and taxes, excluding certain items, climbed 5% to $804 million. On its fourth-0quarter earnings call, Bunge indicated that it would take some time before its joint venture with Chevron bears much fruit.
Plug Power (PLUG)
Plug Power’s (NASDAQ:PLUG) fourth-quarter results, reported on March 1, show that the company continues to make tremendous progress toward becoming a huge, highly profitable supplier of green hydrogen.
The company noted that it already has deals to sell nearly 200 tons per day of green hydrogen down the road. In contrast, the backlog of its electrolyzer business (electrolyzers are used to make green hydrogen) has reached an impressive 2 gigawatts.
On the production front, PLUG has made good progress on multiple green hydrogen plants in the U.S., including one in Georgia that’s expected to start production this month and another in Louisiana that PLUG anticipates will start production in the third quarter of this year. These plants will produce green hydrogen at one-third the cost of the hydrogen that PLUG currently buys from outside companies. Moreover, the company expects to benefit significantly this year from selling fuel cells that will power EV chargers. Finally, commenting on its material-handling business, the company “expects to add 80 new material handling sites in 2023, “
For 2023, Plug expects to generate revenue of $1.4 billion and a gross margin of 10%, up from -28% in 2022. Next year, it predicts that its sales will come in at $2.1 billion, while its gross margin will jump to 25%.
PLUG stock is currently changing hands for 3.67 times its 2024 sales guidance. Given the firm’s tremendous growth potential, that’s a rather low valuation.
Shoals (NASDAQ:SHLS), which makes components of utility-scale solar systems, reported outstanding fourth-quarter results, in line with my previous predictions about the firm’s excellent outlook. However, the company provided cautious guidance. Shoals is looking to hire a new CEO, and I’ve heard that companies with new CEOs tend to provide “easy” guidance that their new leaders can easily meet or exceed. That dynamic probably explains the company’s cautious guidance.
But given Shoals’ great fourth-quarter and 2022 results, its tremendous leverage to solar energy, and its attractive valuation, the outlook for SHLS stock remains very bright. In light of these points, concerns about the company’s guidance and growth outlook are tremendously overdone.
Last quarter, Shoals’ top line soared 97% year-over-year to $94.65 million, while its “backlog and awarded orders” jumped 43% year-over-year. Moreover, its gross margin jumped 9.5 percentage points versus the same period a year earlier, while its income from operations came in at $23.4 million, versus $2.4 million in Q4 of 2021.
However, the company provided 2023 revenue guidance of $470 million to $510 million, versus analysts’ average estimate of $506 million. As a result, the midpoint of the company’s outlook came in at $490 million, below the average top-line estimate by analysts.
However, I believe that the company’s guidance is conservative, while the Street focuses on the trees instead of the forest regarding SHLS.
Shoals’ forward price-earnings ratio is 42. But since analysts are likely underestimating the company’s 2023 bottom line due to its conservative guidance, its actual P/E ratio is likely way lower than that.
iShares Global Clean Energy ETF (ICLN)
For conservative investors who want exposure to the renewable energy revolution but want to put their metaphorical eggs in many baskets, the iShares Global Clean Energy ETF (NASDAQ:ICLN) is a great choice.
Among its largest holdings are two of the largest makers of solar inverters, Enphase (NASDAQ:ENPH) and SolarEdge (NASDAQ:SEDG). Those companies are growing rapidly, and the Street likes the inverter makers much better than solar module makers because their profit margins tend to be significantly higher.
Giving ICLN owners exposure to wind energy and hydrogen, respectively, the ETF’s top holdings include Vestas (OTCMKTS:VWDRY), a leading wind-farm developer, and Plug Power. Also in its top ten are Consolidated Edison (NYSE:ED), a large, New York-based electric utility, and NextEra Energy (NYSE:NEE), which owns Florida Power & Light, America’s largest electricity provider.
Both companies are well-positioned to benefit from increased electricity consumption as electric vehicles proliferate. At the same time, NextEra is the largest owner of solar capacity in the U.S., and Edison has begun to make major investments in wind farms.
Vestas Wind Energy (VWDRY)
Vestas Wind Energy has many of the same attributes as Orsted. Like Orsted, it’s a wind-energy powerhouse that’s based in Denmark, making it very well-positioned to benefit from that continent’s huge expansion of its wind-energy capacity.
As I pointed out in the section on Orsted, that company recently reported that “the EU intends to increase the 14.6 gigawatts of offshore wind it had at the end of 2021 by an incredible ’25 times by 2030, using the vast potential of the 5 EU sea basins.’
Vestas, like Orsted, has a major presence in the U.S., making it poised to benefit from the Biden administration’s ambitious target of installing 30 gigawatts of offshore wind by 2030.
Unlike Orsted, Vestas makes wind turbines, leaving it even better positioned to benefit from the huge proliferation of wind energy around the world and likely increases in turbine prices as the demand for clean electricity jumps.
Before the pandemic, the company was quite profitable, generating $1.44 billion of EBITDA in 2019, while its top line increased significantly in most years. With economies and supply chains normalizing, I expect the company to return to its pre-pandemic profitability levels within a year or two. Indeed, analysts, on average, expect the company to turn profitable next year.
The price-sales ratio of VWDRY stock is a low 1.85.
As of the date of publication, Larry Ramer owned shares of SHLS and PLUG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.