The global push for decarbonization and energy efficiency is gathering momentum. Each year, a greater portion of the word’s energy demand is met by cleaner and sustainable sources of energy, collectively known as renewables.
As the cost of renewable energy generation falls, countries around the world are aggressively replacing fossil fuel with the energy from the sun and wind. As a result, renewables are by far the fastest-growing fuel source in electricity, heat and mobility sectors. According to an International Energy Agency report, renewables will see the largest uptake in the electricity sector, providing almost 30% of power demand in 2023, up from 24% in 2017. During this period, the reports says, renewables could constitute more than 70% of global electricity generation growth, primarily through solar and wind power, but also hydropower, and bioenergy.
Leading players in the renewable energy market are well positioned to benefit from the long-term growth tailwind created by the global pivot to green power fuelled by plummeting prices, fight against climate change, and newer technologies that facilitate clean energy generation and storage. Investors looking to play the clean energy boom may want to plug into the following stocks leading the renewables charge.
| Siemens AG ADR | ||
| Ticker: | SIEGY | |
| Current yield: | 4.19% | |
| Forward P/E: | 13.89 | |
| Price: | US$52.28 | |
| Fair value: | US$77.5 | |
| Value: | 33% Discount | |
| Data as of Feb. 12, 2019 | ||
German engineering giant Siemens (SIEGY) has a diversified portfolio of businesses including power and gas (18% of 2017 sales); wind power and renewables (9%); energy management (15%); building technologies (8%); mobility (10%); digital factory (13%), and others. The five-star-rated firm’s diverse businesses serve multiple markets ranging from healthcare diagnostics and imaging, to power generation and industry automation.
“Siemens has strong positions in renewable energy as the number-one provider of offshore wind turbines and the only major company to offer deep-sea wind turbine solutions, to capture the value of the unconventional gas boom,” says a Morningstar report.
Mergers and acquisitions remain key to the firm’s operational strategy reflected in the firm’s merger with Spain’s Gamesa Corp. to become a leading force in the global wind energy arena.
“On the strength of its energy and wind portfolio, we believe Siemens will benefit from demand for new power-generation capacity in emerging markets and a push for more renewable sources in the U.S. and Europe,” says Morningstar sector director, Denise Molina, who puts the stock’s fair value at US$77.5, and forecasts double-digit revenue growth in the renewables division.
| First Solar Inc | ||
| Ticker: | FSLR | |
| Current yield: | - | |
| Forward P/E: | 20.8 | |
| Price: | US$50.39 | |
| Fair value: | US$57 | |
| Value: | 13% Discount | |
| Data as of Feb. 12, 2019 | ||
The world’s largest thin-film solar module maker, First Solar (FSLR) constructs utility-scale solar systems using the company’s photovoltaic solar modules and provides operating services for the buyers.
The company, which has production lines in Vietnam, Malaysia and Ohio, is well positioned to capitalize on the global sustainable energy boom. As market competition intensifies due to rapidly falling costs, it’s the ability to keep solar panel efficiency ahead of the competition that will keep First Solar ahead of its rivals, says a Morningstar report.
“The two primary sources of differentiation for solar module makers like First Solar are cost and efficiency rate--modules’ ability to turn sun into electricity,” says Morningstar strategist, Travis Miller, adding that as First Solar’s cost advantage weakens, “the quest now is to keep panel efficiency ahead of the competition.” He pegs the stock’s fair value at US$57, and feels that First Solar’s current project backlog gives good sales visibility for the next two years.
| NextEra Energy Inc | ||
| Ticker: | NEE | |
| Current yield: | 2.43% | |
| Forward P/E: | 21.83 | |
| Price: | US$183.44 | |
| Fair value: | US$156 | |
| Value: | 17% Premium | |
| Data as of Feb. 12, 2019 | ||
Energy major NextEra Energy (NEE) derives 60% of the group’s operating earnings through its subsidiary, Florida Power & Light (FPL). A regulated utility, FPL generates nearly 45 gigawatts of power from its natural gas, nuclear, and significant wind assets. The non-regulated segment generates and sells power throughout the United States and Canada.
The company is making a major thrust for clean energy with its Energy Resources development program which is expected to “add 10.1-16.5 gigawatts of renewable energy from 2017 to 2020,” says a Morningstar report. “During 2018, the subsidiary added roughly 6,500 MW of renewable energy projects to its backlog.” The company owns green energy assets in strategic locations that boost its economic moat. “
We believe NextEra’s renewable energy business has a sustainable competitive advantage,” says Morningstar equity analyst, Andrew Bischof, who appraises the stock to be worth US$156.
Favorable Florida regulation and the sunny outlook for U.S. renewable energy further add to optimism around company’s prospects. “NextEra is the largest wind power producer in the United States, proving to be a best-in-class renewable energy operator and developer,” says Bischof, noting that long-term power purchase agreements (PPAs) significantly mitigate cash flow volatility.
