The future for renewable energy is bright. And these green energy stocks are poised to profit on the growing trend toward sustainability.
Green energy stocks should get a lift thanks to the clean energy incentives in the Inflation Reduction Act (IRA), along with the dual catalysts of rising demand and lower costs.
According to Deloitte’s “2023 renewable energy industry outlook,” the IRA extends wind and solar tax credits for projects that started construction before 2025 and tech-neutral credits through at least 2032.
State clean energy policies and renewable energy boost
State clean energy policies also provide a boost, with 22 states and Washington, D.C., targeting 100% renewable energy or 100% carbon-free electricity by 2040 to 2050. Moreover, 43 of the 45 largest U.S. investor-owned utilities have committed to reducing their carbon emissions. This, by raising the use of renewables. Meanwhile, private investment in renewables hit a record of $10 billion in the past year.
“America is in the midst of an energy transition,” according to the 2022 report by trade group American Clean Power. “Wind turbines, solar farms and battery storage facilities are popping up across the nation to deliver clean, affordable electricity.”
In the past decade, U.S. corporations’ demand for clean power has surged 100-fold, the trade report says, as solar and wind power costs have fallen by 71% and 47%, respectively. This is due to increased competition and efficiencies.
Clean power demand
At the end of 2022, corporations had contracted 77 gigawatts (GW) of clean power from utility-scale projects. Half of that power is enough for a cross-country drive by 15 million Teslas. This clean power demand by corporations is a “critical part” of America’s energy transition, the trade group says.
U.S. corporations are spurred by a “surging number of corporations committing to climate targets, the falling cost of renewables. And the expansion of procurement channels across the country,” writes Emma Xie He, senior research analyst at S&P Global Commodity Insights, in a February 2023 report.
With that in mind, here are 3 of the best green energy stocks for investors looking to profit on the growing trend toward sustainability.
Tesla, GE, and Brookfield Renewable Partners are companies with different business models and operations. Making a direct comparison of their carbon footprint and green initiatives, is challenging. However, we can look at some of the key metrics to provide insights into their environmental sustainability practices.
Carbon footprint is a measure of the total greenhouse gas emissions caused by an organization’s activities. It includes direct emissions from activities such as manufacturing, transportation, and energy consumption, as well as indirect emissions from the supply chain, employee commuting, and other activities.
- Tesla: As a leading electric vehicle manufacturer, Tesla has a relatively low carbon footprint compared to other automobile manufacturers. According to their sustainability report, Tesla’s direct carbon emissions in 2020 were 0.05 tCO2e per vehicle produced. Which is significantly lower than the industry average. However, Tesla’s supply chain emissions are relatively high due to the production of batteries and other components. Tesla has set a goal to reach net-zero carbon emissions by 2030.
- GE: As a diversified conglomerate with operations in aviation, power generation, and healthcare, GE’s carbon footprint is significantly higher than Tesla’s. According to their sustainability report, GE’s total carbon emissions in 2020 were 6.3 million metric tons CO2e, of which 87% came from Scope 1 and 2 emissions (direct emissions from operations and purchased energy). GE has set a goal to become carbon neutral by 2030.
- Brookfield Renewable Partners: As a renewable energy company, Brookfield Renewable Partners has a relatively low carbon footprint compared to traditional energy companies. According to their sustainability report, Brookfield Renewable Partners’ direct carbon emissions in 2020 were 0.7 tCO2e per MWh of energy produced. Which is significantly lower than the industry average. Brookfield Renewable Partners has set a goal to reduce Scope 1 and 2 emissions by 30% by 2030.
Green Initiatives for green energy stocks
Green initiatives refer to the actions taken by companies to reduce their environmental impact and promote sustainability.
- Tesla: Tesla’s main green initiative is the production and sale of electric vehicles and clean energy products. Such as solar panels and energy storage systems. In addition, Tesla has invested in renewable energy projects such as wind and solar farms. Tesla has also implemented energy-efficient practices in its manufacturing operations. And has set a goal to achieve 100% renewable energy for all of its operations.
- GE: GE’s green initiatives include the development of more efficient and sustainable technologies in its aviation, power, and healthcare businesses. For example, GE Aviation has developed more fuel-efficient engines, and GE Renewable Energy is developing offshore wind turbines. GE has also set a goal to achieve carbon neutrality for its operations and supply chain by 2030.
- Brookfield Renewable Partners: Brookfield Renewable Partners’ main green initiative is the development and operation of renewable energy projects. Such as hydroelectric, wind, solar, and energy storage systems. Brookfield Renewable Partners has also set a goal to achieve net-zero greenhouse gas emissions across its operations and supply chain by 2050.
While all three companies have different business models and operations, they share a commitment to reducing their environmental impact and promoting sustainability. Tesla focuses on the production and sale of electric vehicles and clean energy products, GE is developing more efficient and sustainable technologies in its businesses, and Brookfield Renewable Partners is developing and operating renewable energy projects. All three companies have set ambitious goals to reduce their carbon footprint and achieve carbon neutrality or net-zero emissions.
- Sector: Industrials
- Industry: Specialty industrial machinery
- Market value: $99.8 billion
- Median price target: $97.00 (7.8% implied upside)
The name General Electric (GE) does not exactly evoke the image of renewable energy. But the early 2024 spinoff of its GE Vernova unit is expected to change all that.
GE Vernova and General Electric’s operations in renewables
GE Vernova will incorporate General Electric’s operations in renewables, power, digital and energy financial services under the leadership of CEO Scott Strazik. He has said that the focus of Vernova would be to address climate change and foster sustainable development.
Vernova’s businesses include onshore wind turbines with rated capacities of 2 to 6 megawatts (MW) for different environments, offshore wind with 6 to 14 MW capacities for tougher conditions, hydropower generation, hybrid renewable energy and storage, grid solutions and related solutions.
The Inflation Reduction Act is expected to give a lift to Vernova, as it should for other green energy stocks too.
Vernova’s spinoff is part of GE’s plan to divide itself into three companies focused on aviation, healthcare and energy. In early 2023, the healthcare spinoff was completed.
Morningstar analyst Joshua Aguilar says General Electric CEO Larry Culp is engineering a successful turnaround of GE “yet investors assign no value to GE Vernova.” Moreover, GE has “materially reduced its debt burden by over $100 billion” under Culp.
“We think there’s increased opportunity for GE to shift from debt reduction to other capital allocation options that favor the shareholder, and provide the firm with increased flexibility to shift to offense,” the analyst writes in a note.
Vernova profitability in renewables in 2026
While GE Vernova is still incurring losses, Aguilar believes Strazik can drive the unit to profitability next year and break even in renewables in 2026. “Favorable U.S. legislation provides a backdrop of more certainty around timing of wind-related projects, and a combination of better project selectivity, a focus on the North American market, and rightsizing should help drive the profits GE investors have long been clamoring for.”
Brookfield Renewable Partners
- Sector: Utilities
- Industry: Utilities – renewable
- Market value: $18.8 billion
- Median price target: $32.45 (11.1% implied upside)
Brookfield Renewable Partners (BEP) is a renewable energy company that operates hydroelectric, wind, utility-scale solar and storage facilities in North and South America, Europe and Asia. The company has a track record of investing in and operating high-quality renewable energy assets. It is part of Brookfield Asset Management, which manages $800 billion in assets.
“Corporate clean energy demand, low-cost energy profile, electrification, and energy independence continue to be key trends accelerating renewable deployment,” the company said in its 2022 earnings release(opens in new tab).
But what’s more, Brookfield is positioning itself to be a dominant player in nuclear power.
Brookfield and its institutional partners formed a strategic partnership with Cameco (CCJ) to acquire Westinghouse, one of the world’s largest nuclear services businesses. The company said it believes nuclear power and hydroelectricity are “the only forms of clean, dispatchable, baseload power generation and will be a key enabler of the rapid growth of intermittent solar and wind.”
Westinghouse services about half the global nuclear power generation sector and is the original equipment manufacturer to more than half of the global nuclear reactor fleet.
Brookfield said it expects the acquisition to cost around $4.5 billion plus the assumption of debt, with Brookfield and its partners owning 51% of Westinghouse while Cameco will hold the rest.
“Westinghouse is well positioned to capture the increasing global tailwinds for nuclear,” according to Brookfield.
The acquisition is expected to close in the second half of 2023.
Brookfield and partners bought Westinghouse from BEP’s sister private equity company Brookfield Business Partners. The latter acquired it out of bankruptcy in 2018 and reportedly shored up its earnings before the sale.
- Sector: Consumer discretionary
- Industry: Auto manufacturers
- Market value: $579.8 billion
- Median price target: $219.00 (19.5% implied upside)
Not often undervalued, shares of Tesla (TSLA) currently are downtrodden due more to the vicissitudes related to CEO Elon Musk’s misadventures running Twitter than the health of the business itself. In 2023, the far-and-away market share leader in electric cars expects 1.8 million automobiles to be delivered in 2023, representing 31% year-over-year growth.
Together with its recently announced price cuts, Tesla should “see strong demand growth even in an economic slowdown,” writes Morningstar analyst Seth Goldstein in a research note, especially in the U.S. as its Model 3 and Model Y cars will be eligible for tax credits under the Inflation Reduction Act.
However, automotive gross profit margins should contract in 2023 as lower prices meet higher raw material prices.
Over the long run, the analyst expects Tesla’s gross margins to improve as raw materials prices decline and its manufacturing plants fully ramp up, including manufacturing operations of its in-house 4,680 battery cells.
As one of the largest battery electric vehicle automakers in the world, the company went from a startup to a globally recognized luxury automaker in less than a decade, Goldstein adds. As for its solar panels and batteries business, Tesla is positioned to grow in these areas as well.
Goldstein has a fair value of Tesla at $225, roughly 21% higher than the green energy stock’s current price.
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