In 2022, renewable sources surpassed coal for U.S. electricity production for the first time in more than 60 years.
Renewables increased by 12% to generate 22% of the nation’s electricity, while coal dropped 8% to make up 20% of the mix, according to estimates from research firm Rhodium Group. Utilities retired coal-fired generators, railroad disruptions hampered coal deliveries to power plants, and the price of coal for electricity generation rose 19%, all of which helped renewables and natural gas surpass coal.
And it’s not just in the U.S. where clean energy is on the rise. The International Energy Agency forecasts renewables will become the largest source of global electricity generation by 2025. Wind and solar generation will more than double over the next five years to provide almost 20% of global power generation by 2027. The European Union will be one of the major drivers of this expansion, as it seeks to end its reliance on Russian fossil fuels by 2027.
“The ongoing land war in Europe has really been a boon for the renewable energy market, given that the energy crisis sparked by an over-reliance on Russian (liquefied natural gas) forced governments to get more creative and speed up their existing target dates for renewable projects,” says Modulus CEO Richard Gardner.
Beyond electricity generation and storage, the world is demanding more battery-powered electric vehicles, and a large market for hydrogen fuel cell electric vehicles may be on the horizon as well.
Investors considering renewable energy-related stocks can check out these seven top picks from experts:
— Eaton Corp. (ticker: ETN)
— Albemarle Corp. (ALB)
— Livent Corp. (LTHM)
— Southern Copper Corp. (SCCO)
— NextEra Energy Inc. (NEE)
— Brookfield Renewable Corp. (BEPC)
— First Solar Inc. (FSLR)
Eaton Corp. (ETN)
Before the market downturn, renewable energy stocks had strong rallies, leaving many stocks vulnerable to the sell-off that came with higher interest rates and a compression in valuation multiples, says Kendall Dilley, portfolio manager at investment management company Vineyard Global Advisors.
“At this point, these stocks are increasingly becoming attractively priced,” he says. “Coupled with the tail winds of government and private investment in the industry in the coming years, enticing opportunities are starting to present themselves.”
One of Dilley’s top renewable energy stock picks is Eaton Corp., a power management company that provides energy-efficient solutions for electrical, hydraulic and mechanical power. One of its business segments designs, manufactures, markets and supplies electrical and electronic components and systems that improve the power management and performance of both on-road and off-road vehicles.
With a significant chunk of its revenues from electrical equipment crucial to the grid — such as transformers, circuit breakers and power systems — Eaton stands to benefit from the increasing dependence on the electrical grid that comes with adoption of electric-powered transportation, Dilley says.
Albemarle Corp. (ALB)
With the electric vehicle industry dependent on lithium for batteries, Albemarle — one of the world’s biggest producers of the soft, silver-white mineral — is also one of Dilley’s top picks.
“Lithium miners such as Albemarle stand to benefit from increasing demand for lithium-ion batteries used to power electric vehicles,” Dilley says.
Lithium is also critical to the batteries in utility-scale renewable energy projects, making the lightest metal on Earth indispensable to the global energy transition away from fossil fuels. It’s also used in batteries for personal electronics.
U.S. lithium processing capacity is underdeveloped compared to China, and Washington is supporting companies like Albemarle to ensure greater energy independence.
Livent Corp. (LTHM)
Peter Krull, partner and director of sustainable investing at Earth Equity Advisors, also sees the crucial role lithium plays in the transition to more renewable energy production.
“Lithium demand will only continue to grow as automobile manufacturers build out their electric vehicle lineups,” he says. “There is also a tremendous opportunity as we build out our utility-scale energy storage networks.”
Livent, a world leader in lithium production, has a long-term supply agreement with General Motors Co. (GM) to deliver lithium hydroxide starting in 2025. Amid the growing demand for lithium, Livent is working to expand its capacity.
Despite the “obvious future demand” and continued sound fundamentals, Krull points out that Livent’s shares are down considerably. “We are buyers at this current level,” he says. Shares closed at $22.83 on Jan. 11, down about 7.7% over the past year.
Southern Copper Corp. (SCCO)
Copper, which is used in wiring for solar arrays, wind farms, electric vehicles and grid components, is also key to renewable energy.
“Demand for the metal should continue to rise alongside continued adoption of renewable energy, benefiting copper mining and producing companies like Southern Copper and Freeport-McMoRan,” Dilley says.
Southern Copper is a Mexico- and Peru-focused miner that produces the red metal at a relatively low cost, has sizable reserves, has the backing of Mexican conglomerate Grupo México (GMBXF) and has copper supply chain operations beyond extraction. Southern Copper says it has the largest copper reserves in the industry.
NextEra Energy Inc. (NEE)
NextEra Energy is the world’s largest renewable energy company. Its regulated utility segment engages primarily in the generation, transmission, distribution and sale of electric energy in Florida. Another segment produces electricity from clean and renewable sources, including wind and solar.
In addition to solar and wind generation, NextEra is involved in battery storage and green hydrogen.
Most hydrogen these days is produced with fossil fuels, creating what is known as gray hydrogen. Meanwhile, green hydrogen is made with renewably generated electricity used to separate water into hydrogen and oxygen using a tool called an electrolyzer. Fuel cells essentially perform the reverse operation to convert hydrogen into electricity to power vehicles and heavy industries.
“Hydrogen is a key piece of the renewable energy transition due to its use in decarbonizing industrial areas that account for significant amounts of current carbon emissions,” Dilley says. “NextEra Energy has invested heavily in hydrogen applications, with expectations for the hydrogen market to grow toward $60 billion annually by 2050.”
Brookfield Renewable Corp. (BEPC)
Brookfield operates renewable power platforms, with a portfolio of hydroelectric, wind, solar and storage facilities in North America, South America, Europe and Asia.
Its businesses include renewable power and transition, infrastructure, private equity, real estate, and credit and insurance solutions.
“Brookfield is a leading renewable energy developer with projects across the board from wind to solar, hydro to storage,” Krull says. “The company continues to add to its portfolio with a development pipeline of over 120 gigawatts. This should keep the company growing for the foreseeable future.”
First Solar Inc. (FSLR)
Solar cell manufacturer First Solar is a top pick for Mina Tadrus, CEO of investment management firm Tadrus Capital.
“This company designs, produces, installs and maintains cadmium telluride photovoltaic modules — a type of solar module that is incredibly efficient at converting sunlight into electricity,” he says. “With its focus on efficient module design and cost-reduction strategies, First Solar has been able to establish itself as one of the most successful companies within this industry over time.”
Because the company uses cadmium telluride technology, its process has a smaller carbon footprint than that of other manufacturers who use polysilicon. Additionally, First Solar isn’t reliant on Xinjiang, a polysilicon-producing region in China where the U.S. says Muslim minorities are forced to work against their will.
These factors are important for investors who stress environmental, social and governance metrics in addition to financial performance.
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Update 01/12/23: This story was previously published at an earlier date and has been updated with new information.
Correction 01/13/23: A previous version of this story misstated Peter Krull’s position at Earth Equity Advisors.