For renewable energy Stocks, this year has been a successful one. This year, the Invesco Solar ETF, which focuses on solar power stocks, is up a whopping 192%. The iShares Global Renewable Energy ETF, meanwhile, has surged an incredible 110%. Despite some effects on the industry from the COVID-19 outbreak, which slowed down the production of projects.
However, the future is much better, as strong as 2020 has been for renewables. Here are two reasons why investors should continue investing even after a major run in 2020 renewable energy stocks.
Renewable energy stocks’ growth prospects simply unbelievable.
The cost of producing renewable energy stocks has decreased to the point that it is becoming cheaper than fossil fuels. Onshore wind is less costly in certain places than a new combined cycle gas turbine, while solar is rapidly approaching that stage. Many forecasters assume that the lowest-cost supplier of bulk power will soon be solar.
Because of that and increasing worries about climate change—which is driving net-zero commitments worldwide—the production of renewable energy stocks value is accelerating. According to the National Renewable Energy Laboratory, the sector is on track to install an average of 10 gigawatts (GW) of new solar power and a comparable amount of new wind capacity each year by 2022.
In the 2023 to 2030 time period, 12-15 GW of wind and 18-20 GW of solar, analysts see a brisker rate, suggesting 15% average annual market growth. As a result, businesses based on renewable energy stocks should expand exponentially over the upcoming few years.
Meanwhile, as businesses and policymakers race to fulfil their promises of a net-zero carbon future by 2050, the longer-term potential is much greater. Green hydrogen is one possible power source that could drive an enormous rise in renewable energy use. The zero-emission fuel can increase the optimized renewable energy stocks by 19 to 24 times its initial size by 2050.
The profits from renewable energy stocks are frequently attractive
For years, government incentives, which were essential to justify the investment, have been the key driver of renewable energy stocks development. With costs going down so rapidly, however, renewables will produce attractive capital growth.
Brookfield Renewable (NYSE: BEP)(NYSE: BEPC) wrote about that in its second-quarter shareholder report. The business is most serious about solar. It figured out that:
“Solar can stand alone without subsidies due to technological advancements and declines in construction costs and, more significantly, is now among the lowest-cost sources of conventional power worldwide. To put this in perspective, over the last five years, when we developed our solar company, solar costs have gone from more than $4 a watt to install to less than $1 a watt in almost all jurisdictions worldwide.
As a result of these favourable economics and the sustainable existence, and the eternal supply of free energy, we believe it is likely that most of Brookfield Renewable’s output capacity will be solar capacity in 10 years from now. It’s not that we don’t believe in the wind or hydro, but solar growth and the potential to produce and earn good risk-adjusted returns should allow us to expand our solar operations at a much higher rate.”
By analyzing a recent investment, the company put the returns into perspective. It acquired $200 million for a 1.2 GW solar development project in Brazil, one of the world’s largest solar development projects. Brookfield noted that, due to its “global scale, we expect to drive down hardware procurement, construction, and operational costs to deliver additional long term value. Consequently, we aim to accomplish approximately 20% of the profits on this investment.”
High-return ventures such as this are guiding Brookfield’s prediction that it will increase its cash flow per share by 2025 at an 11% to 16% annual rate. That would endorse a yearly increase in its dividend of 5% to 9%. Meanwhile, NextEra Energy (NYSE: NEE), the leading renewable energy stocks and generator, also sees high-powered development ahead of it.
Recently, the utility lifted and extended its earnings growth outlook, predicting annual earnings-per-share growth of 6% to 8% by 2023 from a 10% higher baseline for 2021. That clean energy forecast should allow NextEra to increase its dividend by at least 10% per year through 2022. These renewable-focused businesses should be given the power to produce market-beating total returns through this high-powered growth.
Growth that matters
Like several companies that have sought growth at all costs, renewable energy stocks have a spotty track record of generating investors’ value. However, renewables are highly profitable investments, with construction costs going down. Thus, the industry appears poised to pay large dividends to investors over the years of the business, especially as value creators such as Brookfield and NextEra intensify their development capabilities to capture more of the industry’s growth ahead.