2023 was a busy year for utilities stocks, with both positive and negative developments. On the positive side, the sector deployed record volumes of renewable energy and enhanced grid reliability. However, issues arose. One was the catastrophic Lahaina fire in Hawaii, which led stakeholders to question safety practices at the local utility, Hawaiian Electric. Ultimately, it resulted in landmark clean energy and climate legislation coming into force.
Fundamental indicators for the utilities industry were mixed in 2023 as electricity sales are projected to have declined by 1.2% due to milder weather conditions. However, supply chain challenges are being resolved, helped by falling crude oil prices from summer highs. Despite the sector’s reduced costs due to moderating inflation, it required record-high capital expenditures of $171 billion for the previous twelve months.
In 2024, retail electricity prices are forecast to increase by a similar rate of about 2%. Supply chain issues may also continue improving, enhancing industry margins and supporting some utilities stocks. Large capital investments are also expected to keep momentum in the clean energy transition. This is facilitated by ongoing funding from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Acts (IIJA). It may lead to supporting electric vehicle (EV) adaptability, strengthening grid resilience and expanding energy storage capabilities. As a result, investors may consider the following must-buy utility stocks for 2024.
NextEra Energy (NEE)
The utilities sector is set for change mainly due to the accelerating adoption of EVs. EVs are expected to increase their load on the system by 19 times by 2040. This should amount to up to 12% of the total load on the grid. In the shorter term, new car sales are projected to reach 1,000,000 vehicles in 2024. With EV prices lowered to match gasoline-powered equivalents, mass EV adoption may be approaching as U.S. legislation rations funds for a network of 500,000 EV chargers nationwide. As a result, some utilities stocks may be in a unique position for growth in 2024.
One is NextEra Energy (NYSE:NEE), a utility company that generates clean energy. It currently derives most of its energy from renewable sources and is well-positioned to capitalize on the growing EV trend. NextEra Energy’s current price-to-earnings (P/E) ratio is 15.7. The company also has a forward dividend yield of 3.1%, which indicates its competitive position within the utilities sector. Investors may see NextEra Energy as an attractive utilities stock option, considering its strong presence in the market and its potential for growth.
Fluence Energy (FLNC)
With the utilities sector increasingly embracing artificial intelligence (AI) and digital solutions, Fluence Energy‘s (NASDAQ:FLNC) expertise in AI-driven energy storage services positions it well to capitalize on the cost-reduction trend. The company’s ability to optimize resource management and provide innovative software-as-a-service (SaaS) platforms aligns with the industry’s growing demand.
By leveraging AI technology, Fluence Energy allows utilities to balance and manage production from various renewable sources efficiently. This enables utilities to meet the challenges of a more diverse grid. While Fluence Energy has not yet generated a profit, its promising revenue growth indicates its potential for future success. The company’s revenue has nearly doubled compared to the previous year, allowing it to reduce its losses by almost half. Additionally, Fluence Energy has increased its total cash in the third quarter, providing it with a solid financial runway.
Energy Vault (NRGV)
Battery storage plays a crucial role in managing the variability of renewable energy production. The demand for battery storage systems nearly doubled to 18GW in 2022 and is projected to reach 32GW in 2023. This brings Energy Vault (NYSE:NRGV) in a good position to power the future of the new trend.
The leading utility-scale solutions company generated utility-scale revenue for the first time in 2023. It expects to generate substantial sales of $425 million this year, with a 9.1 GWH backlog of awarded projects equivalent to $3.3 billion. Only recently, Energy Vault also commissioned its first gravity-based storage system. Additionally, it operates one of the largest energy storage systems in Southern California, further solidifying its position in the market. The growing importance of battery storage in managing renewable energy variability positions the utilities stock for success.
On the date of publication, Stavros Tousios 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.
