Roughly 13% of all urban garbage winds up being converted into electricity, the United Nations Environment Programme reported. In March, a company called Warsan Waste Management launched the largest waste-to-electricity facility in the world in Dubai. Each year, the plant will convert 2 million metric tons of Dubai’s garbage into sufficient electricity for about 135,000 homes, Warsan stated. As the demand for electricity rises due to the artificial intelligence boom and the electric vehicle revolution, the revenue of such waste-to-electricity companies should rise a great deal.
In this article, I’ll also discuss producers of renewable diesel and sustainable aviation fuel (SAF). Renewable diesel, produced with “biomass, such as used cooking oil and vegetable oils,” can be easily substituted for conventional diesel fuel, while SAF can be produced using vegetable oil and animal fats. At this point, SAF has to be combined with conventional jet fuels in 50-50 mixtures.
With the demand for low-carbon fuels likely to jump over the long term, producers of these fuels should make good investments for those with long time horizons. Here are the three best waste-to-energy stocks to buy now.
Darling Ingredients (DAR)
Darling Ingredients’ (NYSE:DAR) joint venture with oil refiner Valero Energy (NYSE:VLO) is building a SAF plant. Expected to start producing SAF in the fourth quarter, the facility can produce up to 470 million gallons of the fuel annually, Valero reported in April.
Very positively, Valero’s chief operating officer disclosed that the preliminary demand for the plant’s SAF exceeds its current capacity. Moreover, Darling CEO Randall Stuewe stated, “We continue to work with a number of interested parties on SAF purchases and remain confident in our outlook for SAF.” Further, the CEO said it would not be difficult for the joint venture to sell all of the SAF it produces, and he added that there is “plenty of interest” in the upcoming SAF.
Last month, Citi (NYSE:C) upgraded DAR stock to Buy from Neutral, citing valuation, along with the launch of the SAF business and positive changes to U.S. biofuel tax credit rules. The bank placed a $48 price target on the shares.
The strong outlook of Darling’s SAF business makes it one of the best waste-to-energy stocks to buy now.
Gevo (GEVO)
Gevo (NASDAQ:GEVO) is a producer of renewable natural gas and SAF. The Department of Energy defines renewable natural gas as “the gaseous product of the decomposition of organic matter.” Encouragingly, renewable natural gas is “fully interchangeable with conventional natural gas.”
As a result, I expect the demand for Gevo’s renewable natural gas to surge as electricity demand rises, causing electricity prices to jump. Moreover, Gevo’s renewable natural gas business already generates positive EBITDA, excluding certain items, and the company reported that it reached record production of such gas in May. Specifically, its annualized production rate of the gas came in at 402,000 MMBtu.
On the SAF front, CEO Patrick Gruber reported in May that, based on tax credit guidance released by the IRS earlier this year, the firm will be able to profitably produce SAF at its upcoming plant. Gruber estimates the firm may be able to generate a profit of $1.50 to $1.75 per gallon of SAF. The company is currently working to obtain a loan guarantee for the plant from the Department of Energy.
Neste (NTOIY)
A provider of renewable diesel and SAF, Neste (OTCMKTS:NTOIY) is based in Finland and generated revenue of $nearly $23 billion last year, along with a net income of $1.4 billion.
On July 16, Neste announced it launched a partnership with Mitsubishi, the Japanese conglomerate. Under the deal, the firms will jointly manufacture “renewable chemicals and plastics for and with Japanese brands.” Given the large size of both firms and the desire to show off their “green” credentials, I believe this alliance can become quite lucrative for Neste.
Also encouragingly, Boeing (NYSE:BA) agreed to buy 4 million gallons of SAF from Neste. As a result, I expect Boeing to remain a huge, lucrative customer for Neste for many years to come. Moreover, Neste reports it is “the world’s leading SAF producer,” and its SAF is utilized by many leading airlines, including Lufthansa, Delta Air Lines (NYSE:DAL) and American Airlines (NASDAQ:AAL). As the use of SAF grows, spurred by government incentives and airlines’ desire to appear pro-environment, Neste’s SAF should grow rapidly.
Its high profits and strong overall outlook make it one of the best waste-to-energy stocks to buy now.
On the date of publication, Larry Ramer did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
